<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1995
REGISTRATION NOS. 33-60203 AND 33-60203-01
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C>
TIME WARNER INC. TIME WARNER
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) FINANCING TRUST
13-1388520 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(I.R.S. EMPLOYER IDENTIFICATION NO.) 36-7111845
DELAWARE (I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF DELAWARE
INCORPORATION OR ORGANIZATION) (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
</TABLE>
75 ROCKEFELLER PLAZA
NEW YORK, N.Y. 10019
(212) 484-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF EACH
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER R. HAJE
EXECUTIVE VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
TIME WARNER INC.
75 ROCKEFELLER PLAZA
NEW YORK, N.Y. 10019
(212) 484-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JOHN M. BRANDOW WILLIAM P. ROGERS, JR. FAITH D. GROSSNICKLE
DAVIS POLK & WARDWELL CRAVATH, SWAINE & MOORE SHEARMAN & STERLING
450 LEXINGTON AVENUE WORLDWIDE PLAZA 599 LEXINGTON AVENUE
NEW YORK, N.Y. 10017 825 EIGHTH AVENUE NEW YORK, N.Y. 10022
(212) 450-4000 NEW YORK, N.Y. 10019-7415 (212) 848-8015
(212) 474-1270
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION) [LOGO]
ISSUED AUGUST 4, 1995
12,057,561 PERCS'r'
$ PREFERRED EXCHANGEABLE REDEMPTION CUMULATIVE SECURITIES (PERCS)
TIME WARNER FINANCING TRUST
------------------------
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
TIME WARNER INC.
------------------------
ISSUE PRICE AND AMOUNT PAYABLE UPON REDEMPTION BASED ON
THE PER SHARE PRICE OF COMMON STOCK OF HASBRO, INC.
------------------------
EXCHANGEABLE AT THE OPTION OF TIME WARNER INC.
FOR SHARES OF COMMON STOCK OF HASBRO, INC.
------------------------
The $ Preferred Exchangeable Redemption Cumulative Securities (the
'PERCS') offered hereby evidence preferred undivided beneficial interests in the
assets of Time Warner Financing Trust, a statutory business trust formed under
the laws of the State of Delaware (the 'Trust'). Time Warner Inc., a Delaware
corporation ('Time Warner'), will directly or indirectly own all the common
securities (the 'Common Securities' and, together with the PERCS, the 'Trust
Securities') representing undivided beneficial interests in the assets of the
Trust. The Trust exists for the purpose of issuing the Trust Securities and
investing the proceeds thereof in an equivalent amount of % Subordinated Notes
due December 23, 1997 (the 'Subordinated Notes') of Time Warner. If, as a result
of a default with respect to the Subordinated Notes, the assets of the Trust are
insufficient to make payments of distributions or payments upon liquidation,
redemption of the Trust Securities or otherwise, the holders of the PERCS will
be entitled to be paid prior to the holders of the Common Securities with
respect to such payments.
Holders of the PERCS are entitled to receive cumulative cash distributions
of $ per PERCS per annum, accruing from the date of issue and payable quarterly
in arrears on the 30th day of March, June, September and December of each year,
commencing September 30, 1995. The payment of distributions, out of moneys held
by the Trust, and payments in liquidation of the Trust and upon the redemption
of the PERCS are guaranteed by Time Warner (the 'Guarantee') to the extent the
Trust has funds available therefor. See 'Description of the Guarantee'. The
obligations of Time Warner under the Guarantee are subordinate and junior in
right of payment to all other liabilities of Time Warner and pari passu with the
most senior preferred stock issued, from time to time, if any, by Time Warner.
The obligations of Time Warner under the Subordinated Notes are subordinate and
junior in right of payment to all of Time Warner's present and future Senior
Indebtedness (as defined herein to include Time Warner's outstanding
indebtedness (including its 8 3/4% Convertible Subordinated Debentures due
2015), guarantees, letters of credit and certain other obligations), which
aggregated approximately $10.1 billion at March 31, 1995. In addition to such
Senior Indebtedness, Time Warner's obligations under the Guarantee and the
Subordinated Notes are effectively subordinated to all liabilities (including
indebtedness) of its consolidated and unconsolidated subsidiaries, which
aggregated approximately $13.9 billion at March 31, 1995. Certain capitalized
terms used on this cover page have the meanings ascribed to them under 'Glossary
of Terms' herein.
(Cover continued on next page)
------------------------
THE PERCS HAVE BEEN AUTHORIZED FOR LISTING ON THE NEW YORK STOCK EXCHANGE UNDER
THE SYMBOL 'THA', SUBJECT TO OFFICIAL NOTICE OF ISSUANCE. TRADING OF THE
PERCS ON THE NEW YORK STOCK EXCHANGE IS EXPECTED TO COMMENCE WITHIN A
30-DAY PERIOD AFTER THE DATE OF THIS PROSPECTUS.
------------------------
SEE 'RISK FACTORS' ON PAGE 10 HEREOF FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CAREFULLY CONSIDERED BY A PROSPECTIVE PURCHASER OF THE PERCS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A PERCS
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE TRUST(1)(3)
------------ -------------- ------------------
<S> <C> <C> <C>
Per PERCS........................................................... $ $ (3) $
Total............................................................... $ $ (3) $
</TABLE>
- ------------
(1) Plus a proportionate amount of the accrued distributions on the PERCS,
if any, from the date of issue.
(2) The Trust and Time Warner have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended. See 'Underwriters'.
(3) Because the gross proceeds of the sale of the PERCS will be invested in
the Subordinated Notes, Time Warner has agreed to pay to the
Underwriters a commission of $ per PERCS (or $ in the
aggregate). See 'Underwriters'.
-----------------------------
The PERCS are offered subject to prior sale, when, as and if accepted by
the Underwriters named herein, and subject to approval of certain legal matters
by Davis Polk & Wardwell and Shearman & Sterling, counsel for the Underwriters.
It is expected that delivery of the PERCS will be made on or about August ,
1995 at the offices of Morgan Stanley & Co. Incorporated, New York, New York,
against payment therefor in New York funds.
------------------------
MORGAN STANLEY & CO.
INCORPORATED
August , 1995
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
(Cover continued from previous page)
On December 23, 1997 (the 'Mandatory Redemption Date'), or, if such date is
not a Business Day (as defined herein), the next succeeding Business Day, each
of the outstanding PERCS will be redeemed by the Trust, in cash, at a price per
PERCS equal to (a) the lesser of (i) $54.41 and (ii) the Exchange Valuation
Price (as defined herein) as of the Trading Day (as defined herein) immediately
preceding December 17, 1997, of one share of Hasbro Common Stock (as defined
herein) plus (b) an amount equal to all accrued and unpaid distributions thereon
to but excluding the Mandatory Redemption Date. The foregoing is subject to Time
Warner's right (the 'Time Warner Exchange Right') to require the holders of the
PERCS to exchange on the Mandatory Redemption Date PERCS for a combination of
Hasbro Common Stock and cash consisting of (a) one share of Hasbro Common Stock
per PERCS (the 'Exchange Rate') in respect of the portion of each PERCS to be
exchanged for Exchange Property (as defined herein), (b) cash in respect of the
portion, if any, of each PERCS that is not to be exchanged for Exchange Property
and (c) an amount in cash per PERCS equal to all accrued and unpaid
distributions on the PERCS; provided, that if the Exchange Valuation Price of
the Hasbro Common Stock as of the Trading Day immediately preceding December 17,
1997, is greater than $54.41 per share, Time Warner shall deliver in exchange
for each PERCS (a) such number of shares of Hasbro Common Stock and cash, if
any, having an aggregate value as of the Trading Day immediately preceding
December 17, 1997, equivalent to $54.41 per PERCS and (b) an amount in cash
equal to all accrued and unpaid distributions thereon. The Exchange Rate will be
subject to adjustment upon the occurrence of certain events affecting the Hasbro
Common Stock. See 'Description of the PERCS -- Effect of the LYONs on the Time
Warner Exchange Right' and ' -- Adjustment of Exchange Rate and Exchange
Property'.
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
at any time and from time to time prior to the Mandatory Redemption Date, the
Trust may call for redemption the outstanding PERCS, in whole or in part (any
such redemption date an 'Optional Redemption Date') under the circumstances
described herein. See 'Description of the PERCS -- Early Redemption of the
PERCS' and ' -- Time Warner Exchange Right'. Upon any such redemption, each
holder of PERCS will receive in exchange for each PERCS so called (a) cash in an
amount equal to (i) $54.41 per PERCS plus (ii) an amount initially equal to $
per PERCS, declining by $ on each day following the date of issue of the PERCS
(the 'Issue Date') to $0 on October 23, 1997, and thereafter (the 'Call Price'),
plus (b) cash in an amount equal to all accrued and unpaid distributions on such
PERCS.
Upon the occurrence of a Tax Event or an Investment Company Event (each as
defined herein) arising from certain changes in law or legal interpretation,
Time Warner may dissolve the Trust with the result that the Subordinated Notes
will be distributed to the holders of the Trust Securities on a pro rata basis,
in lieu of any cash distribution. In certain limited circumstances Time Warner
also will have the right to redeem the Subordinated Notes for cash with the
result that the Trust will redeem the PERCS and the Common Securities on a Pro
Rata Basis (as defined herein) for cash at the Special Redemption Price (as
defined herein), plus accrued and unpaid distributions thereon. If the
Subordinated Notes are distributed to the holders of the PERCS, Time Warner will
use its reasonable best efforts to have the Subordinated Notes listed on the New
York Stock Exchange. See 'Description of the PERCS -- Special Event Distribution
or Redemption'.
The opportunity for equity appreciation afforded by an investment in the
PERCS is limited because the Mandatory Redemption Price is capped at $54.41. In
the event that the Exchange Valuation Price of the Hasbro Common Stock as of the
Trading Day immediately preceding (i) December 17, 1997, in the case of
mandatory redemption, or (ii) the Optional Redemption Date or Special Redemption
Date, in the case of any early redemption or special redemption, exceeds $54.41,
owners of the PERCS will receive shares of Hasbro Common Stock for each PERCS on
a less than one-for-one basis or cash in an amount that will be less than the
then current market price of one share of Hasbro Common Stock. Because the price
of Hasbro Common Stock is subject to market fluctuations, the amount of cash and
the value of the Hasbro Common Stock received by an owner of PERCS upon
mandatory redemption or any special redemption may be more or less than the
amount paid for the PERCS.
Holders of the PERCS have no right to require the early redemption of the
PERCS or the exchange of the PERCS into shares of Hasbro Common Stock.
The Hasbro Common Stock is listed on the American Stock Exchange ('AMEX'),
under the symbol 'HAS'. On August 3, 1995, the reported last sale price of the
Hasbro Common Stock on the AMEX was $30 7/8 per share. See 'Price Range and
Dividend History of Hasbro Common Stock'.
2
<PAGE>
NO PERSON IS AUTHORIZED BY TIME WARNER, THE TRUST, THE UNDERWRITERS OR ANY
DEALER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
SO AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE PERCS, THE GUARANTEE
AND THE SUBORDINATED NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of the Offering.......................................................................... 4
Risk Factors..................................................................................... 10
Time Warner Inc.................................................................................. 13
Time Warner Financing Trust...................................................................... 14
Hasbro, Inc...................................................................................... 15
Price Range and Dividend History of Hasbro Common Stock.......................................... 16
Recent Developments.............................................................................. 17
Selected Historical and Pro Forma Financial Information.......................................... 19
Consolidated Capitalization...................................................................... 24
Use of Proceeds.................................................................................. 25
Description of the PERCS......................................................................... 26
Description of the Guarantee..................................................................... 44
Description of the Subordinated Notes............................................................ 46
Effect of Obligations Under the Subordinated Notes and the Guarantee............................. 53
Federal Income Tax Considerations................................................................ 54
ERISA Considerations............................................................................. 56
Underwriters..................................................................................... 57
Legal Matters.................................................................................... 57
Experts.......................................................................................... 57
Available Information............................................................................ 58
Documents Incorporated by Reference.............................................................. 59
Glossary of Terms................................................................................ 60
</TABLE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE PERCS OFFERED
HEREBY, THE HASBRO COMMON STOCK (AS DEFINED HEREIN), THE LYONS (AS DEFINED
HEREIN) OR OTHER SECURITIES OF TIME WARNER OR HASBRO, INC. AT LEVELS ABOVE THOSE
WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
SUMMARY OF THE OFFERING
The following summary of provisions relating to the PERCS is qualified in
its entirety by the more detailed information contained elsewhere or
incorporated by reference in this Prospectus. Prospective purchasers of PERCS
should carefully review such information. Certain capitalized terms used in this
summary or elsewhere in this Prospectus have the meanings ascribed to them under
'Glossary of Terms' herein.
GENERAL
The PERCS represent preferred undivided beneficial interests in the Trust's
assets, which will consist of the Subordinated Notes. Subject to the exercise by
Time Warner of the Time Warner Exchange Right, the PERCS are mandatorily
redeemable for cash on December 23, 1997. In addition, the PERCS may be called
for redemption in cash (a) in whole or in part, at any time or from time to time
prior to the Mandatory Redemption Date at the Call Price in effect at such time
and (b) under certain circumstances, upon the occurrence of a Tax Event or
Investment Company Event at the Special Redemption Price in effect at such time,
in each case plus accrued and unpaid distributions thereon. See 'Description of
the PERCS -- Mandatory Redemption of the PERCS', ' -- Early Redemption of the
PERCS' and ' -- Special Event Distribution or Redemption'. The Common Securities
will be redeemed on a Pro Rata Basis with the PERCS in the case of a mandatory,
early or special redemption. Any redemption of the PERCS for cash is subject to
the exercise by Time Warner of the Time Warner Exchange Right to require the
holders of the PERCS subject to such redemption to exchange on the Mandatory
Redemption Date or the applicable Optional Redemption Date or Special Redemption
Date, as the case may be, PERCS for Hasbro Common Stock or other Exchange
Property as described herein under 'Description of the PERCS -- Time Warner
Exchange Right'.
DISTRIBUTIONS
The holders of the PERCS are entitled to receive cumulative cash
distributions of $ per PERCS per annum, or $ per quarter, accruing from
, 1995 (the 'Issue Date') and payable quarterly in arrears on the 30th
day of March, June, September and December of each year, commencing September
30, 1995, or, if any such date is not a Business Day, the next succeeding
Business Day when, as and if available for payment by the Property Trustee,
except as otherwise described herein. The first distribution payment will be for
the period from and excluding the Issue Date to but excluding September 30,
1995. Distributions (or amounts equal to accrued and unpaid distributions)
payable on the PERCS for any period shorter than a quarterly distribution period
will be computed on the basis of a 360-day year of twelve 30-day months and on
the basis of the actual number of days elapsed in any such 30-day month. See
'Description of the PERCS -- Distributions'.
MANDATORY REDEMPTION OF THE PERCS
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
on the Mandatory Redemption Date each of the outstanding PERCS will be redeemed
by the Trust, in cash, at a price per PERCS equal to (a) the lesser of (i)
$54.41 and (ii) an amount equal to the Exchange Valuation Price as of the
Trading Day immediately preceding December 17, 1997, of one share of Hasbro
Common Stock (or, following the occurrence of an Exchange Adjustment Event, such
amount of other Exchange Property as relates to one PERCS at such time) (the
'Mandatory Redemption Price') plus (b) an amount equal to all accrued and unpaid
distributions on such PERCS to but excluding the Mandatory Redemption Date. The
Exchange Property will be subject to adjustment upon the occurrence of certain
events affecting the Hasbro Common Stock. See 'Description of the
PERCS -- Mandatory Redemption of the PERCS'. The Exchange Valuation Price of the
Hasbro Common Stock or other Exchange Property as of any Trading Day will be
determined on the basis of the average of the closing sale prices of such
Exchange Property for the five consecutive Trading Day period ending on and
including such Trading Day. See 'Description of the PERCS -- Time Warner
Exchange Right'.
4
<PAGE>
EARLY REDEMPTION OF THE PERCS
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
at any time and from time to time prior to the Mandatory Redemption Date, upon
the call for redemption prior to maturity by Time Warner of the Subordinated
Notes, the Trust shall call for redemption upon not less than 20 nor more than
45 Business Days' notice, outstanding Trust Securities having an aggregate
stated amount equal to the aggregate principal amount of the Subordinated Notes
so redeemed and deliver to the holders thereof in exchange for each Trust
Security so called cash in an amount equal to the Call Price in effect on the
Optional Redemption Date, plus cash in an amount equal to all accrued and unpaid
distributions thereon for the period to but excluding the Optional Redemption
Date. The 'Call Price' is initially equal to (a) $54.41 per Trust Security plus
(b) an amount initially equal to $ per Trust Security, declining by $
for each day that shall have elapsed in the period from the Issue Date to but
excluding the applicable Optional Redemption Date (the number of days in such
period being computed on the basis of a 360-day year of twelve 30-day months) to
$0 on October 23, 1997, and thereafter. See 'Description of the PERCS -- Early
Redemption of the PERCS'. The stated amount of each Trust Security is equal to
the per PERCS Price to Public shown on the cover page hereof. The principal
amount of each Subordinated Note is equal to the Minimum Denomination thereof.
TIME WARNER EXCHANGE RIGHT
Time Warner has the right to require the holders of outstanding PERCS
subject to mandatory redemption on the Mandatory Redemption Date or called for
redemption on any Optional Redemption Date or Special Redemption Date to
exchange such PERCS for a combination of shares of Hasbro Common Stock or other
Exchange Property and cash. If Time Warner shall have exercised the Time Warner
Exchange Right in respect of the Mandatory Redemption Date, each PERCS shall be
exchanged for (a) Exchange Property in respect of the portion of such PERCS to
be exchanged for Exchange Property, based on the Exchange Rate in effect on the
Trading Day immediately preceding December 17, 1997, (b) cash in respect of the
portion, if any, of such PERCS that is not to be exchanged for Exchange Property
and (c) cash in an amount equal to all accrued and unpaid distributions on such
PERCS to but excluding the Mandatory Redemption Date; provided that if the
Exchange Valuation Price as of the Trading Day immediately preceding December
17, 1997, of the amount of Exchange Property that relates to one PERCS is
greater than $54.41 (based on the Exchange Rate in effect as of such date), Time
Warner shall deliver in exchange for each PERCS in respect of which it exercised
the Time Warner Exchange Right (a) (i) Exchange Property (valued on the basis of
its Exchange Valuation Price as of such Trading Day) and (ii) at the option of
Time Warner, cash, having an aggregate value equal to $54.41 per PERCS and (b)
cash in an amount equal to all accrued and unpaid distributions on such PERCS to
but excluding the Mandatory Redemption Date.
If Time Warner shall have exercised the Time Warner Exchange Right in
respect of any Optional Redemption Date or Special Redemption Date, each PERCS
to be redeemed on any such date shall be exchanged for (a)(i) Exchange Property
(valued on the basis of its Exchange Valuation Price as of the Trading Day
immediately preceding the applicable Optional Redemption Date or Special
Redemption Date) and (ii) at the option of Time Warner, cash, having an
aggregate value equal to the Call Price or the Special Redemption Price in
effect for each PERCS on such Optional Redemption Date or Special Redemption
Date, as the case may be, and (b) cash in an amount equal to all accrued and
unpaid distributions on such PERCS to but excluding the applicable Optional
Redemption Date or Special Redemption Date, as the case may be.
Time Warner will provide notice of any exercise of the Time Warner Exchange
Right to the Property Trustee no later than 11:59 p.m., New York time, (a) on
the second Business Day following December 17, 1997, in the case of PERCS
subject to mandatory redemption and (b) on the Business Day immediately
preceding the applicable Optional Redemption Date or Special Redemption Date, in
the case of PERCS subject to early redemption or special redemption.
In the event that the Subordinated Notes have been distributed to the
holders of the PERCS, Time Warner will have the right to require the holders of
such Subordinated Notes at maturity or upon any
5
<PAGE>
optional or special redemption thereof to exchange their Subordinated Notes for
a combination of Exchange Property and cash as described herein. See
'Description of the Subordinated Notes -- Time Warner Exchange Right'.
EFFECT OF TIME WARNER'S OUTSTANDING LIQUID YIELD OPTION NOTES DUE 2012 ON THE
TIME WARNER EXCHANGE RIGHT
On December 10, 1992, Time Warner issued a series of Liquid Yield Option
Notes due 2012 (Zero Coupon - Senior) (the 'LYONs' and each $1,000 principal
amount at maturity thereof a 'LYON'). The LYONs are exchangeable at any time on
or prior to maturity at the option of the holders thereof for 7.301 shares of
Hasbro Common Stock per LYON (or, at Time Warner's option, cash in an equivalent
amount), subject to adjustment upon the occurrence of certain events. On
December 17, 1997, Time Warner has the right to redeem the LYONs for cash at a
price of $397.27 per LYON (equal to the accreted value of each LYON as of such
date). The redemption price as of December 17, 1997, is equivalent to $54.41 per
share of underlying Hasbro Common Stock, calculated by dividing the $397.27
accreted value per LYON as of such date by the 7.301 shares of Hasbro Common
Stock into which such LYON may be exchanged, which is also the maximum price
payable per PERCS upon the mandatory redemption of the PERCS. Certain actions
taken by Time Warner with respect to the LYONs, including any decision by Time
Warner to satisfy any exchanges of the LYONs in cash or Hasbro Common Stock,
could affect the likelihood of Time Warner's exercise of the Time Warner
Exchange Right. See 'Description of the PERCS -- Effect of the LYONs on the Time
Warner Exchange Right'.
In the Declaration and the Indenture Time Warner has agreed that so long as
it is subject to Section 16 of the Exchange Act with respect to Hasbro, it will
take such steps as may be necessary in connection with any exchange of LYONs by
the holders thereof or any redemption of PERCS or Subordinated Notes so that it
is not in a net short position with respect to its obligations to deliver Hasbro
Common Stock (treating the outstanding LYONs and PERCS as 'derivative
securities' (as defined under Rule 16a-1(c) under the Exchange Act) and treating
the Hasbro Common Stock subject to such securities as subject to only one 'put
equivalent position' (as defined under Rule 16a-1(h) under the Exchange Act)).
Such steps may include the redemption or purchase of PERCS or Subordinated
Notes, the purchase of LYONs, the settlement of exchanges or redemptions in cash
(rather than Hasbro Common Stock) and the purchase of additional shares of
Hasbro Common Stock.
Time Warner will provide a copy of the Prospectus Supplement (and related
Prospectus) dated December 10, 1992, relating to the LYONs to a holder of PERCS
without charge on written or oral request to Time Warner at its principal place
of business.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
Upon the occurrence and during the continuation of a Tax Event or an
Investment Company Event, Time Warner may dissolve the Trust with the result
that the Subordinated Notes will be distributed to the holders of the Trust
Securities on a Pro Rata Basis (determined without regard to the proviso in the
definition of such term) in lieu of any cash distribution. In certain limited
circumstances Time Warner also will have the right to redeem the Subordinated
Notes for cash with the result that the Trust will redeem the Trust Securities
on a Pro Rata Basis for cash at the Special Redemption Price. Any such
redemption is subject to the exercise by Time Warner of the Time Warner Exchange
Right. If the Subordinated Notes are distributed to the holders of the PERCS,
Time Warner will use its reasonable best efforts to have the Subordinated Notes
listed on the New York Stock Exchange. See 'Description of the PERCS -- Special
Event Distribution or Redemption'.
There can be no assurance as to the market prices for the PERCS or the
Subordinated Notes that may be distributed in exchange for PERCS if a
dissolution or liquidation of the Trust were to occur. Accordingly, the PERCS
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Subordinated Notes that a holder of PERCS may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the PERCS offered hereby.
6
<PAGE>
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any liquidation, dissolution, winding-up or termination of
the Trust, whether voluntary or involuntary, the holders of the Trust Securities
on the date of such liquidation, dissolution, winding-up or termination will be
entitled to be paid on a Pro Rata Basis out of the assets of the Trust the
Liquidation Distribution unless, in connection with such liquidation,
dissolution, winding-up or termination, Subordinated Notes in an aggregate
principal amount equal to the aggregate stated amount of, and bearing accrued
and unpaid interest equal to accrued and unpaid distributions on, the Trust
Securities have been distributed on a Pro Rata Basis (without giving effect to
the proviso in the definition of such term) to the holders of the Trust
Securities. See 'Description of the PERCS -- Liquidation Distribution Upon
Dissolution'.
So long as the PERCS are outstanding and are not held entirely by Time
Warner, the Trust will not be permitted to voluntarily liquidate, dissolve,
wind-up or terminate on or prior to the Mandatory Redemption Date except as
described under 'Description of the PERCS -- Special Event Distribution or
Redemption' and ' -- Additional Information Relating to the Trust'.
THE GUARANTEE
The Guarantee guarantees to the holders of the PERCS the payment of (i) (A)
any accrued and unpaid distributions that are required to be paid on the PERCS
and (B) subject to the exercise by Time Warner of the Time Warner Exchange
Right, the Mandatory Redemption Price, any Optional Redemption Price and any
Special Redemption Price with respect to PERCS subject to mandatory redemption
or called for redemption by the Trust, but if and only to the extent that, in
each case, Time Warner has made a payment of interest or principal on the
Subordinated Notes, as the case may be, and (ii) upon a voluntary or involuntary
liquidation, dissolution, winding-up or termination of the Trust (other than in
connection with the distribution of Subordinated Notes to the holders of PERCS
or the redemption of all the PERCS upon the maturity or redemption of the
Subordinated Notes), the lesser of (A) the Liquidation Distribution, to the
extent the Trust has funds available therefor and (B) the amount of assets of
the Trust remaining available for distribution to holders of the PERCS upon such
liquidation, dissolution, winding up or termination. The Guarantee will be a
full and unconditional guarantee with respect to the PERCS from the time of
issuance of such PERCS but will not apply to any payment of distributions or
other payments due to the extent the Trust shall lack funds available therefor
as a result of a failure by Time Warner to make payments of interest or
principal on the Subordinated Notes. To the extent Time Warner were to default
on its obligation to pay amounts payable on the Subordinated Notes, the Trust
would lack available funds for the payment of distributions or amounts payable
on redemption of the Trust Securities and, in such event, holders of the PERCS
would not be able to rely on the Guarantee for payment of such amounts. Instead,
holders of the PERCS would rely on the enforcement by the Property Trustee of
its rights as registered holder of the Subordinated Notes against Time Warner
pursuant to the terms of the Subordinated Notes and may also vote to appoint a
Special Regular Trustee who shall have the same rights, powers and privileges as
the Regular Trustees. The obligations of Time Warner under the Guarantee are
subordinate and junior in right of payment to all other liabilities of Time
Warner and pari passu with the most senior preferred stock issued, from time to
time, if any, by Time Warner.
Time Warner and the Trust believe that the mechanisms and obligations
relating to the Guarantee and the Subordinated Notes, taken together, are
equivalent to a full and unconditional guarantee by Time Warner of payments due
on the PERCS. See 'Risk Factors -- Ranking of Obligations Under the Guarantee
and the Subordinated Notes', 'Description of the Guarantee', 'Description of the
Subordinated Notes' and 'Effect of Obligations Under the Subordinated Notes and
the Guarantee'.
SUBORDINATED NOTES
The Subordinated Notes will be issued as unsecured, subordinated
obligations of Time Warner, limited in aggregate principal amount to
approximately $ , such amount being the sum of (i) the aggregate
stated amount of the PERCS and (ii) the proceeds received by the Trust upon the
issuance to Time Warner of the Common Securities. The Subordinated Notes will
mature on December 23, 1997, and will bear interest at an annual rate of %
(or $ on each Minimum
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Denomination per annum, which is equivalent to the annual distributions that are
due with respect to the PERCS), payable quarterly in arrears on the 30th day of
March, June, September and December, commencing on September 30, 1995.
The amount payable upon maturity for each Minimum Denomination of the
Subordinated Notes will be equal to (a) the lesser of (i) $54.41 and (ii) the
Exchange Valuation Price of such amount of Exchange Property as relates to such
Minimum Denomination (based on the Exchange Rate in effect on the Trading Day
immediately preceding December 17, 1997) plus (b) an amount equal to all accrued
and unpaid interest thereon.
Time Warner shall have the right to redeem the Subordinated Notes, in whole
or in part, from time to time, upon not less than 20 nor more than 45 Business
Days' notice, at a redemption price equal to (a) $54.41 per Minimum Denomination
of Subordinated Notes plus (b) an amount initially equal to $ per
Minimum Denomination, declining by $ for each day that shall have
elapsed in the period from the Issue Date to but excluding the redemption date
(the number of days in such period being computed on the basis of a 360-day year
of twelve 30-day months) to $ on October 23, 1997, and thereafter, plus
an amount equal to all accrued and unpaid interest thereon to but excluding the
redemption date. Time Warner may also, under certain limited circumstances,
redeem the Subordinated Notes in whole upon the occurrence of a Tax Event or an
Investment Company Event at the Special Redemption Price, together with accrued
and unpaid interest thereon. See 'Description of the Subordinated
Notes -- Special Event Distribution or Redemption'.
If the Subordinated Notes have been distributed to holders of the PERCS,
the payment of cash at maturity or upon early redemption or special redemption
is subject to the exercise by Time Warner of the Time Warner Exchange Right. See
'Description of the Subordinated Notes -- Time Warner Exchange Right'.
Because holders of PERCS may receive Subordinated Notes upon the occurrence
of a Tax Event or an Investment Company Event, prospective purchasers of PERCS
are also making an investment decision with respect to the Subordinated Notes
and should carefully review all the information regarding the Subordinated Notes
contained herein. See 'Description of the PERCS -- Special Event Distribution or
Redemption' and 'Description of the Subordinated Notes'.
RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED NOTES
Time Warner's obligations under the Guarantee will be subordinate and
junior in right of payment to all liabilities of Time Warner, pari passu with
the most senior preferred stock outstanding or issued, from time to time, if
any, by Time Warner and senior to the common stock of Time Warner. Time Warner's
obligations to make payments of the principal of and interest on the
Subordinated Notes will be subordinated in right of payment to the extent set
forth in the Indenture to the prior payment in full of all of Time Warner's
present and future Senior Indebtedness (as defined herein to include Time
Warner's outstanding indebtedness (including its 8 3/4% Convertible Subordinated
Debentures due 2015), guarantees, letters of credit and certain other
obligations), which aggregated approximately $10.1 billion at March 31, 1995. In
addition to such Senior Indebtedness, Time Warner's obligations under the
Guarantee and the Subordinated Notes are effectively subordinated to all
liabilities (including indebtedness) of its consolidated and unconsolidated
subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995.
Time Warner's ability to service its indebtedness, including the Subordinated
Notes, is dependent primarily on the earnings of its consolidated subsidiaries
and TWE, and the distribution of such earnings to Time Warner. Certain
agreements between Time Warner or certain of its subsidiaries or affiliates and
their respective partners, co-shareholders or creditors limit distributions and
other transfers of funds to Time Warner. In addition, as a result of the
acquisition by subsidiaries of Time Warner of certain cable systems, certain
subsidiaries of Time Warner have or expect to have outstanding indebtedness and
bank credit facilities that contain limitations on the ability of such
subsidiaries to make distributions or other payments to Time Warner. See 'Risk
Factors -- Ranking of Obligations Under the Guarantee and the Subordinated
Notes', 'Description of the Guarantee -- Status of the Guarantee' and
'Description of the Subordinated Notes -- Subordination'.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PERCS
If (i) the Trust fails to pay distributions on the PERCS and such failure
continues unremedied for 30 days or fails to pay the Redemption Payment Amount
in respect of any PERCS or (ii) a Declaration Event of Default occurs and is
continuing, then the holders of the PERCS will be entitled, by majority
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vote, to appoint a Special Regular Trustee, who will have the same rights,
powers and privileges as the Regular Trustees. In addition, in the case of a
failure to make payments as described in (i) above, to the extent Time Warner
has made payments to the Trust in respect of the Subordinated Notes in amounts
sufficient to make such payments of distributions or Redemption Payment Amounts,
the Guarantee Trustee will be entitled to enforce against Time Warner, for the
benefit of the holders of PERCS, its rights as the holder of the Guarantee. In
the case of a Declaration Event of Default as described in (ii) above, the
Property Trustee will be entitled to enforce against Time Warner, for the
benefit of the holders of PERCS, its rights as a holder of the Subordinated
Notes. The holders of a majority in aggregate stated amount of the PERCS also
will have certain rights to direct the Property Trustee in pursuing its remedies
against Time Warner as issuer of the Subordinated Notes. If the Property Trustee
fails to enforce its rights under the Subordinated Notes, a holder of PERCS may,
30 days after such holder's written request to the Property Trustee to enforce
such rights, institute a legal proceeding directly against Time Warner to
enforce such rights without first instituting any legal proceeding against the
Property Trustee or any other person or entity.
LIMITED VOTING RIGHTS
Holders of PERCS will have limited voting rights and, except for the rights
of holders of PERCS to appoint a Special Regular Trustee upon the occurrence of
certain events described herein, will not be entitled to vote to appoint, remove
or replace, or to increase or decrease the number of, Time Warner Trustees,
which voting rights are vested exclusively in the holder of the Common
Securities. See 'Description of the PERCS -- Voting Rights' and
' -- Modification of the Declaration'.
ADDITIONAL INFORMATION RELATING TO THE TRUSTEES
Pursuant to the Declaration, the number of Time Warner Trustees will
initially be five. Three of the Time Warner Trustees (the 'Regular Trustees')
will be persons who are employees or officers of, or affiliated with, Time
Warner. The fourth trustee will be The First National Bank of Chicago, a
financial institution unaffiliated with Time Warner that will serve as Property
Trustee under the Declaration, as indenture trustee with respect to the PERCS
for purposes of the Trust Indenture Act and as Guarantee Trustee with respect to
the Guarantee for purposes of the Trust Indenture Act. The fifth trustee will be
an affiliate of The First National Bank of Chicago that will serve as Delaware
Trustee for purposes of the Trust Act. Chemical Bank, a financial institution
unaffiliated with Time Warner, will serve as Indenture Trustee with respect to
the Subordinated Notes. See 'Description of the PERCS -- Additional Information
Relating to the Trust'.
USE OF PROCEEDS
The proceeds to the Trust from the sale of the PERCS offered hereby will be
approximately $ . The Trust will invest the proceeds in the
Subordinated Notes of Time Warner, the proceeds of which will be used by Time
Warner to repurchase, redeem or otherwise repay outstanding indebtedness. The
weighted average interest rate on Time Warner's outstanding indebtedness as of
March 31, 1995, was approximately 8.3%. The weighted average maturity of Time
Warner's outstanding indebtedness as of March 31, 1995, was approximately 15
years.
LISTING
The PERCS have been authorized for listing on the New York Stock Exchange
(the 'NYSE') under the symbol 'THA', subject to official notice of issuance.
Trading of the PERCS on the NYSE is expected to commence within a 30-day period
after the date of this Prospectus.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Time
Warner's financial statements, with the PERCS shown on the face of the balance
sheet as Company obligated mandatorily redeemable preferred securities of
subsidiary. Such presentation will also include on the face of the balance sheet
the footnote relating to the PERCS included on the capitalization table included
herein. See 'Consolidated Capitalization'.
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RISK FACTORS
Prospective holders of the PERCS should carefully consider, in addition to
the other information set forth elsewhere in this Prospectus, the following:
RELATIONSHIP OF THE PERCS AND HASBRO COMMON STOCK
The amount that a holder of the PERCS will receive on the Mandatory
Redemption Date or on any Special Redemption Date is not fixed, but is based on
the market price of Hasbro Common Stock at that time. Accordingly, the amount
receivable by such holder on the Mandatory Redemption Date or on any Special
Redemption Date may be lower than, equal to or greater than the price paid by
any holder for the PERCS.
In addition, the opportunity for equity appreciation afforded by an
investment in the PERCS is limited because the Mandatory Redemption Price is
capped at $54.41. In the event that the Exchange Valuation Price as of the
Trading Day immediately preceding December 17, 1997, for the amount of Hasbro
Common Stock or other Exchange Property that relates to one PERCS is greater
than $54.41 (based on the Exchange Rate in effect as of such Trading Day),
holders of the PERCS would receive, upon the exercise of the Time Warner
Exchange Right, Hasbro Common Stock or other Exchange Property for each PERCS on
a less than one-for-one basis or cash in an amount that will be less than the
then current market price of one share of Hasbro Common Stock.
The market price of the PERCS at any time will be affected primarily by
changes in the price of Hasbro Common Stock. Accordingly, the PERCS that an
investor may purchase, whether pursuant to the offer made hereby or in the
secondary market, may trade at a discount to the price that such investor paid
to purchase such PERCS. As indicated in 'Price Range and Dividend History of
Hasbro Common Stock', the price of Hasbro Common Stock has been volatile during
certain recent periods and may exhibit more or less volatility during the term
of the PERCS.
Although the amount that holders of the PERCS are entitled to receive on
the Mandatory Redemption Date or on any Special Redemption Date is subject to
adjustment for certain events, such as stock splits and combinations, stock
dividends and certain other actions of Hasbro that modify its capital structure,
such amount is not adjusted for other events, such as offerings of Hasbro Common
Stock for cash or in connection with acquisitions, that may adversely affect the
price of Hasbro Common Stock. In addition, until such time, if any, as Time
Warner shall deliver shares of Hasbro Common Stock to holders of the PERCS,
holders of the PERCS will not be entitled to any rights with respect to Hasbro
Common Stock (including without limitation voting rights and the rights to
receive any dividends or other distributions in respect thereof).
NO AFFILIATION BETWEEN TIME WARNER AND HASBRO
Time Warner has no affiliation with Hasbro other than its stock ownership
and contractual relationships in the ordinary course of business and, therefore,
has no greater access to information relating to Hasbro than any other
shareholder. Although Time Warner has no reason to believe the information
concerning Hasbro included or referred to herein is not reliable, neither Time
Warner nor the Underwriters warrant that there have not occurred events, not yet
publicly disclosed by Hasbro, which would affect either the accuracy or the
completeness of the information concerning Hasbro included or referred to
herein. See 'Hasbro, Inc.'
RANKING OF OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED NOTES
Time Warner's obligations under the Guarantee will be subordinate and
junior in right of payment to all liabilities of Time Warner, pari passu with
the most senior preferred stock outstanding or issued, from time to time, if
any, by Time Warner and senior to the common stock of Time Warner. Time Warner's
obligation to make payments of the principal of and interest on the Subordinated
Notes will be subordinated in right of payment to the extent set forth in the
Indenture to the prior payment in full of all of Time Warner's present and
future Senior Indebtedness (as defined herein to include Time Warner's
outstanding indebtedness (including Time Warner's outstanding 8 3/4% Convertible
Subordi-
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nated Debentures due 2015), guarantees, letters of credit and certain other
obligations), which aggregated approximately $10.1 billion at March 31, 1995. In
addition to such Senior Indebtedness, Time Warner's obligations under the
Guarantee and the Subordinated Notes are effectively subordinated to all
liabilities (including indebtedness) of its consolidated and unconsolidated
subsidiaries, which aggregated approximately $13.9 billion at March 31, 1995.
The indebtedness of Time Warner's consolidated and unconsolidated subsidiaries
is expected to increase by approximately $2.5 billion as a result of the
Transactions referred to under 'Recent Developments -- Certain Transactions'. In
addition, Time Warner's subsidiaries may incur indebtedness and other
liabilities and have obligations to third parties. Because Time Warner is a
holding company, the claims of such third parties to the assets of Time Warner's
subsidiaries generally will be superior to those of Time Warner as a
stockholder. There are no terms in the Trust Securities, the Subordinated Notes,
the Indenture or the Guarantee that limit Time Warner's ability to incur
additional indebtedness, including indebtedness that ranks senior to the
Subordinated Notes and the Guarantee. See ' -- Holding Company Structure' below
and 'Description of the Guarantee -- Status of the Guarantee' and 'Description
of the Subordinated Notes -- Subordination'.
RIGHTS UNDER THE GUARANTEE AND THE SUBORDINATED NOTES
The Guarantee will be a full and unconditional guarantee with respect to
the PERCS from the time of issuance of such PERCS but will not apply to any
payment of distributions or other amounts due to the extent Time Warner has
failed to make a payment of principal or interest on the Subordinated Notes. To
the extent Time Warner were to default on its obligation to pay amounts payable
on the Subordinated Notes, the Trust would lack available funds for the payment
of distributions on or amounts payable on redemption of the Trust Securities
and, in such event, holders of the PERCS would not be able to rely on the
Guarantee for payment of such amounts. Instead, holders of the PERCS would rely
on the enforcement by the Property Trustee of its rights as registered holder of
the Subordinated Notes against Time Warner pursuant to the terms of the
Indenture and may also vote to appoint a Special Regular Trustee who shall have
the same rights, powers and privileges as the Regular Trustees. Time Warner and
the Trust believe that the above mechanisms and obligations relating to the
Guarantee and the Subordinated Notes, taken together, are equivalent to a full
and unconditional guarantee by Time Warner of payments due on the PERCS. See
'Description of the PERCS -- Additional Information Relating to the Trust',
'Description of the Guarantee' and 'Description of the Subordinated Notes'.
HOLDING COMPANY STRUCTURE
The Trust's ability to make distributions and other payments on the PERCS
is solely dependent upon Time Warner's making interest and other payments on the
Subordinated Notes deposited as trust assets as and when required. Time Warner
is a holding company and its assets consist primarily of investments in its
subsidiaries. Time Warner Entertainment Company, L.P. ('TWE'), in which Time
Warner owns indirectly 63.27% of the pro rata priority capital and residual
equity interests (together with certain other priority interests), which is not
consolidated with Time Warner for financial reporting purposes, also has
substantial indebtedness and other liabilities. See 'Time Warner Inc.' Time
Warner's rights and the rights of its creditors, including holders of
Subordinated Notes, to participate in the distribution of assets of any person
in which Time Warner owns an equity interest (including subsidiaries and TWE)
upon such person's liquidation or reorganization will be subject to prior claims
of the person's creditors, including trade creditors, except to the extent that
Time Warner may itself be a creditor with recognized claims against such person
(in which case the claims of Time Warner would still be subject to the prior
claims of any secured creditor of such person and of any holder of indebtedness
of such person that is senior to that held by Time Warner). Accordingly, the
holders of Subordinated Notes may be deemed to be effectively subordinated to
such claims.
Time Warner's ability to service its indebtedness, including the
Subordinated Notes, and perform under the Guarantee is dependent primarily upon
the earnings of its subsidiaries and TWE and the distribution or other payment
of such earnings to Time Warner. The TWE Agreement of Limited Partnership and
the bank credit facilities of TWE and certain subsidiaries of Time Warner limit
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distributions and other transfers of funds to Time Warner. Generally,
distributions by TWE other than tax distributions are subject to restricted
payments limitations and availability under certain financial ratios applicable
to TWE contained in certain bank credit facilities. As a result of the
acquisition by subsidiaries of Time Warner of certain cable systems, certain
subsidiaries of Time Warner have or expect to have outstanding indebtedness and
bank credit facilities that contain limitations on the ability of such
subsidiaries or affiliates to make distributions or other payments to Time
Warner. See 'Selected Historical and Pro Forma Financial Information'.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
Upon the occurrence of a Special Event, the Trust shall be dissolved,
except in the limited circumstance described below, with the result that the
Subordinated Notes would be distributed to the holders of the Trust Securities
in connection with the liquidation of the Trust. In certain circumstances, Time
Warner will have the right to redeem the Subordinated Notes, in whole or in part
in lieu of a distribution of the Subordinated Notes by the Trust, in which event
the Trust will redeem the Trust Securities on a Pro Rata Basis to the same
extent as the Subordinated Notes are redeemed by Time Warner. A Special Event
includes a Tax Event and an Investment Company Event. See 'Description of the
PERCS -- Special Event Distribution or Redemption'.
There can be no assurance as to the market prices for the Subordinated
Notes that may be distributed in exchange for the PERCS if a dissolution or
liquidation of the Trust were to occur. Accordingly, the Subordinated Notes that
a holder of PERCS may receive on dissolution and liquidation of the Trust may
trade at a discount to the price that the investor paid to purchase such PERCS.
Because holders of PERCS may receive Subordinated Notes upon the occurrence of a
Special Event, prospective purchasers of PERCS are also making an investment
decision with regard to the Subordinated Notes and should carefully review all
the information regarding the Subordinated Notes contained herein. See
'Description of the PERCS -- Special Event Distribution or Redemption' and
'Description of the Subordinated Notes -- General'.
LIMITED VOTING RIGHTS
Holders of PERCS will have limited voting rights and, except for the rights
of holders of the PERCS to appoint a Special Regular Trustee upon the occurrence
of certain events described herein, will not be entitled to vote, to appoint,
remove or replace, or to increase or decrease the number of, Regular Trustees,
which voting rights are vested exclusively in the holder of the Common
Securities.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
The PERCS have been approved for listing on the NYSE, subject to official
notice of issuance. PERCS are novel and innovative securities and there is
currently no secondary market for the PERCS. There can be no assurance that a
secondary market will develop or, if a secondary market does develop, that it
will provide the holders of the PERCS with liquidity of investment or that it
will continue for the life of the PERCS.
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TIME WARNER INC.
Time Warner Inc. ('Time Warner') is the largest media and entertainment
company in the world. Its businesses are conducted in five principal areas:
Publishing, Music, Filmed Entertainment, Programming-HBO and Cable. Publishing
consists principally of the publication and distribution of magazines and books;
Music consists principally of the production and distribution of recorded music
and the ownership and administration of music copyrights; Filmed Entertainment
consists principally of the production and distribution of motion pictures and
television programming, the distribution of video cassettes and the ownership
and operation of retail stores and theme parks; Programming-HBO consists
principally of the production and distribution of pay television and cable
programming; and Cable consists principally of the operation of cable television
systems.
Time Warner was incorporated in the State of Delaware in August 1983 and is
the successor to a New York corporation that was originally organized in 1922.
Time Warner changed its name from Time Incorporated to Time Warner Inc.
following its acquisition of 59.3% of the common stock of Warner Communications
Inc. ('WCI') in July 1989. WCI became a wholly owned subsidiary of Time Warner
in January 1990 upon the completion of the merger of WCI and a subsidiary of
Time Warner.
Time Warner Entertainment Company, L.P. ('TWE'), was formed as a Delaware
limited partnership in 1992 to own and operate substantially all of the Filmed
Entertainment, Programming-HBO and Cable businesses owned and operated by Time
Warner prior to such date. Certain wholly owned subsidiaries of Time Warner (the
'Time Warner General Partners') collectively own 63.27% of the pro rata priority
capital and residual equity interests in TWE and wholly owned subsidiaries of
ITOCHU Corporation, Toshiba Corporation and U S WEST Inc. ('U S WEST') own pro
rata priority capital and residual equity interests in TWE of 5.61%, 5.61% and
25.51%, respectively. In addition, the Time Warner General Partners own priority
capital interests senior and junior to the pro rata priority capital interests.
TWE is the principal component of Time Warner's Entertainment Group, which
is not consolidated with Time Warner for financial reporting purposes. Certain
cable systems acquired or to be acquired as a result of the Transactions
referred to in 'Recent Developments -- Certain Transactions' are or will be
owned by consolidated subsidiaries of Time Warner. The balance of Time Warner's
cable systems are owned by TWE or the TWE-A/N Partnership (as defined herein),
in which TWE owns a two-thirds interest. Accordingly, although TWE will manage
substantially all the cable systems owned by Time Warner, TWE and the TWE-A/N
Partnership, the results of operations of the cable systems owned by Time
Warner's consolidated subsidiaries will be included in Time Warner's
consolidated results, while the results of operations of the cable systems owned
by TWE and the TWE-A/N Partnership will be included in the consolidated results
of the Entertainment Group. See 'Selected Historical and Pro Forma Financial
Information'.
Time Warner is a holding company and its assets consist primarily of
investments in its consolidated and unconsolidated subsidiaries, including TWE.
Time Warner's ability to service its indebtedness, including the Subordinated
Notes, is dependent primarily upon the earnings of its consolidated and
unconsolidated subsidiaries, including TWE, and the distribution or other
payment of such earnings to Time Warner. See 'Risk Factors -- Holding Company
Structure'.
As used in this Prospectus, unless the context otherwise requires, the
terms 'Company' and 'Time Warner' refer to Time Warner Inc. and its consolidated
and unconsolidated subsidiaries and includes TWE.
Time Warner's principal executive offices are located at 75 Rockefeller
Plaza, New York, NY 10019, and its telephone number is (212) 484-8000.
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TIME WARNER FINANCING TRUST
Time Warner Financing Trust (the 'Trust') is a statutory business trust
formed under the Delaware Business Trust Act (the 'Trust Act') pursuant to (i) a
declaration of trust dated as of June 7, 1995, as amended and restated as of
, 1995 (as so amended and restated, the 'Declaration'), executed by Time
Warner, as sponsor, and the Time Warner Trustees (as defined below) and (ii) the
filing of a certificate of trust with the Delaware Secretary of State on June 9,
1995. The Declaration will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the 'Trust Indenture Act'). Time Warner will
directly or indirectly acquire Common Securities in an aggregate liquidation
amount equal to 3% of the total capital of the Trust. The Trust exists for the
exclusive purposes of (i) issuing and selling the Trust Securities representing
undivided beneficial interests in the assets of the Trust, (ii) investing the
gross proceeds of the Trust Securities in the Subordinated Notes and (iii)
engaging in only those other activities necessary or incidental thereto. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the PERCS except that if, as a result of a default with respect to
the Subordinated Notes, the assets of the Trust are insufficient to make
payments in respect of distributions and payments upon liquidation, redemption
of the Trust Securities and otherwise, the rights of the holders of the Common
Securities will be subordinated to the rights of the holders of the PERCS. The
term of the Trust will expire on December 31, 1998, but may earlier terminate as
provided in the Declaration. The Trust's business and affairs will be conducted
by the trustees (the 'Time Warner Trustees') appointed by Time Warner, as the
direct or indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase or
reduce the number of, the Time Warner Trustees. The duties and obligations of
such Time Warner Trustees shall be governed by the Declaration, the Trust Act
and the Trust Indenture Act.
The rights of the holders of the PERCS, including economic rights, rights
to information and voting rights, are as set forth in the Declaration, the Trust
Act and the Trust Indenture Act. See 'Description of the PERCS'.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of Time Warner.
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HASBRO, INC.
According to publicly available documents, Hasbro, Inc. ('Hasbro'), a Rhode
Island corporation based in Pawtucket, Rhode Island, designs, manufactures and
markets a diverse line of toy products and related items throughout the world.
Included in its offerings are games and puzzles, preschool, boys' action and
girls' toys, dolls, plush products and infant products, including infant
apparel. Hasbro also licenses various tradenames, characters and other property
rights for use in connection with the sale by others of noncompeting toys and
non-toy products. Hasbro is subject to the informational requirements of the
Exchange Act. Accordingly, Hasbro files reports, proxy statements and other
information with the Commission. Copies of such reports, proxy statements and
other information may be inspected and copied at the Commission locations listed
under 'Available Information' and at the offices of the American Stock Exchange,
86 Trinity Place, New York, New York 10013.
THIS PROSPECTUS RELATES ONLY TO THE PERCS, THE GUARANTEE AND THE
SUBORDINATED NOTES OFFERED HEREBY AND DOES NOT RELATE TO THE HASBRO COMMON STOCK
OR OTHER SECURITIES OF HASBRO. ALL DISCLOSURES CONTAINED IN THIS PROSPECTUS
REGARDING HASBRO ARE DERIVED FROM THE PUBLICLY AVAILABLE DOCUMENTS DESCRIBED IN
THE PRECEDING PARAGRAPH. NONE OF THE TRUST, TIME WARNER OR THE UNDERWRITERS HAS
PARTICIPATED IN THE PREPARATION OF SUCH DOCUMENTS OR MADE ANY DUE DILIGENCE
INQUIRY WITH RESPECT TO HASBRO. NONE OF THE TRUST, TIME WARNER OR THE
UNDERWRITERS MAKES ANY REPRESENTATION THAT SUCH PUBLICLY AVAILABLE DOCUMENTS OR
ANY OTHER PUBLICLY AVAILABLE INFORMATION REGARDING HASBRO ARE ACCURATE OR
COMPLETE. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT ALL EVENTS (INCLUDING
EVENTS THAT WOULD AFFECT THE ACCURACY OR COMPLETENESS OF THE PUBLICLY AVAILABLE
DOCUMENTS DESCRIBED IN THE PRECEDING PARAGRAPH) THAT WOULD AFFECT THE TRADING
PRICE OF HASBRO COMMON STOCK (AND THEREFORE THE ISSUE PRICE OF THE PERCS), HAVE
BEEN, OR THAT ANY SUCH EVENTS OCCURRING AFTER THE DATE HEREOF WILL BE, PUBLICLY
DISCLOSED. SUBSEQUENT DISCLOSURE OF ANY PRIOR EVENTS OR THE DISCLOSURE OF OR
FAILURE TO DISCLOSE MATERIAL FUTURE EVENTS CONCERNING HASBRO COULD AFFECT THE
AMOUNT OF CASH OR THE VALUE OR NUMBER OF SHARES OF HASBRO COMMON STOCK OR OTHER
EXCHANGE PROPERTY RECEIVED BY HOLDERS OF PERCS ON ANY EXCHANGE OR REDEMPTION OF
PERCS AND THEREFORE THE TRADING PRICES OF THE PERCS.
An indirect wholly-owned subsidiary of Time Warner held an aggregate of
12,057,561 shares, or approximately 13.75% as of March 31, 1995, of the
outstanding shares of Hasbro Common Stock, with sole voting and investment power
over all of such shares. Time Warner is not an affiliate of Hasbro and does not
have any material non-public information concerning Hasbro, including
information concerning Hasbro's plans with respect to any events, such as an
offering of Hasbro Common Stock for cash, that could affect the price of the
PERCS.
In the event that the entire series of PERCS is exchanged for shares of
Hasbro Common Stock on a one-for-one basis, Time Warner would have no further
holdings of Hasbro Common Stock. However, Time Warner cannot predict its or any
other stockholder's ownership of Hasbro Common Stock at the time of any
redemption of PERCS. In addition, there can be no assurance of an active trading
market for the Hasbro Common Stock at any time in the future. Subject to any
applicable limitations imposed by law, regulation or other governmental
authority, Time Warner or entities related to Time Warner may consider disposing
of or acquiring additional shares of Hasbro Common Stock or other securities of
Hasbro through open-market transactions, privately negotiated transactions or
otherwise. However, Time Warner has no current intention to dispose of any of
its Hasbro Common Stock prior to the Mandatory Redemption Date.
Hasbro is not involved in the offering of the PERCS and has no obligations
with respect to the PERCS, including any obligation to take the interests of
Time Warner, the Trust or of holders of PERCS into consideration for any reason.
Hasbro will not receive any of the proceeds of the offering of the PERCS made
hereby and is not responsible for, and has not participated in, the
determination of the timing of, prices for or quantities of, the PERCS offered
hereby or the determination or calculation of the number of shares of Hasbro
Common Stock or amount of cash to be received by holders of PERCS upon any
redemption or exchange of PERCS. Hasbro is not involved with the administration,
marketing or trading of the PERCS and has no obligations with respect to the
amount of cash, Hasbro Common Stock or other Exchange Property to be paid to
holders of PERCS upon any redemption or exchange.
15
<PAGE>
PRICE RANGE AND DIVIDEND HISTORY
OF HASBRO COMMON STOCK
Hasbro Common Stock is listed and traded on the AMEX under the symbol
'HAS'. The following table sets forth, for the periods indicated, the high and
low sales prices on the AMEX for, and cash dividends declared on, the common
stock, par value $.50 per share, of Hasbro (the 'Hasbro Common Stock') as
reported by the AMEX.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
------------ ------------ ---------
<S> <C> <C> <C>
Fiscal Year ended December 31, 1993:
First Quarter......................................................... $ 34 7/8 $ 28 1/8 $ .05
Second Quarter........................................................ 38 3/8 30 3/8 .06
Third Quarter......................................................... 40 34 .06
Fourth Quarter........................................................ 40 1/8 35 1/8 .06
Fiscal Year ended December 31, 1994:
First Quarter......................................................... 36 5/8 33 3/8 .06
Second Quarter........................................................ 36 1/8 28 1/8 .07
Third Quarter......................................................... 32 1/8 28 3/8 .07
Fourth Quarter........................................................ 33 1/2 27 7/8 .07
Fiscal Year ending December 31, 1995:
First Quarter......................................................... 33 7/8 28 3/8 .07
Second Quarter........................................................ 35 1/4 31 3/8 .08
Third Quarter (through August 3, 1995)................................ 31 3/4 29 3/4 .08
</TABLE>
On August 3, 1995, the reported last sale price for the Hasbro Common Stock
on the AMEX was $30 7/8.
The information presented in this Prospectus relating to sales prices and
dividends for Hasbro Common Stock is furnished as a matter of information only
and was obtained from publicly available sources. Fluctuations in or levels of
sales prices that have occurred in the past are not necessarily indicative of
fluctuations in or levels of the sales prices of Hasbro Common Stock that may
occur over the term of the PERCS.
Neither the Trust nor Time Warner makes any representation as to the amount
of dividends, if any, that Hasbro will pay in the future. Time Warner will be
entitled to retain any dividends that are received by Time Warner on its Hasbro
Common Stock. ALTHOUGH THE EXCHANGE RATE AND EXCHANGE PROPERTY WILL BE ADJUSTED
IN THE EVENT OF CERTAIN EXTRAORDINARY CASH DIVIDENDS ON THE HASBRO COMMON STOCK
AS DESCRIBED HEREIN, NO SUCH ADJUSTMENT WILL BE MADE WITH RESPECT TO ORDINARY
PERIODIC CASH DIVIDENDS.
16
<PAGE>
RECENT DEVELOPMENTS
CERTAIN TRANSACTIONS
As summarized below and more fully described in Time Warner's Current
Report on Form 8-K dated May 30, 1995, Time Warner has recently entered into or
consummated a number of transactions to acquire, operate or dispose of cable
television systems and certain other assets. These transactions will, among
other things, result in the acquisition of cable systems by subsidiaries of Time
Warner serving approximately 2.2 million subscribers and a 50% interest in
Paragon Communications ('Paragon'), which serves 967,000 subscribers (the other
50% interest in Paragon is already owned by TWE).
Time Warner (i) closed on May 2, 1995, its acquisition of Summit
Communications Group, Inc. ('Summit'), (ii) closed on July 6, 1995, its
acquisition of KBLCOM Incorporated ('KBLCOM'), a subsidiary of Houston
Industries Incorporated, and (iii) agreed on February 6, 1995, to acquire
Cablevision Industries Corporation ('CVI') and related companies (collectively,
the 'Acquisitions'). To acquire Summit, Time Warner issued approximately 1.55
million shares of its common stock, and approximately 3.26 million shares of a
new convertible preferred stock ('Series C Preferred Stock') and assumed or
incurred $146 million of indebtedness. To acquire KBLCOM, Time Warner issued one
million shares of its common stock and 11 million shares of a new convertible
preferred stock ('Series D Preferred Stock') and assumed or incurred
approximately $1.2 billion of indebtedness, including $113 million of Time
Warner's allocable share of Paragon's indebtedness. To acquire CVI and its
related companies, Time Warner will issue 2.5 million shares of its common stock
and 6.5 million shares of new convertible preferred stock (3.25 million shares
of Series E Preferred Stock and 3.25 million shares of Series F Preferred Stock)
and assume or incur approximately $2 billion of debt of CVI and its related
companies.
On April 1, 1995, TWE and the Advance/Newhouse Partnership
('Advance/Newhouse'), a New York general partnership between Newhouse
Broadcasting Corporation and a wholly-owned subsidiary of Advance Publications,
Inc., formed a New York general partnership known as the Time Warner
Entertainment-Advance/Newhouse Partnership (the 'TWE-A/N Partnership'), in which
TWE owns a two-thirds equity interest and is the managing partner. The TWE-A/N
Partnership was formed to own and operate cable television systems (or interests
therein) serving approximately 4.5 million subscribers and certain foreign cable
investments and programming investments (the 'TWE-A/N Transaction').
TWE (i) on June 23, 1995, recapitalized Six Flags Entertainment Corporation
('Six Flags'), sold 51% of its interest therein and granted certain licenses to
Six Flags and (ii) on May 18, 1995, announced the sale of 15 of its unclustered
cable television systems serving approximately 144,000 subscribers (the 'Asset
Sale Transactions'). The net proceeds from the Asset Sale Transactions will be
used to reduce outstanding indebtedness of TWE.
On June 30, 1995, Time Warner and TWE executed a five-year revolving credit
facility (the 'New Credit Agreement'), pursuant to which TWE, the TWE-A/N
Partnership and a wholly owned subsidiary of Time Warner are the borrowers. The
New Credit Agreement will enable such entities to refinance certain indebtedness
assumed from the companies acquired or to be acquired in the Acquisitions, to
refinance existing indebtedness of TWE and to finance the ongoing working
capital, capital expenditure and other corporate needs of each borrower (the
'1995 Debt Refinancing').
The Acquisitions, TWE-A/N Transaction, Asset Sale Transactions and 1995
Debt Refinancing are collectively referred to herein as the 'Transactions'. For
a further discussion of the Transactions, reference is made to Time Warner's
Current Report on Form 8-K dated May 30, 1995, which is incorporated herein by
reference.
PREFERRED SECURITIES SHELF REGISTRATION
On August 2, 1995, Time Warner filed a registration statement with the
Commission for the offering of up to $500,000,000 aggregate offering price of
preferred securities (the 'Preferred Securities') of one or more of Time Warner
Capital I, Time Warner Capital II and Time Warner Capital III (collectively, the
'Capital Trusts'). Payments in respect of the Preferred Securities will be
17
<PAGE>
guaranteed by Time Warner on a subordinated basis, which guarantees will be pari
passu with the Guarantee in respect of the PERCS. The net proceeds to the
Capital Trusts from the issuance of the Preferred Securities will be invested in
subordinated debt securities of Time Warner that will be pari passu with the
Subordinated Notes. The net proceeds to Time Warner from any offering of the
Preferred Securities will be used to reduce outstanding indebtedness. There can
be no assurance, however, that the offering of all or any of the Preferred
Securities will be completed.
REDEMPTION OF RESET NOTES
On July 31, 1995, Time Warner announced the redemption on August 15, 1995,
of all of its $1.828 billion principal amount of outstanding Redeemable Reset
Notes Due August 15, 2002 (the 'Reset Notes') in exchange for new securities.
The Reset Notes will be redeemed in exchange for approximately $457.0 million
aggregate principal amount of Floating Rate Notes Due August 15, 2000,
approximately $274.2 million aggregate principal amount of 7.975% Notes Due
August 15, 2004, approximately $548.4 million aggregate principal amount of
8.11% Debentures Due August 15, 2006, and approximately $548.4 million aggregate
principal amount of 8.18% Debentures Due August 15, 2007 (collectively the
'Exchange Securities'). The Exchange Securities will be issued under Time
Warner's senior indenture dated January 15, 1993, and will rank pari passu with
all other senior indebtedness of Time Warner.
RECENT FINANCIAL PERFORMANCE
Set forth below are summarized unaudited operating results of Time Warner
and the Entertainment Group for the three and six month periods ended June 30,
1995 and 1994. Summarized unaudited operating results of the Entertainment Group
reflect the consolidation by TWE of the TWE-A/N Partnership effective as of
April 1, 1995.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
TIME WARNER
Revenues............................................................. $1,907 $1,667 $3,724 $3,225
Depreciation and amortization........................................ 119 105 231 210
Business segment operating income.................................... 184 170 322 282
Equity in pretax income of Entertainment Group....................... 84 66 106 111
Interest and other, net.............................................. 201 179 356 337
Net loss............................................................. (8) (20) (55) (71)
Net loss applicable to common shares (after preferred dividends)..... (13) (23) (63) (77)
Net loss per common share............................................ (.03) (.06) (.17) (.20)
Average common shares................................................ 381.4 378.8 380.5 378.7
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
(MILLIONS)
<S> <C> <C> <C> <C>
ENTERTAINMENT GROUP
Revenues............................................................. $2,435 $2,063 $4,508 $3,990
Depreciation and amortization........................................ 283 242 513 458
Business segment operating income.................................... 274 231 475 437
Interest and other, net.............................................. 175 150 339 296
Net income........................................................... 59 54 70 95
</TABLE>
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
TIME WARNER SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of Time Warner set forth
below has been derived from and should be read in conjunction with the
consolidated financial statements and other financial information of Time Warner
contained in Time Warner's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended, and with the unaudited consolidated condensed
financial statements contained in Time Warner's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995, which are incorporated herein by
reference. The selected historical financial information for all periods after
1992 reflect the deconsolidation of the Entertainment Group, principally TWE,
effective January 1, 1993. The selected historical financial information for
1992 and periods prior to such date have not been changed; however, selected
financial information for 1992 retroactively reflecting the deconsolidation is
presented as supplementary information under the column heading 'restated' to
facilitate comparative analysis. Capitalized terms are as defined and described
in such historical financial statements, or elsewhere herein.
The selected historical financial information for 1993 reflects the
issuance of $6.1 billion of long-term debt and the use of $500 million of cash
and equivalents in 1993 for the exchange or redemption of preferred stock having
an aggregate liquidation preference of $6.4 billion. The selected historical
financial information for 1992 reflects the capitalization of TWE on June 30,
1992, and associated refinancings, and the acquisition of the 18.7% minority
interest in American Television and Communications Corporation ('ATC') as of
June 30, 1992, using the purchase method of accounting for business
combinations. Per common share amounts and average common shares have been
restated to give effect to the four-for-one common stock split that occurred on
September 10, 1992.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------------
--------------- RESTATED
1995 1994 1994 1993 1992 1992 1991 1990
------ ------ ------ ------ -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
OPERATING STATEMENT INFORMATION
Revenues........................................ $1,817 $1,558 $7,396 $6,581 $6,309 $13,070 $12,021 $11,517
Depreciation and amortization................... 112 105 437 424 384 1,172 1,109 1,138
Business segment operating income............... 138 112 713 591 529 1,343 1,154 1,114
Equity in pretax income of Entertainment
Group......................................... 22 45 176 281 226 -- -- --
Interest and other, net......................... 155 158 724 718 351 882 966 1,133
Net income (loss)(a)(b)......................... (47) (51) (91) (221) 86 86 (99) (227)
Net loss applicable to common shares (after
preferred dividends).......................... (50) (54) (104) (339) (542) (542) (692) (786)
Per share of common stock:
Net loss(a)(b)............................. $ (.13) $ (.14) $ (.27) $ (.90) $(1.46) $ (1.46) $ (2.40) $ (3.42)
Dividends.................................. $ .09 $ .08 $ .35 $ .31 $ .265 $ .265 $ .25 $ .25
Average common shares(b)........................ 379.5 378.6 378.9 374.7 371.0 371.0 288.2 229.9
Ratio of earnings to fixed charges (deficiency
in the coverage of fixed charges by earnings
before fixed charges)(c)...................... 1.0x 1.0x 1.1x 1.1x 1.4x 1.4x 1.1x $ (101)
Ratio of earnings to combined fixed charges and
preferred stock dividends (deficiency in the
coverage of combined fixed charges and
preferred stock dividends by earnings before
fixed charges and preferred stock
dividends)(c)................................. $ (3) 1.0x 1.1x $ (91) $ (506) $ (509) $(1,240) $(1,335)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
RESTATED
1994 1993 1992 1992 1991 1990
------- ------- -------- ------- ------- -------
MARCH 31,
1995
-----------
(UNAUDITED) (MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION
Investments in and amounts due to and from Entertainment
Group.................................................. $ 5,443 $ 5,350 $ 5,627 $ 5,392 $ -- $ -- $ --
Total assets............................................. 16,608 16,716 16,892 17,043 27,366 24,889 25,337
Long-term debt........................................... 9,001 8,839 9,291 2,897 10,068 8,716 11,184
Shareholders' equity:
Preferred stock liquidation preference.............. 140 140 140 6,532 6,532 6,256 5,954
Equity applicable to common stock................... 973 1,008 1,230 1,635 1,635 2,242 360
Total shareholders' equity.......................... 1,113 1,148 1,370 8,167 8,167 8,498 6,314
</TABLE>
- ------------
(a) The net loss for the year ended December 31, 1993, includes an
extraordinary loss on the retirement of debt of $57 million ($.15 per
common share) and an unusual charge of $70 million ($.19 per common share)
from the effect of the new income tax law on Time Warner's deferred income
tax liability. The net loss for the year ended December 31, 1991, includes
a $36 million after-tax charge ($.12 per common share) relating to the
restructuring of the Publishing division.
(b) In August 1991, Time Warner completed the sale of 137.9 million shares of
common stock pursuant to a rights offering. Net proceeds of $2.558 billion
from the rights offering were used to reduce indebtedness under Time
Warner's bank credit agreement. If the rights offering had been completed
at the beginning of 1991, net loss for the year would have been reduced to
$33 million, or $1.70 per common share, and there would have been 369.3
million shares of common stock outstanding during the year.
(c) For purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding pretax income, interest expense, previously
capitalized interest amortized to expense, the portion of rents
representative of an interest factor, Time Warner's proportionate share of
such items for its partially-owned subsidiaries and 50%-owned companies,
and undistributed losses of less-than-50%-owned companies. Fixed charges
consist of interest expense, interest capitalized, the portion of rents
representative of an interest factor and Time Warner's proportionate share
of such items for partially-owned subsidiaries and 50%-owned companies.
Combined fixed charges and preferred stock dividends also include the
amount of pretax income necessary to cover preferred stock dividend
requirements. For periods in which earnings before fixed charges were
insufficient to cover fixed charges or combined fixed charges and preferred
stock dividends, the dollar amount of coverage deficiency, instead of the
ratio, is disclosed. Earnings as defined include significant noncash
charges for depreciation and amortization. Fixed charges for the three
months ended March 31, 1995, and 1994 and the year ended December 31, 1994,
include noncash interest expense of $57 million, $52 million and $219
million, respectively, relating to the Reset Notes and Time Warner's Liquid
Yield Option Notes due 2012 and 2013.
20
<PAGE>
ENTERTAINMENT GROUP SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information of the Entertainment Group
set forth below has been derived from and should be read in conjunction with the
consolidated financial statements and other financial information of Time Warner
and TWE contained in Time Warner's Annual Report on Form 10-K for the year ended
December 31, 1994, as amended, and with the unaudited consolidated condensed
financial statements and other financial information of Time Warner and TWE
contained in Time Warner's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, which are incorporated herein by reference. The selected
historical financial information for all periods after 1992 give effect to TWE's
consolidation of Six Flags effective as of January 1, 1993, as a result of the
1993 Six Flags acquisition. The selected historical financial information for
periods prior to such date has not been changed; however, selected financial
information for 1992 retroactively reflecting the consolidation is presented as
supplementary information under the column heading 'restated' to facilitate
comparative analysis. For periods prior to January 1, 1993, the Entertainment
Group is consolidated with Time Warner for financial reporting purposes and,
accordingly, is also reflected in Time Warner's summary historical financial
data.
The selected historical financial information for 1993 gives effect to the
admission of U S WEST as an additional limited partner of TWE as of September
15, 1993, and the issuance of $2.6 billion of TWE debentures during the year to
reduce indebtedness under the TWE credit agreement, and for 1992 gives effect to
the initial capitalization of TWE and associated refinancings as of the dates
such transactions were consummated and Time Warner's acquisition of the ATC
minority interest as of June 30, 1992, using the purchase method of accounting
and reflected in the consolidated financial statements of TWE under the pushdown
method of accounting.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEARS ENDED DECEMBER 31,
MARCH 31, -----------------------------------------------------
--------------- RESTATED
1995 1994 1994 1993 1992 1992 1991 1990
------ ------ ------ ------ -------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(MILLIONS, EXCEPT RATIOS)
OPERATING STATEMENT INFORMATION
Revenues................................................. $2,073 $1,927 $8,509 $7,963 $7,251 $6,761 $6,068 $5,671
Depreciation and amortization............................ 230 216 959 909 857 788 733 775
Business segment operating income........................ 201 206 852 905 855 814 724 549
Interest and other, net.................................. 164 146 616 564 569 531 526 648
Net income(loss)(a)...................................... 11 41 136 207 173 173 103 (180)
TWE ratio of earnings to fixed charges (deficiency in the
coverage of fixed charges by earnings before fixed
charges)(b)............................................ 1.1x 1.4x 1.4x 1.4x 1.4x 1.4x 1.4x $ (138)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
RESTATED
1994 1993 1992 1992 1991 1990
MARCH 31, ------- ------- -------- ------- ------- -------
1995
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
(MILLIONS)
BALANCE SHEET INFORMATION
Total assets............................................. $19,043 $18,992 $18,202 $ 16,733 $15,886 $14,230 $14,415
Long-term debt........................................... 7,162 7,160 7,125 7,684 7,171 4,571 6,516
Time Warner General Partners' senior capital............. 1,696 1,663 1,536 -- -- -- --
Partners' capital........................................ 6,463 6,491 6,228 6,483 6,483 6,717 5,809
</TABLE>
- ------------
(a) Net income for the year ended December 31, 1993, includes an extraordinary
loss on the retirement of debt of $10 million.
(b) For purposes of the ratio of earnings to fixed charges, earnings were
calculated by adding pretax income, interest expense, previously
capitalized interest amortized to expense, the portion of rents
representative of an interest factor, TWE's proportionate share of such
items for its partially-owned subsidiaries and 50%-owned companies, and
undistributed losses of less-than-50%-owned companies. Fixed charges
consist of interest expense, interest capitalized, the portion of rents
representative of an interest factor and TWE's proportionate share of such
items for partially-owned subsidiaries and 50%-owned companies. For periods
in which earnings before fixed charges were insufficient to cover fixed
charges, the dollar amount of coverage deficiency, instead of the ratio, is
disclosed. Earnings as defined include significant noncash charges for
depreciation and amortization.
21
<PAGE>
TIME WARNER AND ENTERTAINMENT GROUP SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma balance sheet information of Time Warner
and the Entertainment Group at March 31, 1995, set forth below gives effect to
the Asset Sale Transactions, the TWE-A/N Transaction and the 1995 Debt
Refinancing and, with respect to Time Warner only, also gives effect to the
Acquisitions in each case as if such transactions occurred at such date. The
unaudited selected pro forma operating statement information of Time Warner and
the Entertainment Group for the three months ended March 31, 1995, and the year
ended December 31, 1994, set forth below gives effect to each applicable
transaction as if it had occurred at the beginning of such periods. No pro forma
effect has been given in the information set forth below to (i) the issuance by
Time Warner on June 19, 1995 of its $500 million 7.75% Notes due 2005 (the
'7.75% Notes'), of the PERCS offered hereby and of the Preferred Securities and
the use of the net proceeds therefrom to repurchase, redeem or otherwise repay
outstanding indebtedness or (ii) the redemption of the Reset Notes in exchange
for the Exchange Securities, because such transactions will not have a material
effect on Time Warner (see 'Consolidated Capitalization'). The selected pro
forma financial information should be read in conjunction with the 'Time Warner
Inc. and the Entertainment Group Pro Forma Consolidated Condensed Financial
Statements' included in Time Warner's Current Report on Form 8-K dated May 30,
1995, which is incorporated herein by reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
TIME ENTERTAINMENT TIME ENTERTAINMENT
WARNER GROUP WARNER GROUP
------ ------------- ------ -------------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C>
PRO FORMA OPERATING STATEMENT INFORMATION
Revenues................................................................... $2,025 $ 2,264 $8,217 $ 8,790
Depreciation and amortization.............................................. 232 270 918 1,040
Business segment operating income.......................................... 149 239 645 928
Equity in pretax income of Entertainment Group............................. 56 -- 217 --
Interest and other, net.................................................... 220 168 938 651
Net income (loss).......................................................... (59) 41 (263) 183
Net loss applicable to common shares (after preferred dividends)........... (81) -- (353) --
Per share of common stock:
Net loss.............................................................. (.21) -- (.92) --
Dividends............................................................. (.09) -- (.35) --
Average common shares...................................................... 384.6 -- 384.0 --
Time Warner and TWE ratio of earnings to fixed charges (deficiency in the
coverage of fixed charges by earnings before fixed charges)(a)........... $ (18) 1.6x $ (73) 1.7x
Time Warner deficiency in the coverage of combined fixed charges and
preferred stock dividends by earnings before fixed charges and preferred
stock dividends(a)....................................................... $ (55) -- $ (209) --
</TABLE>
- ------------
(a) For purposes of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends, earnings
were calculated by adding pretax income, interest expense, previously
capitalized interest amortized to expense, the portion of rents
representative of an interest factor, the proportionate share for each of
Time Warner and TWE, respectively, of such items for its partially-owned
subsidiaries and 50%-owned companies, and undistributed losses of
less-than-50%-owned companies. Fixed charges consist of interest expense,
interest capitalized, the portion of rents representative of an interest
factor and the proportionate share for each of Time Warner and TWE,
respectively, of such items for partially-owned subsidiaries and 50%-owned
companies. Combined fixed charges and preferred stock dividends also
include the amount of pretax income necessary to cover preferred stock
dividend requirements. For periods in which earnings before fixed charges
were insufficient to cover fixed charges or combined fixed charges and
preferred stock dividends, the dollar amount of coverage deficiency,
instead of the ratio, is disclosed. Earnings as defined include significant
noncash charges for depreciation and amortization. Fixed charges for Time
Warner for the three months ended March 31, 1995, and the year ended
December 31, 1994, included noncash interest expense of $57 million and
$219 million, respectively, relating to the Reset Notes and Time Warner's
Liquid Yield Option Notes due 2012 and 2013.
22
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1995
-----------------------
TIME ENTERTAINMENT
WARNER GROUP
------ -------------
(MILLIONS)
<S> <C> <C>
PRO FORMA BALANCE SHEET INFORMATION
Investments in and amounts due to and from Entertainment Group....................................... $5,401 $ --
Total assets......................................................................................... 24,566 18,916
Long-term debt....................................................................................... 12,374 6,268
Shareholders' equity:
Preferred stock liquidation preference.......................................................... 2,240 --
Equity applicable to common stock............................................................... 1,200 --
Total shareholders' equity...................................................................... 3,440 --
Time Warner General Partners' senior capital......................................................... -- 1,696
Partners' capital.................................................................................... -- 6,421
</TABLE>
23
<PAGE>
CONSOLIDATED CAPITALIZATION
The consolidated historical and pro forma capitalization of Time Warner and
Time Warner's Entertainment Group, consisting principally of TWE, at March 31,
1995, is set forth below. The Entertainment Group is not consolidated with Time
Warner for financial reporting purposes. The consolidated pro forma
capitalization of Time Warner and the Entertainment Group gives effect to the
Asset Sale Transactions, the TWE-A/N Transaction and the 1995 Debt Refinancing
and, with respect to Time Warner only, also gives effect to the Acquisitions, in
each case as if such transactions occurred at such date. The consolidated pro
forma, as adjusted capitalization of Time Warner gives effect to (i) the
Transactions, (ii) the issuance of the 7.75% Notes, (iii) the issuance of the
PERCS offered hereby and (iv) the redemption of the Reset Notes in exchange for
the Exchange Securities, as if such transactions occurred at such date. Although
the proceeds to Time Warner of the issuance of the 7.75% Notes and of the PERCS
offered hereby will be used to reduce outstanding indebtedness of Time Warner,
Time Warner has not yet determined which indebtedness it will repurchase, redeem
or otherwise repay. See 'Use of Proceeds'. The consolidated pro forma, as
adjusted capitalization of Time Warner set forth below does not give effect to
any issuance of Preferred Securities. The proceeds of any such issuance are
expected to be used to reduce outstanding indebtedness of Time Warner. The pro
forma capitalization is presented for informational purposes only and is not
necessarily indicative of the future capitalization of Time Warner and the
Entertainment Group.
<TABLE>
<CAPTION>
TIME WARNER INC. ENTERTAINMENT GROUP
------------------------------------ ---------------------
PRO PRO FORMA PRO
HISTORICAL FORMA AS ADJUSTED HISTORICAL FORMA
---------- ------- ----------- ---------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Long-term debt:
7.45% and 7.95% notes......................................... $ 1,000 $ 1,000 $ 1,000 $ -- $ --
Reset Notes (8.7% yield)...................................... 1,755 1,755 -- -- --
Exchange Securities........................................... -- -- 1,755(a)
Zero coupon liquid yield option notes due 2012 (6.25%
yield)...................................................... 555 555 555 -- --
Zero coupon convertible notes (5% yield)...................... 982 982 982 -- --
8.75%, 9.125% and 9.15% Debentures............................ 2,248 2,248 2,248 -- --
8.75% Convertible subordinated debentures..................... 2,226 2,226 2,226 -- --
7.75% Notes due 2005.......................................... -- -- 497(b) -- --
Debt due to TWE (7.13% interest rate)(c)...................... 400 400 400 -- --
CVI 10 3/4% Senior notes...................................... -- 300 300 -- --
CVI 9 1/4% Senior debentures.................................. -- 200 200 -- --
Summit 10 1/2% Senior subordinated debentures................. -- 140 140 -- --
New credit agreement(d)....................................... -- 2,733 2,733 -- 1,682
TWE credit agreement (weighted average interest rate of
6.8%)(e)(f)................................................. -- -- -- 2,450 --
TWE commercial paper (weighted average interest rate of
6.5%)(f).................................................... -- -- -- 748 748
Six Flags 9.25% zero coupon notes(g).......................... -- -- -- 126 --
TWE 8 7/8%, 9 5/8% and 10.15% Notes(f)........................ -- -- -- 1,197 1,197
TWE 7 1/4%, 8 3/8% and 8 3/8% Debentures(f)................... -- -- -- 2,583 2,583
Other......................................................... 235 235 235 58 58
Reduction of debt with proceeds from the issuance of the 7.75%
Notes and of the PERCS offered hereby....................... -- -- ( )(b) -- --
---------- ------- ----------- ---------- -------
Subtotal...................................................... 9,401 12,774 7,162 6,268
Reclassification of debt due to TWE to investments in and
amounts due to the Entertainment Group(c)................... (400) (400) (400) -- --
---------- ------- ----------- ---------- -------
Total long-term debt..................................... 9,001 12,374 7,162 6,268
Company obligated mandatorily redeemable preferred securities of
subsidiary*...................................................... -- -- (b) -- --
Shareholders' equity:
Preferred stock liquidation preference........................ 140 2,240 2,240 -- --
Equity applicable to common stock............................. 973 1,200 1,200 -- --
---------- ------- ----------- ---------- -------
Total shareholders' equity.................................... 1,113 3,440 3,440 -- --
Time Warner General Partners' senior capital....................... -- -- -- 1,696 1,696
Partners' capital.................................................. -- -- -- 6,463 6,421
---------- ------- ----------- ---------- -------
Total capitalization............................................... $ 10,114 $15,814 $ $ 15,321 $14,385
---------- ------- ----------- ---------- -------
---------- ------- ----------- ---------- -------
</TABLE>
- ------------
* The sole assets of the subsidiary that is the obligor on the preferred
securities are the Subordinated Notes.
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<PAGE>
(a) Reflects the accreted value of the Reset Notes on March 31, 1995. The
accreted value of the Reset Notes on the redemption date, August 15, 1995,
will be $1,827,948,000; and the aggregate principal amount of the Exchange
Securities issued on that date will be equal to $1,827,948,000.
(b) Although the proceeds to Time Warner of the issuance of the 7.75% Notes and
of the PERCS offered hereby will be used to reduce outstanding indebtedness
of Time Warner, Time Warner has not yet determined which indebtedness it
will repurchase, redeem or otherwise repay.
(c) Time Warner and TWE entered into a credit agreement in 1994 that allows
Time Warner to borrow up to $400 million from TWE through September 15,
2000. Outstanding borrowings from TWE bear interest at LIBOR plus 1% per
annum. Under TWE's bank credit agreement, TWE is permitted to loan to Time
Warner up to $1.5 billion. For financial reporting purposes, the $400
million of currently outstanding loans from TWE to Time Warner have been
reclassified and shown as a reduction in Time Warner's investments in and
amounts due to the Entertainment Group.
(d) The New Credit Agreement permits borrowings in an aggregate amount of up to
$8.3 billion. Borrowings are limited to $4 billion in the case of TWI
Cable, $5 billion in the case of the TWE-A/N Partnership and $8.3 billion
in the case of TWE, subject in each case to certain limitations and
adjustments. Such borrowings will bear interest at different rates for each
of the three borrowers, generally equal to LIBOR plus a margin ranging from
50 to 87.5 basis points based on the credit rating or financial leverage of
the applicable borrower. The New Credit Agreement contains certain
covenants for each borrower relating to, among other things, additional
indebtedness; liens on assets; cash flow coverage and leverage ratios; and
loans, advances, distributions and other cash payments or transfers of
assets from the borrowers to their respective partners or affiliates. See
'Recent Developments' and Time Warner's Current Reports on Form 8-K dated
May 30, 1995, and July 6, 1995, incorporated by reference herein for a
description of the New Credit Agreement.
(e) As of March 31, 1995, the TWE bank credit agreement provided for up to $5.2
billion of borrowings and consisted of a $4.2 billion revolving credit
facility with available credit reducing at June 30, 1995, and thereafter by
$200 million per quarter through June 30, 1996, by $125 million per quarter
from September 30, 1996, through September 30, 1999, and by $1.575 billion
at final maturity on December 31, 1999; and a $986 million term loan with
repayments of $66 million on June 30, 1995, $98 million per quarter
beginning September 30, 1995, through March 31, 1996, $27 million per
quarter beginning June 30, 1996, through June 30, 1999, $20 million on
September 30, 1999, and a final repayment of $255 million on December 31,
1999. Unused credit is available for general business purposes and to
support commercial paper borrowings. Outstanding borrowings under the
credit agreement generally bear interest at LIBOR plus 5/8% per annum.
(f) Guaranteed by certain subsidiaries of Time Warner which are the general
partners of TWE.
(g) Guaranteed by TWE.
USE OF PROCEEDS
The proceeds to the Trust from the sale of the PERCS offered hereby will be
approximately $ . The Trust will invest the proceeds in Subordinated
Notes of Time Warner, the proceeds of which will be used by Time Warner to
repurchase, redeem or otherwise repay outstanding indebtedness. The weighted
average interest rate on Time Warner's outstanding indebtedness as of March 31,
1995, was approximately 8.3%. The weighted average maturity of Time Warner's
outstanding indebtedness as of March 31, 1995, was approximately 15 years.
25
<PAGE>
DESCRIPTION OF THE PERCS
The PERCS will be issued pursuant to the terms of the Declaration. The
Declaration will be qualified as an indenture under the Trust Indenture Act. The
First National Bank of Chicago will act as the indenture trustee (the 'Property
Trustee') with respect to the PERCS for purposes of compliance with the
provisions of the Trust Indenture Act. The terms of the PERCS will include those
stated in the Declaration and those made part of the Declaration by the Trust
Indenture Act. The following summary of the principal terms and provisions of
the PERCS does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Declaration, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, the
Trust Act and the Trust Indenture Act. The Trust will provide a copy of the
Declaration, the Guarantee or the Indenture to a holder of PERCS without charge
on written request to the Trust at its principal place of business.
GENERAL
The Declaration authorizes the Regular Trustees to issue the PERCS on
behalf of the Trust, which represent preferred undivided beneficial interests in
the Trust's assets, which will consist of the Subordinated Notes. All the Common
Securities will be owned, directly or indirectly, by Time Warner. The PERCS rank
pari passu, and payments will be made thereon on a Pro Rata Basis (as defined
herein), with the Common Securities, except that if, as a result of a default
with respect to the Subordinated Notes, the assets of the Trust are insufficient
to make payments of distributions or payments upon liquidation, redemption of
the Trust Securities or otherwise, the rights of the holders of the Common
Securities to receive such payments will be subordinated to the rights of the
holders of the PERCS. The Declaration does not permit the issuance by the Trust
of any securities (other than the Trust Securities) or the incurrence by the
Trust of any indebtedness. Pursuant to the Declaration, the Property Trustee
will own and hold the Subordinated Notes for the benefit of the holders of the
Trust Securities.
DISTRIBUTIONS
The holders of the PERCS are entitled to receive cumulative cash
distributions of $ per PERCS per annum, or $ per quarter, accruing from
and including the Issue Date and payable quarterly in arrears on the 30th day of
March, June, September and December of each year, commencing September 30, 1995,
except as described below, but only if and to the extent that interest payments
are made in respect of the Subordinated Notes held by the Property Trustee. The
first distribution payment will be for the period from the Issue Date to but
excluding September 30, 1995. Distributions will cease to accrue in respect of
the PERCS on the Mandatory Redemption Date, or on the date of any earlier
redemption of the PERCS, unless either (a) the Trust defaults in the payment of
the Mandatory Redemption Price, the Call Price or the Special Redemption Price
(each of the foregoing a 'Redemption Payment Amount'), as the case may be, or
(b) if Time Warner has exercised the Time Warner Exchange Right, Time Warner
defaults in the delivery of the shares of Hasbro Common Stock or other Exchange
Property and any cash payable upon such exchange.
Distributions on the PERCS must be paid on the dates payable to the extent
that the Trust has funds available for the payment of such distributions in the
Property Account (as defined herein). Distributions in arrears for more than one
quarter will bear interest at the rate per annum of % (to the extent
permitted by law), compounded quarterly. Funds available for distribution to the
holders of the PERCS will be limited to payments received under the Subordinated
Notes deposited in the Trust as trust assets. See 'Description of the
Subordinated Notes'. To the extent Time Warner does not make interest payments
on the Subordinated Notes in full when due, the Property Trustee will not be
able to make distributions in full on the Trust Securities. Under the
Declaration, if and to the extent Time Warner does make interest payments on the
Subordinated Notes deposited in the Trust as trust assets, the Property Trustee
is obligated to make distributions on the Trust Securities on a Pro Rata Basis.
The term 'Pro Rata Basis' shall mean, with respect to any payment, pro rata to
each holder of Trust Securities according to the aggregate stated amount of the
Trust Securities held by such holder in relation to the aggregate stated amount
of all Trust Securities outstanding; provided, however, that if the assets of
the Trust are insufficient to make such payment in full as a result of a default
with respect to
26
<PAGE>
the Subordinated Notes, any funds available to make such payment shall be paid
(i) first to each holder of PERCS pro rata according to the aggregate stated
amount of the PERCS held by such holder in relation to the aggregate stated
amount of all the PERCS outstanding up to an aggregate amount equal to the
amount then owed to the holders of the PERCS and (ii) only after satisfaction of
all amounts owed to the holders of the PERCS, to each holder of Common
Securities pro rata according to the aggregate stated amount of the Common
Securities held by such holder in relation to the aggregate stated amount of all
the Common Securities outstanding.
Distributions on the PERCS will be payable to the holders thereof as they
appear on the books and records of the Trust on the relevant record dates, which
will be the March 15, June 15, September 15 and December 15 prior to the
relevant payment dates. Subject to any applicable laws and regulations and the
provisions of the Declaration, each such payment will be made as described under
' -- Book-Entry System' below. Distributions payable on any PERCS that are not
punctually paid on the date on which they are due as a result of Time Warner
having failed to make the corresponding interest payment on the Subordinated
Notes will forthwith cease to be payable to the person in whose name such PERCS
is registered on the relevant record date, and such defaulted distribution
payment will instead be payable to the person in whose name such PERCS is
registered on the special record date established by the Regular Trustees, which
record date shall correspond to the special record date or other specified date
determined in accordance with the Indenture.
The amount of distributions payable for any full quarterly distribution
period will be computed on the basis of a 360-day year of twelve 30-day months.
Distributions (or amounts equal to accrued and unpaid distributions) payable on
the PERCS for any period shorter than a full quarterly distribution period will
be computed on the basis of a 360-day year of twelve 30-day months and on the
basis of the actual number of days elapsed in any such 30-day month. In the
event that any date on which distributions are payable on the PERCS is not a
Business Day, then payment of the distribution payable on such date will be made
on the next succeeding Business Day (and without any interest or other payment
in respect of any such delay), except that if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. A 'Business Day' shall mean any day other than a Saturday or
Sunday or any other day on which banking institutions in New York, New York, are
authorized or required by law to close.
The payment of distributions on the PERCS out of moneys held by the Trust
is guaranteed by Time Warner on a subordinated basis as and to the extent set
forth under 'Description of the Guarantee'. The Guarantee is a full and
unconditional guarantee from the time of issuance of the PERCS but the Guarantee
covers distributions and other payments on the PERCS only if and to the extent
that Time Warner has made a payment to the Property Trustee of interest or
principal on the Subordinated Notes, as the case may be.
MANDATORY REDEMPTION OF THE PERCS
Subject to the exercise by Time Warner of the Time Warner Exchange Right,
on the Mandatory Redemption Date each of the Trust Securities then outstanding
will be redeemed by the Trust, in cash, at a price per Trust Security equal to
(a) the lesser of (i) $54.41 and (ii) the Exchange Valuation Price on the
Trading Day immediately preceding December 17, 1997, of such amount of Exchange
Property (which initially consists of one share of Hasbro Common Stock for each
PERCS) as relates to one PERCS at such time (the 'Mandatory Redemption Price')
plus (b) an amount equal to all accrued and unpaid distributions on such Trust
Security to but excluding the Mandatory Redemption Date. The Exchange Property
will be subject to adjustment upon the occurrence of certain events affecting
the Hasbro Common Stock, including certain events which result in the conversion
of the Hasbro Common Stock into other Exchange Property. See ' -- Adjustment of
Exchange Rate and Exchange Property' below. The Exchange Valuation Price of the
Hasbro Common Stock or other Exchange Property as of any Trading Day will be
determined on the basis of the average closing sale price of such Exchange
Property for the five consecutive Trading Day period ending on and including
such Trading Day. See ' -- Time Warner Exchange Right' below.
27
<PAGE>
Such mandatory redemption for cash is subject to the exercise by Time
Warner of the Time Warner Exchange Right, pursuant to which Time Warner may, at
its option, require the holders of the PERCS to exchange on the Mandatory
Redemption Date PERCS for a combination of Exchange Property and cash as
described below. See ' -- Time Warner Exchange Right' below.
As described below, the outstanding PERCS may be called for redemption in
whole or in part, at any time, prior to the Mandatory Redemption Date at the
Call Price. In addition, under certain limited circumstances, the PERCS will be
subject to redemption upon redemption by Time Warner of the Subordinated Notes
upon the occurrence and continuation of a Tax Event or an Investment Company
Event at the Special Redemption Price (as defined herein). See ' -- Early
Redemption of the PERCS' and ' -- Special Event Distribution or Redemption'
below.
The opportunity for equity appreciation afforded by an investment in the
PERCS is limited because the Mandatory Redemption Price is capped at $54.41. In
the event that the Exchange Valuation Price as of the Trading Day immediately
preceding December 17, 1997, for the amount of Exchange Property that relates to
one PERCS is greater than $54.41 (based on the Exchange Rate in effect as of
such Trading Day), holders of the PERCS would receive, upon the exercise of the
Time Warner Exchange Right, Hasbro Common Stock or other Exchange Property for
each PERCS on a less than one-for-one basis or cash in an amount that will be
less than the then current market price of one share of Hasbro Common Stock.
Because the price of the Hasbro Common Stock and any other Exchange
Property is subject to market fluctuations, the Mandatory Redemption Price
received by a holder of PERCS on the Mandatory Redemption Date (or any Special
Redemption Price received on any Special Redemption Date) may be more or less
than the amount paid for the PERCS.
The holders of PERCS have no right to require the early redemption of the
PERCS or the exchange of the PERCS into Exchange Property.
EARLY REDEMPTION OF THE PERCS
At any time and from time to time prior to the Mandatory Redemption Date,
upon the call for redemption prior to maturity by Time Warner of the
Subordinated Notes, the proceeds of such redemption shall be promptly applied to
redeem, and the Trust shall call for redemption, upon not less than 20 nor more
than 45 Business Days' notice, outstanding Trust Securities having an aggregate
stated amount equal to the aggregate principal amount of the Subordinated Notes
so redeemed and deliver to the holders thereof in exchange for each Trust
Security so called for redemption cash in an amount equal to the Call Price in
effect on the date of redemption (the 'Optional Redemption Date'), plus cash in
an amount equal to all accrued and unpaid distributions on such Trust Security,
whether or not declared, for the period to but excluding the Optional Redemption
Date. The Call Price is initially equal to (a) $54.41 per Trust Security plus
(b) an amount initially equal to $ per Trust Security, declining by $
for each day that shall have elapsed in the period from the Issue Date to but
excluding the Redemption Date (the number of days in such period being computed
on the basis of a 360-day year of twelve 30-day months) to $0 on October 23,
1997, and thereafter.
Such early redemption of PERCS for cash is subject to the exercise by Time
Warner of the Time Warner Exchange Right, pursuant to which Time Warner may, at
its option, require the holders of the PERCS called for early redemption to
exchange PERCS on any Optional Redemption Date for a combination of Exchange
Property and cash as described below. See ' -- Time Warner Exchange Right'
below.
If the Trust elects to call the PERCS for early redemption, the
appreciation, exclusive of accrued and unpaid distributions, realized on an
investment in the PERCS will, for any holder of PERCS called by the Trust, equal
the excess, if any, of (i) the amount of cash received as payment of the Call
Price over (ii) the price paid by such holder for such PERCS.
28
<PAGE>
TIME WARNER EXCHANGE RIGHT
Time Warner has the right to require the holders of outstanding PERCS
subject to mandatory redemption on the Mandatory Redemption Date or called for
early redemption on any Optional Redemption Date or called for special
redemption on any Special Redemption Date to exchange their PERCS for a
combination of shares of Hasbro Common Stock or other Exchange Property and cash
as described below. If Time Warner shall have exercised the Time Warner Exchange
Right in respect of the Mandatory Redemption Date, each PERCS shall be exchanged
for (a) Exchange Property in respect of the portion of such PERCS to be
exchanged for Exchange Property based on the Exchange Rate in effect on the
Trading Day immediately preceding December 17, 1997, (b) cash in respect of the
portion, if any, of such PERCS that is not to be exchanged for Exchange
Property, calculated by subtracting from the Mandatory Redemption Price the
value of the Exchange Property to be delivered (based on the Exchange Valuation
Price of such Exchange Property as of the Trading Day immediately preceding
December 17, 1997), and (c) cash in an amount equal to all accrued and unpaid
distributions on such PERCS to but excluding the Mandatory Redemption Date;
provided that if the Exchange Valuation Price as of the Trading Day immediately
preceding December 17, 1997, of the amount of Exchange Property that relates to
one PERCS is greater than $54.41 (based on the Exchange Rate in effect as of
such Trading Day), Time Warner shall deliver in exchange for each PERCS (a) (i)
Exchange Property (valued on the basis of its Exchange Valuation Price as of
such Trading Day) and (ii) at the option of Time Warner, cash, having an
aggregate value equal to $54.41 per PERCS and (b) cash in an amount equal to all
accrued and unpaid distributions on such PERCS to but excluding the Mandatory
Redemption Date.
If Time Warner shall have exercised the Time Warner Exchange Right in
respect of any Optional Redemption Date or Special Redemption Date, each PERCS
to be redeemed on any such date shall be exchanged for (a)(i) Exchange Property
(valued on the basis of its Exchange Valuation Price as of the Trading Day
immediately preceding the applicable Optional Redemption Date or Special
Redemption Date) and (ii) at the option of Time Warner, cash, having an
aggregate value equal to the Call Price or the Special Redemption Price in
effect for each PERCS on such Optional Redemption Date or Special Redemption
Date, as the case may be, and (b) cash in an amount equal to all accrued and
unpaid distributions on such PERCS to but excluding the applicable Optional
Redemption Date or Special Redemption Date, as the case may be.
In the event that Time Warner shall exercise the Time Warner Exchange Right
and elect to deliver Exchange Property with respect to only a portion of each
PERCS, each holder of PERCS to be redeemed shall be entitled to receive from
Time Warner for each PERCS held by such holder, the same types, amounts and
relative proportions of Exchange Property and cash as every other holder of
PERCS to be redeemed.
The 'Exchange Property' with respect to each PERCS on any date shall
consist of (i) as of the date of this Prospectus, one share of Hasbro Common
Stock (in the aggregate, the 'Initial Shares'), (ii) any cash or other property
(other than cash dividends and other cash distributions, if any, paid by the
issuer that do not constitute Extraordinary Cash Dividends and other than
interest, if any, paid in respect thereof) issued or distributed in respect of
the Initial Shares or other Exchange Property, (iii) any cash or other property
issued or distributed upon the exchange or conversion of Exchange Property,
including upon any reorganization, consolidation or merger or any sale or
transfer or lease of all or substantially all the assets of the issuer of such
Exchange Property and (iv) any cash or other property paid by an offeror in
connection with a tender or exchange offer for Exchange Property of a particular
type as set forth below; provided that Exchange Property shall not include any
property distributed in respect of other Exchange Property for which an
antidilution adjustment has been made pursuant to the Declaration.
In the case of a tender or exchange offer for all Exchange Property of a
particular type, the Exchange Property shall be deemed to include all cash or
other property paid by the offeror in the tender or exchange offer (in an amount
determined on the basis of the rate of exchange in such tender or exchange
offer), whether or not Time Warner tenders or exchanges such Exchange Property.
In the event of a partial tender or exchange offer with respect to Exchange
Property of a particular type, Exchange Property shall be deemed to include cash
or other property paid by the offeror in the tender
29
<PAGE>
or exchange offer in an amount determined as if the offeror had purchased or
exchanged Exchange Property in the proportion in which all property of such type
was purchased or exchanged from the holders thereof; provided that if Time
Warner tenders all its Exchange Property of such type, the amount of cash or
other property received that will constitute Exchange Property will be
determined on the basis of the amount of such cash or other property actually
received by Time Warner. Except as provided above, in the event of a tender or
exchange offer with respect to the Exchange Property in which an offeree may
elect to receive cash or other property, Exchange Property shall be deemed to
include the kind and amount of cash and other property received by offerees who
elect to receive cash.
The 'Exchange Valuation Price' of each item of property comprising the
Exchange Property on or as of any date means the average of the Purchase Sale
Prices (as defined below) of the applicable Exchange Property for the five
Trading Day period ending on and including such date, appropriately adjusted to
take into account the occurrence, during such period, of any Exchange Adjustment
Events with respect to such Exchange Property. The 'Purchase Sale Price' on any
date means the closing per share sale price for the applicable Exchange Property
(or, if no closing sale price is reported, the average of the bid and ask prices
or, if more than one in either case, the average of the average bid and average
ask prices) on such date as reported in the composite transactions for the
principal United States securities exchange on which such Exchange Property is
traded or, if such Exchange Property is not listed on a United States national
or regional securities exchange, as reported by Nasdaq, or, if such Exchange
Property is not reported by Nasdaq, the high per share bid price for such
Exchange Property in the over-the-counter market as reported by the National
Quotation Bureau or similar organization, or, if such bid price is not
available, the per unit market value of such Exchange Property on such date as
determined by a nationally recognized investment banking firm retained for such
purpose by Time Warner. Because the Exchange Valuation Price of the Exchange
Property is determined prior to the applicable Redemption Payment Date, holders
of PERCS (or, if the Subordinated Notes shall have been distributed to the
holders of the PERCS as described herein, Subordinated Notes) bear the market
risk with respect to the value of the Exchange Property to be received from the
date such Exchange Valuation Price is determined to such Redemption Payment
Date.
The 'Exchange Rate' means initially, when used with respect to PERCS, one
share of Hasbro Common Stock per PERCS, and when used with respect to
Subordinated Notes, one share of Hasbro Common Stock per Minimum Denomination of
Subordinated Notes, subject to certain antidilution adjustments described under
' -- Adjustment of Exchange Rate and Exchange Property' below. The Exchange Rate
for any other Exchange Property will be determined on the basis of the portion
of Hasbro Common Stock or other Exchange Property in respect of which such
Exchange Property is issued, distributed or exchanged.
The term 'Trading Day' means a day on which the AMEX (or any successor
thereto) or, to the extent that neither the Hasbro Common Stock nor any other
Exchange Property is listed on the AMEX, such other national securities
exchanges on which the Exchange Property is listed or, if none, the NYSE, is
open for the transaction of business.
Upon any exercise by Time Warner of the Time Warner Exchange Right, Time
Warner will provide notice to the Property Trustee no later than 11:59 p.m., New
York time, (a) on the second Business Day following December 17, 1997, in the
case of PERCS subject to mandatory redemption and (b) on the Business Day
immediately preceding the applicable Optional Redemption Date or Special
Redemption Date, in the case of PERCS subject to early redemption or special
redemption of (i) Time Warner's election to exercise the Time Warner Exchange
Right, (ii) a description of the type and amount of Exchange Property to be
delivered in respect of each PERCS to be redeemed, (iii) if applicable, the
respective portions of Exchange Property and cash to be delivered and (iv) the
Exchange Rate in effect on the Trading Day immediately preceding December 17,
1997, or, in the case of an early redemption or special redemption, the
applicable Optional Redemption Date or Special Redemption Date. Time Warner
shall deliver any such Exchange Property and cash to be delivered in exchange
for the PERCS no later than the applicable Mandatory Redemption Date, Optional
Redemption Date or Special Redemption Date (each a 'Redemption Payment Date')
or, if later, the time of delivery or transfer of such PERCS to Time Warner.
Time Warner will cause notice of such exercise of the Time Warner
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<PAGE>
Exchange Right to be published by means of the Dow Jones Business Newswires
Service promptly after providing notice of such exercise to the Property
Trustee.
In the event that Time Warner exercises the Time Warner Exchange Right,
delivery of the Exchange Property and cash to the holders of any PERCS to be
redeemed will be conditioned upon delivery or book-entry transfer of such PERCS
(together with necessary endorsements) to the Property Trustee at any time
(whether prior to, on or after the applicable Redemption Payment Date) after
notice of the exercise of the Time Warner Exchange Right is given to the
Property Trustee. In such event, such Exchange Property and cash with respect to
such PERCS will be delivered to each holder of PERCS to be redeemed no later
than the later of (i) the applicable Redemption Payment Date or (ii) the time of
delivery or transfer of such PERCS. If, following any exercise of the Time
Warner Exchange Right, the Property Trustee holds, in accordance with the terms
of the Declaration, (a) Exchange Property in respect of the portion of each
PERCS to be exchanged for Exchange Property, (b) cash in respect of the portion,
if any, of each PERCS that is not to be exchanged for Exchange Property, and (c)
cash in an amount equal to all accrued and unpaid distributions on all such
PERCS to be redeemed to the applicable Redemption Payment Date, then at the
close of business on such Redemption Payment Date, whether or not such PERCS are
delivered to the Property Trustee, (i) Time Warner will become the owner and
record holder of such PERCS and (ii) the holders of such PERCS shall have no
further rights with respect to the PERCS other than the right to receive the
Exchange Property, together with cash as described above, upon delivery of the
PERCS. In the event that delivery of the Exchange Property and cash, if any, due
on any Redemption Payment Date in respect of which Time Warner shall have
exercised the Time Warner Exchange Right is improperly withheld or is refused
and not paid by the Property Trustee or by Time Warner, distributions on such
PERCS will continue to accrue from the original Redemption Payment Date to the
actual date of delivery, in which case the actual delivery date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Payment Amount due on such date and thus the amount of Exchange
Property and cash to be delivered on such date.
Subject to the limitations set forth in the Underwriting Agreement (as
defined herein) and any other legal restrictions applicable thereto, Time Warner
may, at any time, pledge, transfer or sell all or any portion of the Hasbro
Common Stock or any other Exchange Property, including in a transaction with the
Underwriters or any of their affiliates. In the event of such a pledge, transfer
or sale, a holder's rights with respect to a PERCS will not be affected but it
would become more likely that Time Warner will not exercise the Time Warner
Exchange Right. See 'Underwriters'.
In the event of the bankruptcy, insolvency or liquidation of any subsidiary
of Time Warner that holds the Hasbro Common Stock (and/or other Exchange
Property) or of Time Warner, the Hasbro Common Stock and/or other Exchange
Property will be subject to the claims of the creditors of any such subsidiary
or of Time Warner.
No fractional shares of Hasbro Common Stock or other Exchange Property will
be issued upon the exercise by Time Warner of the Time Warner Exchange Right. In
lieu of any fractional share or other unit of Exchange Property otherwise
issuable in respect of any PERCS to be exchanged pursuant to the Time Warner
Exchange Right on any Redemption Payment Date, the holders of such PERCS shall
be entitled to receive an amount in cash equal to the same fraction of the
Exchange Valuation Price of the Hasbro Common Stock or such other Exchange
Property deliverable upon such exchange, determined as of the Trading Day
immediately preceding such date (or, in the case of a mandatory redemption, the
Trading Day immediately preceding December 17, 1997).
To the extent that PERCS are exchanged for Exchange Property and all such
Exchange Property cannot be distributed by the Depositary (as defined herein) to
its Participants (as defined herein) that hold PERCS without creating fractional
interests in the shares or units making up such Exchange Property, the
Depositary may, with the Trust's and Time Warner's consent, adopt such method as
it deems equitable and practicable for the purpose of effecting such
distribution, including the sale (at public or private sale) of such Exchange
Property representing in the aggregate such fractional interests at such place
or places and upon such terms as it may deem proper, and the net proceeds of any
such sale shall be distributed or made available for distribution to such
Participants that would otherwise have received such fractional interests. The
amount distributed in the foregoing cases will be reduced by
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any amount required to be withheld by the Depositary on account of withholding
taxes or otherwise required pursuant to law, regulation or court process.
EFFECT OF THE LYONS ON THE TIME WARNER EXCHANGE RIGHT
On December 10, 1992, Time Warner issued the LYONs. The LYONs are
exchangeable at any time on or prior to maturity at the option of the holders
thereof for 7.301 shares of Hasbro Common Stock per LYON, subject to adjustment
upon the occurrence of certain events. Such exchange right is subject to Time
Warner's right to pay cash equal to the then market value of the shares of
Hasbro Common Stock for which the LYONs are exchangeable in lieu, in whole or in
part, of delivering shares of Hasbro Common Stock. In addition, on December 17,
1997, (a) Time Warner has the right to redeem the LYONs for cash at a price of
$397.27 per LYON (equal to the accreted value of each LYON as of such date) and
(b) the holders of the LYONs have the option to require Time Warner to purchase
the LYONs for a purchase price equal to $397.27 per LYON, in the latter case
payable at the option of Time Warner in cash or shares of Hasbro Common Stock at
their then current market value (or any combination thereof). The redemption
price and the purchase price as of December 17, 1997, are both equivalent to
$54.41 per share of underlying Hasbro Common Stock, calculated by dividing the
$397.27 accreted value per LYON as of such date by the 7.301 shares of Hasbro
Common Stock into which such LYON may be exchanged, which is the maximum price
payable per PERCS upon the mandatory redemption of the PERCS.
If the closing sale price of Hasbro Common Stock on December 17, 1997, is
less than $54.41, it is unlikely that holders of the LYONs will elect to
exchange their LYONs (even if Time Warner were to call the LYONs for redemption
on such date) and it is likely that Time Warner will exercise the Time Warner
Exchange Right on the Mandatory Redemption Date in respect of the PERCS. If the
closing sale price of Hasbro Common Stock on any day on or prior to December 17,
1997, exceeds the price determined by dividing the accreted value of one LYON as
of such date by 7.301 (equal to $54.41 on December 17, 1997), it is possible,
and in the event that under such circumstances, Time Warner calls the LYONs for
redemption on December 17, 1997, it is likely, that the holders of the LYONs
will elect to exchange their LYONs. To the extent that Time Warner elects to
deliver Hasbro Common Stock to such exchanging holders in lieu of paying such
holders cash, it is likely that Time Warner will not exercise the Time Warner
Exchange Right on the Mandatory Redemption Date in respect of the PERCS.
To the extent that Time Warner elects to pay for any LYONs that are put to
Time Warner at the option of the holders thereof on December 17, 1997, by
delivering Hasbro Common Stock to such holders instead of cash, it is likely
that Time Warner will not exercise the Time Warner Exchange Right on the
Mandatory Redemption Date in respect of the PERCS.
In the Declaration and the Indenture Time Warner has agreed that so long as
it is subject to Section 16 of the Exchange Act with respect to Hasbro, it will
take such steps as may be necessary in connection with any exchange of LYONs by
the holders thereof or any redemption of PERCS or Subordinated Notes so that it
will not be in a net short position with respect to its obligations to deliver
Hasbro Common Stock (treating the outstanding LYONs and PERCS as 'derivative
securities' (as defined under Rule 16a-1(c) under the Exchange Act) and treating
the Hasbro Common Stock subject to such securities as subject to only one 'put
equivalent position' (as defined under Rule 16a-1(h) under the Exchange Act)).
Such steps may include the redemption or purchase of PERCS or Subordinated
Notes, the purchase of LYONs, the settlement of exchanges or redemptions in cash
(rather than Hasbro Common Stock) and the purchase of additional shares of
Hasbro Common Stock.
It is Time Warner's intention to deliver the Hasbro Common Stock owned by
it to satisfy its obligations in respect of either the Subordinated Notes and
the PERCS or the LYONs.
ADJUSTMENT OF EXCHANGE RATE AND EXCHANGE PROPERTY
The Exchange Rate shall be adjusted (and, if applicable, the Exchange
Property shall be changed) upon (i) the distribution of a dividend on Exchange
Property in the same type of Exchange Property, (ii) the combination of Exchange
Property into a smaller number of shares or other units, (iii) the
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subdivision of outstanding shares or other units of Exchange Property, (iv) the
conversion or reclassification of Exchange Property by issuance or exchange of
other securities and (v) a consolidation, merger or binding share exchange or a
transfer of all or substantially all of the assets of the issuer of such
Exchange Property. In such event, the Exchange Rate in effect immediately before
such event shall be adjusted (and, if applicable, the Exchange Property shall be
changed) to reflect the amount of cash or the kind and amount of property that a
holder of Exchange Property would have owned or been entitled to receive upon or
by reason of such event. The Exchange Rate will also be adjusted upon a
distribution of cash or other property (including rights, warrants or other
securities) on Exchange Property of a particular type (excluding (i) cash
dividends and other cash distributions paid by the issuer thereof other than
Extraordinary Cash Dividends, (ii) interest, if any, paid thereon by the issuer
thereof and (iii) dividends payable in Exchange Property for which adjustment is
made pursuant to the preceding sentence). Each of the above shall be referred to
as an 'Exchange Adjustment Event'. Notwithstanding the foregoing, Time Warner
shall be entitled, by notice to the Regular Trustees not later than the close of
business on the fifth Business Day following the date of any distribution
referred to in this paragraph (or if Time Warner is not aware of such
distribution, as soon as practicable after becoming so aware), to elect not to
have the foregoing antidilution adjustments apply, in which case the Exchange
Rate shall not be adjusted upon the occurrence of the Exchange Adjustment Event
as contemplated above. Instead the property distributed in respect of Exchange
Property shall constitute additional Exchange Property. As a result, any such
additional Exchange Property shall be valued as of the Trading Day immediately
preceding December 17, 1997, in the case of a mandatory redemption, or as of the
Trading Day immediately preceding the applicable Optional Redemption Date or
Special Redemption Date, in the case of an early redemption or special
redemption, as the case may be.
In the case where an issuer of Exchange Property is controlled by Time
Warner or an affiliate of Time Warner, the Exchange Rate shall also be adjusted
upon the issuance by such issuer of Exchange Property for a consideration per
unit of such Exchange Property that is less than the Average Quoted Price of
such Exchange Property on the date on which the issue price is fixed, or the
issuance by any such issuer of securities convertible into or exchangeable or
exercisable for Exchange Property for a consideration per unit of such Exchange
Property issuable upon such conversion, exchange or exercise that is less than
the Average Quoted Price of the Exchange Property deliverable upon conversion,
exchange or exercise at the time such convertible, exchangeable or exercisable
securities are issued. This adjustment will not apply, however, in certain
circumstances, including (a) the exchange of PERCS or the issuance of any
security upon the conversion, exchange or exercise of other securities
convertible into or exchangeable or exercisable for Exchange Property, (b)
securities issued upon the exercise of rights or warrants issued pro rata to all
of the holders of such securities constituting Exchange Property, (c) an
issuance of securities in a bona fide public offering pursuant to a firm
commitment underwriting, (d) the issuance of securities in connection with a
bona fide acquisition to persons not affiliated with Time Warner and (e) certain
options issued to such issuer's employees under bona fide employee benefit
plans. Hasbro is not an affiliate of Time Warner. So long as Hasbro is not
controlled by Time Warner or an affiliate of Time Warner, the issuance by Hasbro
of Exchange Property or securities convertible into or exchangeable for Exchange
Property, whether or not issued or convertible or exchangeable at a price that
is less than the applicable Exchange Valuation Price of such Exchange Property,
will not result in an adjustment pursuant to the provisions described in this
paragraph. Accordingly, the issuance by Hasbro of Exchange Property or
securities convertible into or exchangeable for Exchange Property could result
in dilution of the amounts receivable by the holders of the PERCS, in cash upon
redemption of the PERCS or in Exchange Property upon the exercise by Time Warner
of the Time Warner Exchange Right.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
'Tax Event' means that the Regular Trustees shall have obtained an opinion
of nationally recognized independent tax counsel experienced in such matters (a
'Dissolution Tax Opinion') to the effect that, as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority
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(including the enactment of any legislation and the publication of any judicial
decision or regulatory determination), (c) any interpretation or pronouncement
that provides for a position with respect to such laws or regulations that
differs from the theretofore generally accepted position or (d) any action taken
by any governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after the date of this Prospectus there is more than an insubstantial risk
that at such time or within 90 days of the date thereof (i) the Trust is, or
would be subject to United States Federal income tax with respect to income
accrued or received on the Subordinated Notes, (ii) less than 25% of the
interest payable on the Subordinated Notes is, or would be deductible by Time
Warner for United States Federal income tax purposes, (iii) the Trust is, or
would be subject to more than a de minimis amount of other taxes, duties or
other governmental charges or (iv) as a result of the issuance of the PERCS
and/or the Subordinated Notes, Time Warner (or an affiliate of Time Warner) is,
or would be treated as having disposed, for United States Federal income tax
purposes, of the Hasbro Common Stock owned by it.
'Investment Company Event' means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel experienced
in such matters to the effect that, as a result of the occurrence of a change in
law or regulation or a written change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority (a 'Change in 1940 Act Law'), there is more than an insubstantial risk
that the Trust is or will be considered an 'investment company' that is required
to be registered under the Investment Company Act of 1940, as amended (the '1940
Act'), which Change in 1940 Act Law becomes effective on or after the date of
this Prospectus.
If, at any time, a Tax Event or an Investment Company Event (each a
'Special Event') shall occur and be continuing, the Regular Trustees shall
notify Time Warner thereof and Time Warner shall elect to either:
(a) direct the Regular Trustees to dissolve the Trust and cause
Subordinated Notes having an aggregate principal amount equal to the
aggregate stated amount of and accrued and unpaid interest equal to accrued
and unpaid distributions on, and having the same record date for payment
as, the Trust Securities outstanding at such time to be distributed to the
holders of the Trust Securities on a Pro Rata Basis (determined without
regard to the proviso in the definition of such term) in liquidation of
such holders' interests in the Trust, within 90 days following the
occurrence of such Special Event; provided, however, that in the case of
the occurrence of a Tax Event, as a condition of any such dissolution and
distribution, the Regular Trustees shall have received an opinion of
nationally recognized independent tax counsel experienced in such matters
(a 'No Recognition Opinion'), which opinion may rely on any then applicable
published revenue ruling of the Internal Revenue Service, to the effect
that the holders of the PERCS will not recognize any gain or loss for
United States Federal income tax purposes as a result of such dissolution
of the Trust and distribution of the Subordinated Notes;
(b) subject to the exercise of the Time Warner Exchange Right, redeem
the Subordinated Notes in whole (and not in part), upon not less than 20
nor more than 45 Business Days' notice, within 90 days following the
occurrence of such Special Event (such date of redemption a 'Special
Redemption Date'), in which case the Trust shall (unless the Trust shall
have been dissolved) redeem in cash on a Pro Rata Basis Trust Securities
having an aggregate stated amount equal to the principal amount of, and
accrued and unpaid interest equal to accrued and unpaid distributions on,
the Subordinated Notes so redeemed, at a price per Trust Security (and per
Minimum Denomination) equal to (i) the lesser of (A) $54.41 and (B) an
amount equal to the Exchange Valuation Price on the Trading Day immediately
preceding such Special Redemption Date of the amount of Exchange Property
that relates to one PERCS at such time (based on the Exchange Rate in
effect as of such Trading Day), plus (ii) an amount initially equal to $
per Trust Security, declining by $ on each day following the Issue
Date (computed on the basis of a 360-day year of twelve 30-day months) to
$0 on October 23, 1997, and thereafter (such price, as it relates to the
Trust Securities and to the Subordinated Notes, the 'Special Redemption
Price'), plus an
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amount equal to all accrued and unpaid distributions on such Trust Security
to but excluding the Special Redemption Date; or
(c) in the case of a Tax Event, allow the Subordinated Notes and the
Trust Securities to remain outstanding and indemnify the Trust for all
taxes payable by it as a result of such Tax Event;
provided, that, if at the time there is available to the Trust the opportunity
to eliminate, within such 90-day period, the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure, that has no adverse effect on the Trust,
Time Warner or the holders of the Trust Securities, the Trust will pursue such
measure in lieu of dissolution or redemption; provided further, that Time Warner
shall have no right to redeem the Subordinated Notes or to direct the Regular
Trustees to dissolve the Trust while the Regular Trustees are pursuing any such
ministerial action or reasonable measure unless the Special Event shall not have
been so eliminated by the 85th day following the occurrence thereof, in which
case Time Warner shall be permitted to so direct the Regular Trustees or to
provide notice to the holders of the redemption of the Subordinated Notes;
provided further, that if dissolution of the Trust and distribution of the
Subordinated Notes to the holders of the Trust Securities would eliminate the
condition causing the Tax Event or the Investment Company Event and all other
conditions to such dissolution and distribution have been satisfied, Time Warner
will not be permitted to redeem Subordinated Notes at the Special Redemption
Price; and provided further, that Time Warner shall not be permitted to direct
the Regular Trustees to dissolve the Trust and distribute the Subordinated Notes
to the holders of the Trust Securities upon the occurrence of the condition
described in clause (ii) in the definition of 'Tax Event' above if, after giving
effect to such dissolution and distribution, Time Warner would not be permitted
to deduct a greater percentage of the interest payable on the Subordinated Notes
than it had been permitted to deduct for United States Federal income tax
purposes prior to the occurrence of such Tax Event.
If Subordinated Notes are distributed to the holders of the PERCS, Time
Warner will use its reasonable best efforts to have the Subordinated Notes
listed on the NYSE or on such other exchange as the PERCS are then listed.
On the date of any distribution of Subordinated Notes upon dissolution of
the Trust, (i) the PERCS will no longer be deemed to be outstanding, (ii)
neither the Trust nor Time Warner shall have any further obligation to the
holders of the PERCS with respect to the PERCS or under the Guarantee, (iii) the
Depositary or its nominee, as the record holder of the PERCS, will receive a
registered global certificate or certificates representing the Subordinated
Notes to be delivered upon such distribution and (iv) any certificates
representing PERCS not held by the Depositary or its nominee will be deemed to
represent Subordinated Notes having an aggregate principal amount equal to the
aggregate stated amount of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, such PERCS, until such certificates are presented to
Time Warner or its agent for transfer or reissuance. Holders of Subordinated
Notes received as a result of any such dissolution and distribution shall be
entitled to receive on the next regularly scheduled Interest Payment Date (as
defined herein) interest accrued on the Subordinated Notes from and including
the last date as of which distributions were paid in respect of the PERCS
formerly held by such holders to but excluding such Interest Payment Date. Any
such distribution shall constitute satisfaction of all the Trust's obligations
with respect to the PERCS, including any obligation to pay accrued and unpaid
distributions thereon.
Under current United States Federal income tax law, a distribution of
Subordinated Notes upon the dissolution of the Trust would not be a taxable
event to holders of the PERCS. Upon occurrence of a Special Event, however, a
dissolution of the Trust in which holders of the PERCS receive cash would be a
taxable event to such holders. See 'Federal Income Tax Considerations'.
There can be no assurance as to the market prices for the PERCS or the
Subordinated Notes that may be distributed in exchange for PERCS if a
dissolution or liquidation of the Trust were to occur. Accordingly, the PERCS
that an investor may purchase, whether pursuant to the offer made hereby or in
the secondary market, or the Subordinated Notes that a holder of PERCS may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the PERCS offered hereby. Because
holders of PERCS may receive Subordinated Notes upon the occurrence of a Tax
Event or an Investment Company Event, prospective purchasers of PERCS are
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also making an investment decision with regard to the Subordinated Notes and
should carefully review all the information regarding the Subordinated Notes
contained herein. See 'Description of the Subordinated Notes'.
REDEMPTION/DISTRIBUTION PROCEDURES
The Trust will provide notice (the 'Redemption/Distribution Notice') of any
redemption (excluding the mandatory redemption) of, or any distribution of the
Subordinated Notes in exchange for, the PERCS on a date not less than 20 nor
more than 45 Business Days prior to such redemption or distribution, as the case
may be, to all holders of PERCS to be redeemed or exchanged stating, among other
things, (i) the date of such redemption or of such distribution, as the case may
be, and (ii) in the case of any early or special redemption, the applicable Call
Price or Special Redemption Price, as the case may be. Such notice shall be
provided by mail to the holders of record of PERCS to be called or exchanged to
the address appearing for such holder in the books and records of the Trust.
Each holder of PERCS to be called or exchanged shall surrender the certificates
evidencing such PERCS to the Trust at the place designated in such notice and
shall be entitled to receive cash in respect of the applicable Redemption
Payment Amount or Subordinated Notes, as the case may be, and in the event Time
Warner shall have exercised the Time Warner Exchange Right, certificates for
shares of Hasbro Common Stock or other Exchange Property and, if so elected by
Time Warner, cash deliverable upon such exchange, in each case together with any
accrued and unpaid distributions, following such surrender and following the
date of such redemption.
The Common Securities will be redeemed on a Pro Rata Basis with the PERCS
in the case of a mandatory redemption, early redemption or special redemption.
Subject to the foregoing, if fewer than all outstanding Trust Securities are to
be redeemed, the Trust Securities will be redeemed on a Pro Rata Basis. PERCS
registered in the name of and held by DTC or its nominee will be redeemed pro
rata as described under ' -- Book-Entry System' below.
Payment of the Redemption Payment Amount of each PERCS, together with any
accrued and unpaid distributions on such PERCS, is conditioned upon delivery or
book-entry transfer of such PERCS (together with necessary endorsements) to the
Property Trustee at any time (whether prior to, on or after the relevant
Redemption Payment Date) after the Redemption/Distribution Notice is given (to
the extent such notice is required). See ' -- Book-Entry System' below. Payment
of the Redemption Payment Amount for such PERCS, together with any accrued and
unpaid distributions thereon, will be made by the delivery of cash no later than
the applicable Redemption Payment Date with respect to such PERCS or, if later,
the time of delivery or transfer of such PERCS. If the Property Trustee holds,
in accordance with the terms of the Declaration, money sufficient to pay the
Redemption Payment Amount of the PERCS, together with any accrued and unpaid
distributions thereon to the applicable Redemption Payment Date, on the
applicable Redemption Payment Date, then at the close of business on such
Redemption Payment Date, the PERCS will cease to be outstanding and
distributions with respect to such PERCS will cease to accrue, whether or not
such PERCS are delivered to the Property Trustee, and all rights of the holders
of such PERCS shall terminate and lapse, other than the right to receive the
Redemption Payment Amount and any accrued and unpaid dividends (without any
interest thereon) upon delivery of the PERCS.
Unless Time Warner has exercised the Time Warner Exchange Right, provided
that Time Warner has paid to the Property Trustee the required amount of cash
due upon any optional redemption or special redemption or at the maturity of the
Subordinated Notes, the Trust will irrevocably deposit with the Depositary no
later than the close of business on the applicable Redemption Payment Date funds
sufficient to pay (a) the Redemption Payment Amount payable with respect to the
Trust Securities on such date and (b) an amount equal to any accrued and unpaid
distributions on the Trust Securities to be redeemed to and including such
Redemption Payment Date and will give the Depositary irrevocable instructions
and authority to pay such amount to the holders of the Trust Securities entitled
thereto. See ' -- Book-Entry System' below. In the event that any date fixed for
redemption of the Trust Securities is not a Business Day, then payment of the
Redemption Payment Amount (and any accrued and unpaid dividends) payable on such
date will be made on the next succeeding Business Day (and without any interest
or other payment in respect of any such delay), except that, if such Business
Day falls in the
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next calendar year such payment will be made on the immediately preceding
Business Day. In the event that payment of the Redemption Payment Amount and any
accrued and unpaid dividends due on any Redemption Payment Date is improperly
withheld or refused and not paid by the Property Trustee or by Time Warner
pursuant to the Guarantee, distributions on such PERCS will continue to accrue,
from the original Redemption Payment Date to the actual date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Payment Amount due on such
date.
Upon the date of dissolution of the Trust and distribution of Subordinated
Notes as a result of the occurrence of a Special Event, certificates
representing the PERCS (or book-entry interests) shall be deemed to represent
beneficial interests in the Subordinated Notes so distributed, and the PERCS
will no longer be deemed outstanding and may be canceled by the Regular
Trustees. The Subordinated Notes so distributed shall have an aggregate
principal amount equal to the aggregate stated amount of the PERCS in respect of
which the Subordinated Notes shall have been so distributed.
The Trust may not redeem fewer than all of the outstanding PERCS on any
Optional Redemption Date unless all accrued and unpaid distributions have been
or are concurrently being paid on all PERCS for all quarterly distribution
periods terminating on or prior to the applicable Optional Redemption Date. If a
partial redemption would result in the delisting of the PERCS by any national
securities exchange (or other automated inter-dealer quotation system, including
The Nasdaq Stock Market ('Nasdaq')) on which the PERCS are then listed, Time
Warner pursuant to the Indenture will only redeem Subordinated Notes in whole
and, as a result, the Trust may only redeem the PERCS in whole.
Subject to the foregoing and to applicable law (including, without
limitation, United States Federal securities laws), Time Warner or its
affiliates may, at any time and from time to time, purchase outstanding PERCS by
tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any liquidation, dissolution, winding-up or termination of
the Trust (each a 'Liquidation Event'), whether voluntary or involuntary, the
holders of the Trust Securities on the date of such Liquidation Event will be
entitled to be paid on a Pro Rata Basis out of the assets of the Trust the
Liquidation Distribution unless, in connection with such Liquidation Event,
Subordinated Notes in an aggregate principal amount equal to the aggregate
stated amount of, and bearing accrued and unpaid interest in an amount equal to
the accrued and unpaid distributions on, the Trust Securities have been
distributed on a Pro Rata Basis (determined without regard to the proviso in the
definition of such term) to the holders of the Trust Securities in exchange
therefor. The 'Liquidation Distribution' will be equal to (a)(i) if such
Liquidation Event occurs at the stated maturity of the Subordinated Notes, the
Mandatory Redemption Price, (ii) if such Liquidation Event occurs in connection
with the optional redemption of the Subordinated Notes, the Call Price, (iii) if
such Liquidation Event occurs in connection with the special redemption of the
Subordinated Notes, the Special Redemption Price and (iv) if such Liquidation
Event occurs in connection with an acceleration of the Subordinated Notes in any
other circumstance, the Note Acceleration Price (as defined herein), in each
case plus (b) the amount of accrued and unpaid distributions on the Trust
Securities to but excluding the date of payment. In addition, in the event that
the assets of the Trust exceed the amount necessary to pay to all holders of the
Trust Securities the full amount of the Liquidation Distribution, such excess
will be paid to the holders of the Trust Securities on a Pro Rata Basis
(determined without regard to the proviso in the definition of such term).
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture for the Subordinated Notes (an
'Indenture Event of Default') will constitute an event of default under the
Declaration with respect to the Trust Securities (a 'Declaration Event of
Default'); provided that pursuant to the Declaration, the holder of the Common
Securities will be deemed to have waived any Declaration Event of Default with
respect to the Common Securities until all Declaration Events of Default with
respect to the PERCS have been cured, waived or otherwise eliminated. Until all
such Declaration Events of Default with respect to the PERCS have been so cured,
waived or otherwise eliminated, the Property Trustee will be deemed to be
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acting solely on behalf of the holders of the PERCS, and only the holders of the
PERCS will have the right to direct the Property Trustee with respect to certain
matters under the Declaration and consequently the Indenture. In the event that
any Declaration Event of Default with respect to the PERCS is waived by the
holders of the PERCS as provided in the Declaration, the holders of Common
Securities pursuant to the Declaration have agreed that such waiver also
constitutes a waiver of such Declaration Event of Default with respect to the
Common Securities for all purposes under the Declaration without any further
act, vote or consent of the holders of the Common Securities. See ' -- Voting
Rights'.
Upon the occurrence of a Declaration Event of Default, the Property
Trustee, as the sole holder of the Subordinated Notes, will have the right under
the Indenture to declare the Subordinated Notes to be immediately due and
payable. In addition, the Property Trustee will have the power to exercise all
rights, powers and privileges of a holder of Subordinated Notes under the
Indenture. See 'Description of the Subordinated Notes'.
VOTING RIGHTS
Except as provided below under ' -- Modification of the Declaration', under
the Trust Act and the Trust Indenture Act and as otherwise required by law and
the Declaration, the holders of the PERCS will have no voting rights.
If (i) the Trust fails to pay distributions in full on the PERCS and such
failure continues unremedied for 30 days or fails to pay the Redemption Payment
Amount in respect of any PERCS to be redeemed on the applicable Redemption
Payment Date, together with any accrued and unpaid distributions thereon to such
date or (ii) a Declaration Event of Default occurs and is continuing (each an
'Appointment Event'), then the holders of the PERCS, acting as a single class,
will be entitled by the majority vote of such holders to appoint a Special
Regular Trustee. In addition, in the case of a failure to make payments as
described in (i) above, to the extent Time Warner has made payments to the Trust
in respect of the Subordinated Notes in amounts sufficient to make such payments
of distributions or Redemption Payment Amounts, the Guarantee Trustee will be
entitled to enforce against Time Warner, for the benefit of the holders of
PERCS, its rights as the holder of the Guarantee. In the case of a Declaration
Event of Default as described in (ii) above, the Property Trustee will be
entitled to enforce against Time Warner, for the benefit of the holders of
PERCS, its rights as a holder of the Subordinated Notes. Any holder of PERCS
(other than Time Warner or any of its affiliates) shall be entitled to nominate
any person to be appointed as Special Regular Trustee. Not later than 30 days
after such right to appoint a Special Regular Trustee arises, the Regular
Trustees shall convene a meeting of the holders of PERCS for the purpose of
appointing a Special Regular Trustee. If the Regular Trustees fail to convene
such meeting within such 30-day period, the holders of PERCS representing not
less than 10% of the aggregate stated amount of the outstanding PERCS will be
entitled to convene such meeting. The record date of such meeting will be the
close of business on the Business Day next preceding the day on which the notice
of the meeting is sent to the holders of the PERCS. The provisions of the
Declaration relating to the convening and conduct of the meetings of the holders
will apply with respect to any such meeting. Any Special Regular Trustee so
appointed shall cease to be a Special Regular Trustee if the Appointment Event
pursuant to which the Special Regular Trustee was appointed and all other
Appointment Events cease to be continuing. Notwithstanding the appointment of
any Special Regular Trustee, Time Warner shall retain all its rights under the
Indenture.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Notes, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
Notes, the Property Trustee shall request the written direction of the holders
of the Trust Securities with respect to such amendment, modification or
termination and shall vote with respect to such amendment, modification or
termination as directed by a majority in stated amount of the Trust Securities,
voting together as a single class; provided that where a consent under the
Indenture would require the consent or vote of a Super-Majority (as defined
below) or of each holder of Subordinated Notes affected thereby, the Property
Trustee may only give such consent at the direction of the holders of at least
the proportion in stated amount of the Trust Securities which the relevant
Super-Majority represents of the aggregate principal amount of the Subordinated
Notes outstanding or, if the consent of each holder is required, at the
direction of all the holders of the Trust
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Securities. The Property Trustee shall be under no obligation to take any such
action in accordance with the directions of the holders of the Trust Securities
unless the Property Trustee has obtained an opinion of tax counsel to the effect
that such action will not result in the Trust being treated as an association
taxable as a corporation or a partnership for United States Federal income tax
purposes and that, following such action, each holder of Trust Securities will
be treated as owning an undivided beneficial interest in the Subordinated Notes.
Subject to the requirements of the second to last sentence of this
paragraph, the holders of a majority in aggregate stated amount of the PERCS
have the right to (a) on behalf of all holders of the PERCS, waive any past
default that may be waived under the Declaration and (b) direct the time, method
and place of conducting any proceeding for any remedy available to the Property
Trustee, or to direct the exercise of any trust or power conferred upon the
Property Trustee under the Declaration, including the right to direct the
Property Trustee, as the holder of the Subordinated Notes, to (i) exercise the
remedies available under the Indenture with respect to the Subordinated Notes,
(ii) waive any past Indenture Event of Default that is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Notes shall be due and payable or (iv) consent
to any amendment, modification or termination of the Indenture or the
Subordinated Notes where such consent shall be required; provided that where a
consent or the taking of any action under the Indenture would require the
consent of more than a majority of the holders of the Subordinated Notes (a
'Super-Majority') affected thereby or of each holder of Subordinated Notes
affected thereby, only the holders of at least such Super-Majority of the Trust
Securities may direct the Property Trustee to give such consent or, if the
consent of each holder is required, at the direction of all the holders of the
Trust Securities. If the Property Trustee fails to enforce its rights under the
Declaration (including its rights as a holder of the Subordinated Notes), any
holder of Trust Securities may, after a period of 30 days has elapsed from such
holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against Time Warner to enforce the
Property Trustee's rights under the Declaration, without first instituting any
legal proceeding against the Property Trustee or any other person or entity. The
Property Trustee shall notify all holders of the Trust Securities of any notice
of default received from the Indenture Trustee with respect to the Subordinated
Notes. Such notice shall state that such Indenture Event of Default also
constitutes a Declaration Event of Default. The Property Trustee shall be under
no obligation to take any action described in clauses (i) through (iv) above
unless the Property Trustee has obtained an opinion of tax counsel to the effect
that such action will not result in the Trust being treated as an association
taxable as a corporation or a partnership for United States Federal income tax
purposes and that, following such action, each holder of Trust Securities will
be treated as owning an undivided beneficial interest in the Subordinated Notes.
If the Property Trustee fails to enforce its rights under the Declaration
(including, without limitation, its rights, powers and privileges as a holder of
the Subordinated Notes under the Indenture), any holder of Trust Securities may,
after a period of 30 days has elapsed from such holder's written request to the
Property Trustee to enforce such rights, institute a legal proceeding directly
against Time Warner to enforce the Property Trustee's rights under the
Declaration, without first instituting a legal proceeding against the Trust, the
Property Trustee or any other Person. Subject to the award by a court of
competent jurisdiction of legal fees in connection with any such legal
proceeding, each holder will be required to bear its own costs in connection
with instituting a legal proceeding directly against Time Warner, which costs
may be significant.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the holders of the Trust Securities will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of PERCS may be given at a
separate meeting of holders of PERCS convened for such purpose, at a meeting of
all of the holders of Trust Securities or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which holders of PERCS
are entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be mailed to each holder of record of PERCS.
Each such notice will include a statement setting forth (i) the date of such
meeting or the date by which such action is to be taken, (ii) a description of
any resolution proposed for adoption at such meeting on which such holders are
entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of PERCS will be required for (a) the Trust to
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redeem and cancel PERCS or distribute Subordinated Notes in accordance with the
Declaration or (b) Time Warner to exercise the Time Warner Exchange Right.
Notwithstanding that holders of PERCS are entitled to vote or consent under
any of the circumstances described above, any of the PERCS at such time that are
owned by Time Warner or any entity directly or indirectly controlling or
controlled by, or under direct or indirect common control with, Time Warner
shall not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
The procedures by which holders of PERCS may exercise their voting rights
are described below. See ' -- Book-Entry System'.
Except in the limited circumstances described above in connection with the
appointment of a Special Regular Trustee, holders of the PERCS will have no
rights to increase or decrease the number of Time Warner Trustees or to appoint,
remove or replace the Regular Trustees, who may be appointed, removed or
replaced solely by Time Warner, as the holder of all the Common Securities.
LISTING
The PERCS have been authorized for listing on the NYSE under the symbol
'THA', subject to official notice of issuance. Trading of the PERCS on the NYSE
is expected to commence within a 30-day period after the date of this
Prospectus.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Time
Warner's financial statements, with the PERCS shown on the face of the balance
sheet as Company obligated mandatorily redeemable preferred securities of
subsidiary. Such presentation will also include on the face of the balance sheet
the footnote relating to the PERCS included on the capitalization table included
herein. See 'Consolidated Capitalization'.
ADDITIONAL INFORMATION RELATING TO THE TRUST
Pursuant to the Declaration, the Trust shall terminate on the earliest of
(i) December 31, 1998, (ii) when all of the Trust Securities shall have been
called for redemption and the applicable Redemption Payment Amount therefor,
together with any accrued and unpaid distributions on such Trust Securities to
the applicable Redemption Payment Date, shall have been paid to the holders of
the Trust Securities in accordance with the terms of the Trust Securities or
(iii) when all of the Subordinated Notes shall have been distributed to the
holders of Trust Securities in exchange for all of the Trust Securities in
accordance with the terms of the Trust Securities. In addition, Time Warner will
have the right to direct the Trustees to terminate the Trust at any time if Time
Warner shall be the holder of all the outstanding PERCS as a result of the
exercise of the Time Warner Exchange Right or otherwise.
Pursuant to the Declaration, the number of Time Warner Trustees will
initially be five. Three of the Time Warner Trustees (the 'Regular Trustees')
will be persons who are employees or officers of, or affiliated with, Time
Warner. The fourth trustee will be a financial institution unaffiliated with
Time Warner that will serve as Property Trustee under the Declaration and as
indenture trustee with respect to the PERCS for purposes of the Trust Indenture
Act. The fifth Time Warner Trustee will be an affiliate of the Property Trustee
with its principal place of business in the State of Delaware, meeting the
requirements of the Trust Act (the 'Delaware Trustee'). The First National Bank
of Chicago will act as the Property Trustee and its affiliate will act as the
Delaware Trustee until removed or replaced by the holder of the Common
Securities. The First National Bank of Chicago will also act as indenture
trustee with respect to the Guarantee (the 'Guarantee Trustee') for purposes of
the Trust Indenture Act. See 'Description of the Guarantee'. In certain
circumstances, the holders of a majority of the PERCS will be entitled to
appoint one additional Regular Trustee (a 'Special Regular Trustee'), who need
not be an officer or employee of, or otherwise affiliated with, Time Warner. See
'Description of the PERCS -- Voting Rights'.
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The Property Trustee will hold title to the Subordinated Notes for the
benefit of the holders of the Trust Securities and will have the power to
exercise all rights, powers and privileges under the Indenture (as defined
herein) as the holder of the Subordinated Notes. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account (the 'Property Account') to hold all payments made in respect of
the Subordinated Notes for the benefit of the holders of Trust Securities. The
Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the PERCS. Subject to the right of
the holders of the PERCS to appoint a Special Regular Trustee, Time Warner, as
the direct or indirect holder of all the Common Securities, will have the right
to appoint, remove or replace any Time Warner Trustee and to increase or
decrease the number of Time Warner Trustees; provided that the number of Time
Warner Trustees shall be at least three, a majority of which shall be Regular
Trustees. Time Warner will pay all fees and expenses related to the Trust and
the offering of the Trust Securities. See 'Description of the Subordinated
Notes'.
The Declaration provides that Time Warner will pay for all debts and
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust, including any taxes and all costs and expenses with
respect thereto, to which the Trust may become subject, except for United States
withholding taxes. Time Warner has agreed that any person to whom such debts,
obligations, costs and expenses are owed and the Property Trustee will have the
right to enforce Time Warner's obligations in respect of such debts,
obligations, costs and expenses directly against Time Warner without first
proceeding against the Trust.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved by a written
instrument executed by a majority of the Regular Trustees; provided that if any
proposed amendment provides for, or the Regular Trustees otherwise propose to
effect (i) any action that would adversely affect the powers, preferences or
special rights of the Trust Securities, whether by way of amendment to the
Declaration or otherwise or (ii) the liquidation, dissolution, winding-up or
termination of the Trust other than pursuant to the terms of the Declaration,
then the holders of outstanding Trust Securities as a single class will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of holders of at least 66 2/3%
in stated amount of the Trust Securities affected thereby; provided however,
that if any amendment or proposal referred to in clause (i) above would
adversely affect only the PERCS or only the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of holders
of at least 66 2/3% in stated amount of such class of Trust Securities.
Notwithstanding the foregoing, (i) no amendment or modification may be made
to the Declaration unless the Regular Trustees shall have obtained (A) either a
ruling from the Internal Revenue Service or a written unqualified opinion of
nationally recognized independent tax counsel experienced in such matters to the
effect that such amendment will not result in the Trust being treated as an
association taxable as a corporation or a partnership for United States Federal
income tax purposes and that, following such action, each holder of Trust
Securities will be treated as owning an undivided beneficial interest in the
Subordinated Notes and (B) a written unqualified opinion of nationally
recognized independent counsel experienced in such matters to the effect that
such amendment will not cause the Trust to be an 'investment company' that is
required to be registered under the 1940 Act; (ii) certain specified provisions
of the Declaration may not be amended without the consent of all of the holders
of the Trust Securities, (iii) no amendment which adversely affects the rights,
powers and privileges of the Property Trustee shall be made without the consent
of the Property Trustee, (iv) Article IV of the Declaration relating to the
obligation of Time Warner to purchase the Common Securities and to pay certain
obligations and expenses of the Trust as described under 'Time Warner Financing
Trust' may not be amended without the consent of Time Warner, (v) the rights of
holders of Common Securities under Article V of the Declaration to increase or
decrease the number of, and to appoint, replace or remove, Trustees (other than
a Special Regular Trustee) shall not be amended without the consent of each
holder of Common Securities and (vi) the rights of holders of PERCS under the
Declaration to
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appoint or remove a Special Regular Trustee shall not be amended without the
consent of each holder of PERCS.
The Declaration further provides that it may be amended without the consent
of the holders of the Trust Securities to (i) cure any ambiguity, (ii) correct
or supplement any provision in this Declaration that may be defective or
inconsistent with any other provision of this Declaration, (iii) add to the
covenants, restrictions or obligations of Time Warner and (iv) conform to
changes in, or a change in interpretation or application of, certain 1940 Act
requirements by the Commission, which amendment does not adversely affect the
rights, preferences or privileges of the holders of the PERCS.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other entity. In addition, so
long as any PERCS are outstanding and are not held entirely by Time Warner, the
Trust may not voluntarily liquidate, dissolve, wind-up or terminate on or prior
to the Mandatory Redemption Date, except as described above under ' -- Special
Event Distribution or Redemption' and under ' -- Additional Information Relating
to the Trust'.
BOOK-ENTRY SYSTEM
The Depository Trust Company ('DTC') will act as securities depository (the
'Depositary') for the PERCS. The PERCS will be issued only as fully-registered
securities registered in the name of Cede & Co., as DTC's nominee. One or more
fully-registered global PERCS certificates will be issued, representing in the
aggregate the total number of PERCS issued, and will be deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a 'banking organization' within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a 'clearing corporation' within the
meaning of the New York Uniform Commercial Code, and a 'clearing agency'
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ('Participants') deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ('Direct Participants'). DTC is
owned by a number of its Direct Participants and by the NYSE, the AMEX and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ('Indirect Participants'). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of PERCS within the DTC system must be made by or through Direct
Participants, which will receive a credit for the PERCS on DTC's records. The
ownership interest of each actual purchaser of each PERCS (each a 'Beneficial
Owner') is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased PERCS. Transfers of ownership interests in
the PERCS are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in PERCS, except in the
event that use of the book-entry system for the PERCS is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the PERCS; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such PERCS are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
PERCS are being redeemed, DTC will reduce pro rata (subject to adjustment to
eliminate fractional PERCS) the amount of the interest of each Direct
Participant in such PERCS to be redeemed.
In cases where a vote is required with respect to the PERCS, neither DTC
nor Cede & Co. will itself consent or vote. Under its usual procedures, DTC
would mail an Omnibus Proxy to the Trust as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the PERCS are credited on the record
date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the PERCS will be made to DTC. DTC's practice is
to credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC has
reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, the Trust, the Time Warner Trustees or Time Warner,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of distributions to DTC is the responsibility of the Trust
disbursement of such payments to Direct Participants is the responsibility of
DTC, and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the PERCS at any time by giving reasonable notice to the Trust. Under
such circumstances, in the event that a successor securities depository is not
obtained, PERCS certificates are required to be printed and delivered.
Additionally, the Trust (with the consent of Time Warner) may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depository). In that event, certificates for the PERCS will be printed
and delivered. In each of the above circumstances, Time Warner will appoint a
paying agent with respect to the PERCS.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Trust believes to be reliable, but the
Trust, the Time Warner Trustees and Time Warner take no responsibility for the
accuracy thereof.
REMOVAL OF PERCS FROM BOOK-ENTRY SYSTEM
In the event that the PERCS do not remain in book-entry only form, payments
of distributions and payments on redemption of the PERCS will be payable, the
transfer of the PERCS will be registrable and PERCS will be exchangeable for
PERCS of other denominations of a like aggregate stated amount, at the principal
corporate trust office of the Property Trustee in The City of New York; provided
that payment of distributions may be made at the option of the Regular Trustees
on behalf of the Trust by check mailed to the address of the persons entitled
thereto and that the payment on redemption of any PERCS will be made only upon
surrender of such PERCS to the Property Trustee.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of the terms of the Guarantee that will be
issued by Time Warner for the benefit of the holders of PERCS. The Guarantee
will be qualified as an indenture under the Trust Indenture Act. The First
National Bank of Chicago will act as the Guarantee Trustee. The terms of the
Guarantee will be those set forth in such Guarantee and those made part of such
Guarantee by the Trust Indenture Act. The summary does not purport to be
complete and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the form of Guarantee, which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part, and
the Trust Indenture Act. The Guarantee will be held by the Guarantee Trustee for
the benefit of the holders of the PERCS.
GENERAL
Pursuant to the Guarantee, Time Warner will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full to the holders of the
PERCS, the Guarantee Payments (as defined below), without duplication of amounts
paid by the Trust, as and when due, regardless of any defense, right of setoff
or counterclaim that the Trust may have or assert. The following payments or
distributions with respect to PERCS (the 'Guarantee Payments') to the extent not
paid by the Trust will be subject to the Guarantee (without duplication): (i)(A)
any accrued and unpaid distributions that are required to be paid on the PERCS
and (B) subject to the exercise by Time Warner of the Time Warner Exchange
Right, the Redemption Payment Amount with respect to PERCS subject to mandatory
redemption or called for redemption by the Trust, but if and only to the extent
that, in each case, Time Warner has made a payment to the Property Trustee of
interest or principal on the Subordinated Notes, as the case may be, and (ii)
upon a voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Trust (other than in connection with the distribution of the
Subordinated Notes to the holders of PERCS or the redemption of all the PERCS
upon the maturity or redemption of the Subordinated Notes), the lesser of (A)
the Liquidation Distribution, to the extent the Trust has funds available
therefor and (B) the amount of assets of the Trust remaining available for
distribution to holders of the PERCS in liquidation of the Trust. Time Warner's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by Time Warner to the holders of PERCS or by causing the Trust
to pay such amounts to such holders.
The Guarantee will be a full and unconditional guarantee with respect to
the PERCS from the time of issuance of such PERCS but will not apply to any
payment of distributions or other amounts due to the extent the Trust shall lack
funds available therefor. To the extent Time Warner were to default on its
obligation to pay amounts payable on the Subordinated Notes, the Trust would
lack available funds for the payment of distributions on or amounts payable on
redemption of the Trust Securities and, in such event, holders of the PERCS
would not be able to rely on the Guarantee for payment of such amounts. See
'Description of the Subordinated Notes'.
CERTAIN COVENANTS OF TIME WARNER
Time Warner has covenanted that, so long as any PERCS remain outstanding,
if there shall have occurred any event that would constitute an event of default
under the Guarantee or the Declaration, Time Warner will not declare or pay any
dividend on, or make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital stock;
provided, however, that the foregoing restriction does not apply to any stock
dividends paid by Time Warner where the dividend stock is of the same class as
that on which the dividend is being paid.
MODIFICATION OF THE GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of PERCS (in which case no vote will be required), the Guarantee may
be amended only with the prior approval of the holders of not less than 66 2/3%
in stated amount of the outstanding PERCS and only if the Guarantee Trustee
shall have obtained either a ruling from the Internal Revenue Service or a
written unqualified opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that such action will not result in
the Trust being treated as an association taxable as a
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corporation or a partnership for United States Federal income tax purposes and
that, following such action, each holder of Trust Securities will be treated as
owning an undivided beneficial interest in the Subordinated Notes. All
guarantees and agreements contained in the Guarantee shall bind the successors,
assignees, receivers, trustees and representatives, including any successors
permitted in accordance with the Indenture, of Time Warner and shall inure to
the benefit of the holders of the PERCS then outstanding. See 'Description of
the Subordinated Notes -- Consolidation, Merger and Sale'.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of Time
Warner to perform any of its payment or other obligations thereunder. The
holders of a majority in stated amount of the PERCS have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Guarantee Trustee or to direct the exercise of any trust or power conferred
upon the Guarantee Trustee under the Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee, any holder of
PERCS may, after a period of 30 days has elapsed from such holder's written
request to the Guarantee Trustee to enforce the Guarantee, institute a legal
proceeding directly against Time Warner to enforce the Guarantee Trustee's
rights under the Guarantee without first instituting a legal proceeding against
the Trust, the Guarantee Trustee or any other person or entity. Subject to the
award by a court of competent jurisdiction of legal fees in connection with any
such legal proceeding, each holder will be required to bear its own costs in
connection with instituting a legal proceeding directly against Time Warner,
which costs may be significant.
Time Warner will be required to provide annually to the Guarantee Trustee a
statement as to the performance by Time Warner of certain of its obligations
under the Guarantee and as to any default in such performance. Time Warner is
required to file annually with the Guarantee Trustee an officer's certificate as
to Time Warner's compliance with all conditions under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, prior to the occurrence of a default, will undertake
to perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to a Guarantee, will be obligated to exercise the
same degree of care as a prudent individual would exercise in the conduct of his
or her own affairs. Subject to such provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by the Guarantee at the
request of any holder of PERCS unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect (i) as
to any PERCS upon the exercise by Time Warner of the Time Warner Exchange Right
in connection with any redemption of such PERCS and payment of a combination of
the Exchange Property and cash, if any, with respect to such PERCS, together
with any accrued and unpaid distributions on such PERCS, (ii) as to any PERCS
upon payment by the Trust of the Redemption Payment Amount with respect to such
PERCS, together with any accrued and unpaid distributions on such PERCS, (iii)
as to all PERCS upon distribution of the Subordinated Notes held by the Trust to
the holders of the PERCS or (iv) as to all PERCS upon full payment of the
amounts payable in accordance with the Declaration upon liquidation of the
Trust. Notwithstanding the foregoing, the Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of PERCS must restore payment of any sums paid under the PERCS or the Guarantee.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Time Warner and
will rank (i) subordinate and junior in right of payment to all other
liabilities of Time Warner, including the Subordinated Notes, except those made
pari passu or subordinate by their terms, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by Time Warner and with
any guarantee now or hereafter entered into by Time Warner in respect of any
preferred or preference stock of any affiliate of Time Warner, including any
guarantee in respect of any Preferred Securities, and (iii) senior to Time
Warner's common stock. The terms of the PERCS provide that each holder of PERCS
by acceptance thereof agrees to the subordination provisions and other terms of
the Guarantee.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the guarantor to enforce its rights under the Guarantee without instituting a
legal proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED NOTES
Set forth below is a summary of the terms of the Subordinated Notes in
which the Trust will invest the proceeds from the issuance and sale of the Trust
Securities. The following description does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Subordinated
Notes Indenture, dated as of , 1995 (the 'Indenture'), between Time
Warner and Chemical Bank, as Trustee (the 'Indenture Trustee'), the form of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, and to the Trust Indenture Act. The terms of the
Subordinated Notes include those set forth in the Trust Indenture Act. Certain
capitalized terms are used herein as defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Subordinated Notes may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See 'Description of the PERCS -- Special Event Distribution or Redemption'. If
the Subordinated Notes are distributed to the holders of the PERCS, Time Warner
will use its best efforts to have the Subordinated Notes listed on the NYSE or
on such other national securities exchange or similar organization on which the
PERCS are then listed or quoted.
GENERAL
The Subordinated Notes will be issued as unsecured, subordinated
obligations of Time Warner, limited in aggregate principal amount to
approximately $ , such amount being the sum of (i) the aggregate Price to
Public shown on the cover page hereof for the PERCS and (ii) the proceeds
received by the Trust upon issuance of the Common Securities to Time Warner. The
Subordinated Notes will be issued in denominations equal to the per PERCS Price
to Public shown on the cover page hereof (the 'Minimum Denomination').
The Subordinated Notes are not subject to a sinking fund provision. The
entire principal amount of the Subordinated Notes will mature and become due and
payable, together with any accrued and unpaid interest thereon, on December 23,
1997 (the 'Maturity Date').
Subject to the exercise by Time Warner of the Time Warner Exchange Right
following the distribution of the Subordinated Notes to the holders of the PERCS
as described below under ' -- Time Warner Exchange Right', the amount payable
upon maturity for each Minimum Denomination of the Subordinated Notes will be
equal to (a) the lesser of (i) $54.41 and (ii) the Exchange Valuation Price on
the Trading Day immediately preceding December 17, 1997, of such amount of
Exchange Property as relates to each Minimum Denomination of Subordinated Notes
at such time (the 'Maturity Payment Amount') plus (b) an amount equal to all
accrued and unpaid interest on such Minimum Denomination
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to but excluding the Maturity Date. The amount of cash, if any, payable at
maturity of the Subordinated Notes will be subject to fluctuation based on the
Exchange Valuation Price of the Exchange Property.
If Subordinated Notes are distributed to holders of the PERCS in
liquidation of such holders' interests in the Trust, such Subordinated Notes
will initially be issued as one or more Global Securities (as defined herein).
As described herein, under certain limited circumstances, Subordinated Notes may
be issued in certificated form in exchange for a Global Note. See
' -- Book-Entry and Settlement' and ' -- Discontinuance of the Depositary's
Services' below. In the event that Subordinated Notes are issued in certificated
form, such Subordinated Notes will be in denominations equal to the Minimum
Denomination and integral multiples thereof and may be transferred or exchanged
at the offices described below. Payments on Subordinated Notes issued as a
Global Note will be made to DTC, a successor depository or, in the event that no
depositary is used, to a paying agent for the Subordinated Notes. In the event
Subordinated Notes are issued in certificated form, principal and interest will
be payable, the transfer of the Subordinated Notes will be registrable and
Subordinated Notes will be exchangeable for Subordinated Notes of other
authorized denominations of a like aggregate principal amount at the corporate
trust office of the Indenture Trustee in New York, New York; provided that
payment of interest may be made at the option of Time Warner by check mailed to
the address of the persons entitled thereto.
INTEREST
Each Minimum Denomination of Subordinated Notes shall bear interest at the
rate of % on the principal amount thereof per annum (or $ per annum,
which is equivalent to the annual distribution payments that are due with
respect to each PERCS) from and including the original date of issuance, payable
quarterly in arrears on the 30th day of March, June, September and December of
each year (each an 'Interest Payment Date'), commencing September 30, 1995, to
the person in whose name such Subordinated Note is registered, subject to
certain exceptions, at the close of business on the March 15, June 15, September
15 and December 15, as the case may be, next preceding such Interest Payment
Date (each a 'record date'). The amount of interest payable on each Minimum
Denomination of Subordinated Notes on a periodic basis will be equal to the
amount of distributions payable on each PERCS for the same period. Interest
payable on any Subordinated Note that is not punctually paid or duly provided
for on any Interest Payment Date will forthwith cease to be payable to the
person in whose name such Subordinated Note is registered on the relevant record
date, and such defaulted interest will instead be payable to the person in whose
name such Subordinated Note is registered on the special record date or other
specified date determined in accordance with the Indenture.
The amount of interest payable for any full quarterly interest period will
be computed on the basis of a 360-day year of twelve 30-day months. Interest (or
amounts equal to accrued and unpaid interest) payable on the Subordinated Notes
for any period shorter than a full quarterly interest period will be computed on
the basis of a 360-day year of twelve 30-day months on the basis of the actual
number of days elapsed in such 30-day month. In the event that any date on which
interest is payable on the Subordinated Notes is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
Business Day (without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
OPTIONAL REDEMPTION
Time Warner shall have the right to redeem the Subordinated Notes, in whole
or in part, from time to time, upon not less than 20 nor more than 45 Business
Days' notice, at a redemption price initially equal to (a) $54.41 per Minimum
Denomination of Subordinated Notes plus (b) an amount initially equal to $ per
Minimum Denomination, declining by $ for each day that shall have elapsed
from the date of issue of the Subordinated Notes to but excluding the date of
redemption (the number of days in such period being computed on the basis of a
360-day year of twelve 30-day months) to $0 on October 23, 1997, and thereafter
(the 'Note Call Price'), plus cash in an amount equal to all accrued and unpaid
interest on each Minimum Denomination of the Subordinated Notes so called to but
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excluding the redemption date. If a partial redemption of the PERCS resulting
from a partial redemption of the Subordinated Notes would result in the
delisting of the PERCS, Time Warner may only redeem the Subordinated Notes in
whole.
TIME WARNER EXCHANGE RIGHT
In the event that the Subordinated Notes have been distributed to the
holders of the PERCS, Time Warner will have the right to require the holders of
outstanding Subordinated Notes on the Maturity Date or any redemption date to
exchange such Subordinated Notes for a combination of shares of Hasbro Common
Stock or other Exchange Property and cash as described below. Such right shall
be exercisable only with respect to the Subordinated Notes held by former
holders of PERCS, or transferees of such holders or their transferees, and shall
not be exercisable with respect to Subordinated Notes held by Time Warner or
transferees of Time Warner or their transferees. If Time Warner shall exercise
the Time Warner Exchange Right in respect of the Maturity Date, each Minimum
Denomination of Subordinated Notes that shall have been distributed shall be
exchanged for (a) Exchange Property in respect of the portion of such Minimum
Denomination to be exchanged for Exchange Property based on the Exchange Rate in
effect on the Trading Day immediately preceding December 17, 1997, (b) cash in
respect of the portion, if any, of such Minimum Denomination that is not to be
exchanged for Exchange Property, calculated by subtracting from the Maturity
Payment Amount the value of the Exchange Property to be delivered (based on the
Exchange Valuation Price of such Exchange Property as of the Trading Day
immediately preceding December 17, 1997) and (c) cash in an amount equal to all
accrued and unpaid interest on such Minimum Denomination to but excluding the
Maturity Date; provided that if the Exchange Valuation Price as of the Trading
Day immediately preceding December 17, 1997, of the amount of Exchange Property
that relates to the Minimum Denomination is greater than $54.41 (based on the
Exchange Rate in effect as of such Trading Day), Time Warner shall deliver in
exchange for each Minimum Denomination of Subordinated Notes in respect of which
Time Warner exercised the Exchange Right, (a)(i) Exchange Property (valued on
the basis of its Exchange Valuation Price as of such Trading Day) and (ii) at
the option of Time Warner, cash, having an aggregate value equal to $54.41 per
Minimum Denomination of Subordinated Notes and (b) cash in an amount equal to
all accrued and unpaid interest on such Subordinated Notes to but excluding the
Maturity Date.
If Time Warner shall exercise the Time Warner Exchange Right in respect of
any optional redemption or special redemption of the Subordinated Notes, each
Minimum Denomination of Subordinated Notes to be redeemed on any such date shall
be exchanged for (a)(i) Exchange Property (valued on the basis of its Exchange
Valuation Price as of the Trading Day immediately preceding the applicable date
of redemption) and (ii) at the option of Time Warner, cash, having an aggregate
value equal to the Note Call Price or the Special Redemption Price in effect for
each Minimum Denomination on such date of redemption, and (b) cash in an amount
equal to all accrued and unpaid interest on such Subordinated Notes to but
excluding such date of redemption.
In accordance with the foregoing procedures, in the event that Time Warner
shall exercise the Time Warner Exchange Right and elect to deliver Exchange
Property with respect to only a portion of each Minimum Denomination of
Subordinated Notes, each holder of Subordinated Notes shall be entitled to
receive from Time Warner for each Minimum Denomination of Subordinated Notes
held by such holder, the same types, amounts and relative proportions of
Exchange Property and cash as every other holder of Subordinated Notes.
The Exchange Rate and Exchange Property will be subject to adjustment upon
the occurrence of an Exchange Adjustment Event. See 'Description of the
PERCS -- Time Warner Exchange Right' and ' -- Adjustment of Exchange Rate and
Exchange Property'.
SPECIAL EVENT DISTRIBUTION OR REDEMPTION
Upon the occurrence of a Tax Event or an Investment Company Event, Time
Warner will have the right to elect to, under certain circumstances (a) dissolve
the Trust (if it has not previously been terminated) and cause the Subordinated
Notes to be distributed on a Pro Rata Basis (determined
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without regard to the proviso in the definition of such term), to the holders of
the Trust Securities, (b) redeem the Subordinated Notes at the Special
Redemption Price plus accrued and unpaid interest thereon or (c) in the case of
a Tax Event, allow the Subordinated Notes to remain outstanding and indemnify
the Trust (if it has not previously been terminated) for any taxes payable by it
as a result of such Tax Event. See 'Description of the PERCS -- Special Event
Distribution or Redemption'. Any redemption in accordance with the foregoing
provisions will be subject to the Time Warner Exchange Right.
SUBORDINATION
The payment of the principal of and interest on the Subordinated Notes will
be subordinated in right of payment to the extent set forth in the Indenture to
the prior payment in full in cash or cash equivalents of all of Time Warner's
present and future Senior Indebtedness (including Time Warner's outstanding
8 3/4% Convertible Subordinated Debentures due 2015), which aggregated
approximately $10.1 billion at March 31, 1995. In addition to such Senior
Indebtedness, Time Warner's obligations under the Guarantee and the Subordinated
Notes are effectively subordinated to all liabilities (including
indebtedness) of its consolidated and unconsolidated subsidiaries, which
aggregated approximately $13.9 billion at March 31, 1995. The indebtedness of
Time Warner's consolidated and unconsolidated subsidiaries is expected to
increase by approximately $2.5 billion as a result of the Transactions referred
to under 'Recent Developments -- Certain Transactions'. The Indenture does not
limit the amount of Senior Indebtedness which Time Warner may incur. Moreover,
Time Warner's subsidiaries may incur indebtedness and other liabilities and have
obligations to third parties. Generally, the claims of such third parties to the
assets of Time Warner's subsidiaries will be superior to those of Time Warner as
a stockholder, and, therefore, the Subordinated Notes may be deemed to be
effectively subordinated to the claims of such third parties. The payment of
principal of and interest on the Subordinated Notes will be pari passu with the
payment of principal of and interest on any subordinated debt securities issued
by Time Warner to any of the Capital Trusts in connection with any issuance of
Preferred Securities.
Upon any payment or distribution of all or substantially all of the assets
of Time Warner or in the event of any insolvency, bankruptcy, receivership,
liquidation, dissolution, reorganization or other similar proceeding whether
voluntary or involuntary relative to Time Warner or its creditors, the holders
of all Senior Indebtedness will first be entitled to receive payment in full in
cash or cash equivalents before the holders of the Subordinated Notes will be
entitled to receive any distribution on account thereof. In the event any
default in the payment of principal of, premium, if any, or interest on or other
monetary obligation with respect to, any Senior Indebtedness shall have occurred
and be continuing, then, unless and until such event of default or default shall
have been cured or waived or shall have ceased to exist, no payment on account
of the Subordinated Notes (including by way of any Claim (as defined below))
will be made by Time Warner. Time Warner is obligated, upon the occurrence of
any such default or event of default, to provide written notice to the Indenture
Trustee of such default or event of default. By reason of such subordination, in
the event of insolvency, under certain circumstances the holders of Subordinated
Notes may receive less, ratably, than Time Warner's general creditors. As used
herein, 'Claim' means any claim against Time Warner or any of its subsidiaries
for rescission of the Subordinated Notes or for monetary damages from the
purchase or receipt of the Subordinated Notes.
As used in the Indenture, the term 'Senior Indebtedness' means all
indebtedness or obligations, whether outstanding at the date of execution of the
Indenture or thereafter incurred, assumed, guaranteed or otherwise created,
unless the terms of the instrument or instruments by which Time Warner incurred,
assumed, guaranteed or otherwise created any such indebtedness or obligation
expressly provide that such indebtedness or obligation is subordinate to all
other indebtedness of Time Warner or that such indebtedness or obligation is not
superior in right of payment to the Subordinated Notes with respect to any of
the following (including, without limitation, interest accruing on or after a
bankruptcy or other similar event, whether or not an allowed claim therein): (i)
any indebtedness incurred by Time Warner or assumed or guaranteed, directly or
indirectly, by Time Warner (a) for money borrowed (including Time Warner's
outstanding 8 3/4% Convertible Subordinated Debentures due 2015), (b) in
connection with the acquisition of any business, property or other assets (other
than
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trade payables incurred in the ordinary course of business) or (c) for advances
or progress payments in connection with the construction or acquisition of any
building, motion picture, television production or other entertainment of any
kind; (ii) any obligation of Time Warner (or of a subsidiary which is guaranteed
by Time Warner) as lessee under a lease of real or personal property; (iii) any
obligation of Time Warner to purchase property at a future date in connection
with a financing by Time Warner or a subsidiary of Time Warner; (iv) letters of
credit; (v) currency swaps and interest rate hedges; and (vi) any deferral,
renewal, extension or refunding of any of the foregoing.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Notes, will have the right
to declare the principal of and the interest on the Subordinated Notes and any
other amounts payable under the Indenture to be forthwith due and payable and to
enforce its other rights as a creditor with respect to the Subordinated Notes.
An 'Indenture Event of Default' is defined as: (i) default for 30 days in the
payment of interest on the Subordinated Notes; (ii) default in payment of the
Maturity Payment Amount or any amount payable upon optional or special
redemption of the Subordinated Notes; (iii) failure by Time Warner for 90 days
after receipt of notice to it by the Trustee (or the holders of at least 25% in
aggregate principal amount of the Notes then outstanding) to comply with any of
its covenants or agreements contained in the Indenture; and (iv) certain events
of bankruptcy, insolvency, receivership or reorganization involving Time Warner.
If any Indenture Event of Default described in clause (i), (ii) or (iii) above
occurs and is continuing, the Indenture Trustee by notice to Time Warner, or the
holders of not less than 25% in aggregate principal amount of the Subordinated
Notes outstanding by notice to the Indenture Trustee and Time Warner, may
declare the Subordinated Notes to be due and payable and, upon any such
declaration, the Subordinated Notes shall become due and payable immediately in
an amount per Minimum Denomination equal to (a) the lesser of (i) $54.41 and
(ii) the Exchange Valuation Price on the Trading Day immediately preceding such
Indenture Event of Default of such amount of Exchange Property as relates to
each Minimum Denomination of Subordinated Notes on such Trading Day; provided,
however, that if such Event of Default is in payment of the Note Call Price or
the Special Redemption Price, the amount due and payable shall equal the Note
Call Price or the Special Redemption Price, as the case may be (the 'Note
Acceleration Price'). If any Indenture Event of Default described in clause (iv)
above occurs and is continuing, the Note Acceleration Price of and any accrued
interest on the Subordinated Notes then outstanding shall become immediately due
and payable. Under certain conditions the holders of a majority in principal
amount of Subordinated Notes then outstanding may waive certain past defaults
and their consequences, other than a default in the payment of principal or
interest, unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal otherwise than by acceleration
has been deposited with the Indenture Trustee.
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of PERCS in certain circumstances have the right to direct
the Property Trustee to exercise its rights as the holder of the Subordinated
Notes. See 'Description of the PERCS -- Declaration Events of Default' and
' -- Voting Rights'.
Holders of the Subordinated Notes may not enforce the Indenture except as
provided therein and except that nothing will prevent the Subordinated Note
holders from enforcing payment of principal of or interest on their Subordinated
Notes. The Indenture Trustee may refuse to enforce the Indenture unless it
receives reasonable security or indemnity. Subject to certain limitations,
holders of a majority in principal amount of Subordinated Notes then outstanding
may direct the Indenture Trustee in its exercise of any trust or power under the
Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting Time Warner and the Indenture
Trustee, with the consent of the holders of not less than 66 2/3% in principal
amount of the outstanding Subordinated Notes, to modify the Indenture; provided
that no such modification may, without the consent of the holder of each
outstanding Subordinated Note affected thereby, (i) reduce the amount of
Subordinated
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Notes the holders of which must consent to any amendment, supplement or waiver
of the Indenture; (ii) reduce the rate of or extend the time for the payment of
interest on any Subordinated Note; (iii) alter the method of calculation of, or
reduce, the Maturity Payment Amount or extend the fixed maturity of any
Subordinated Note; (iv) reduce the premium payable, or alter the method of
calculation of the Note Call Price, upon any redemption of any Subordinated
Note; (v) make any Subordinated Note payable in money or property other than
that stated in the Subordinated Note; (vi) make any change to the subordination
terms that adversely affects the rights of any holder of the Subordinated Notes;
or (vii) make any change to the provisions relating to waivers of past defaults
or the rights of holders of the Subordinated Notes to receive payments or reduce
the percentage of Subordinated Notes the holders of which are required to
consent to any such modification. The Declaration provides that in the event
that the consent of the Property Trustee, as holder of the Subordinated Notes,
is required in connection with any modification of the Indenture or the
Subordinated Notes, the Property Trustee will request the written direction of
the holders of not less than 66 2/3% in stated amount (or to the extent that the
vote of a greater percentage or of all the holders of the Subordinated Notes
shall be required, such greater percentage in stated amount or all) of the Trust
Securities with respect to any such modification.
CONSOLIDATION, MERGER AND SALE
The Indenture provides that Time Warner may, without the consent of the
holders of the Subordinated Notes, consolidate with or merge into, or transfer
its properties as an entirety or substantially as an entirety to any
corporation, person or other entity; provided that in any such case (i) the
successor person (if other than Time Warner) (a) is an entity organized and
existing under the laws of the United States of America or any political
subdivision thereof and (b) assumes by a supplemental indenture Time Warner's
obligations under the Indenture, (ii) immediately after giving effect to such
transaction, no Indenture Event of Default shall have occurred and be continuing
and (iii) Time Warner shall have delivered to the Indenture Trustee an officer's
certificate and opinion of counsel each stating that such consolidation, merger
or transfer and such supplemental indenture comply with the Indenture.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of PERCS in connection with the involuntary or
voluntary dissolution, winding-up or liquidation of the Trust as a result of the
occurrence of a Special Event, the Subordinated Notes will be issued in the form
of one or more global certificates (each a 'Global Note') registered in the name
of the Depositary or its nominee. Except under the limited circumstances
described below, Subordinated Notes represented by a Global Note will not be
exchangeable for, and will not otherwise be issuable as, Subordinated Notes in
definitive form. The Global Notes described above may not be transferred except
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Note.
Except as provided below under ' -- Discontinuance of the Depositary's
Services' owners of beneficial interests in such a Global Note will not be
entitled to receive physical delivery of Subordinated Notes in definitive form
and will not be considered the holders (as defined in the Indenture) thereof for
any purpose under the Indenture, and no Global Note representing Subordinated
Notes shall be exchangeable, except for another Global Note of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor depositary or its nominee. Accordingly, each beneficial owner must
rely on the procedures of the Depositary and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest to exercise any rights of a holder under the Indenture.
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THE DEPOSITARY
If Subordinated Notes are distributed to holders of PERCS in liquidation of
such holders' interests in the Trust, the Depositary will act as securities
depositary for the Subordinated Notes. For a description of DTC and the specific
terms of the depositary arrangements, see 'Description of the
PERCS -- Book-Entry System.' As of the date of this Prospectus, the description
therein of the Depositary's book-entry system and the Depositary's practices as
they relate to purchases, transfers, notices and payments with respect to the
PERCS apply in all material respects to any debt obligations represented by one
or more Global Notes held by the Depositary. Time Warner may appoint a successor
to the Depositary or any successor depositary in the event the Depositary or
such successor depositary is unable or unwilling to continue as a depository for
the Global Notes.
None of Time Warner, the Trust, the Indenture Trustee, any paying agent and
any other agent of Time Warner or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in Global Notes for
such Subordinated Notes or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Note shall be exchangeable for Subordinated Notes registered in
the names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies Time Warner that it is unwilling or unable to continue as a
depositary for such Global Note and no successor depositary shall have been
appointed, (ii) the Depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such Depositary and no successor depositary shall have
been appointed, or (iii) Time Warner, in its sole discretion, determines that
such Global Note shall be so exchangeable. Any Global Note that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Subordinated Notes
registered in such names as the Depositary shall direct. It is expected that
such instructions will be based upon directions received by the Depositary from
its Participants with respect to ownership of beneficial interests in such
Global Note.
GOVERNING LAW
The Indenture and the Subordinated Notes will be governed by, and construed
in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Subordinated Notes, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
that might be incurred thereby. The Indenture Trustee is not required to expend
or risk its own funds or otherwise incur personal financial liability in the
performance of its duties if the Trustee reasonably believes that repayment or
adequate indemnity is not reasonably assured to it. The Indenture Trustee is one
of a number of banks with which Time Warner and its subsidiaries maintain
ordinary banking and trust relationships.
MISCELLANEOUS
The Indenture provides that Time Warner will pay for all debts and
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust, including any taxes and all costs and expenses with
respect thereto, to which the Trust may become subject, except for United States
withholding taxes.
Time Warner will have the right at all times to assign any of its rights or
obligations under the Indenture to a direct or indirect wholly-owned subsidiary
of Time Warner; provided that, in the event of any such assignment, Time Warner
will remain jointly and severally liable for all such obligations. Subject to
the foregoing, the Indenture will be binding upon and inure to the benefit of
the parties thereto and their respective successors and assigns. The Indenture
provides that it may not otherwise be assigned by the parties thereto.
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EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED NOTES AND THE GUARANTEE
As set forth in the Declaration, the exclusive purposes of the Trust are to
issue the Trust Securities evidencing undivided beneficial interests in the
Trust's assets, to invest the proceeds from such issuance and sale in the
Subordinated Notes and to engage in only those other activities necessary and
incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Notes, such payments will be sufficient to cover distributions and
payments due on the Trust Securities because of the following factors: (i) the
aggregate principal amount of Subordinated Notes will be equal to the sum of the
aggregate stated liquidation amount of the Trust Securities; (ii) the interest
rate and the interest and other payment dates on the Subordinated Notes will
match the distribution payments and distribution and other payment dates for the
Trust Securities; (iii) the amount payable at maturity of the Subordinated Notes
will equal the Mandatory Redemption Price of the Trust Securities; (iv) the
amount payable upon optional redemption of the Subordinated Notes will equal the
Call Price payable upon the early redemption of the Trust Securities; (v) the
amount payable upon special redemption of the Subordinated Notes will equal the
amount payable upon special redemption of the Trust Securities; (vi) Time Warner
shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, any, costs and expenses of the Trust; and (vii) the Declaration
further provides that the Trustees shall not cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the PERCS (to the extent funds therefor are available) are
guaranteed by Time Warner on a subordinated basis as and to the extent set forth
under 'Description of the Guarantee'. If Time Warner does not make interest
payments on the Subordinated Notes purchased by the Trust, it is expected that
the Trust will not have sufficient funds to pay distributions on the PERCS. The
Guarantee is a full and unconditional guarantee but does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
If Time Warner fails to make interest or other payments on the Subordinated
Notes when due, the Declaration provides a mechanism whereby the holders of the
PERCS, using the procedures described in 'Description of the PERCS -- Book-Entry
System' and ' -- Voting Rights', may (i) appoint a Special Regular Trustee and
(ii) direct the Property Trustee to enforce its rights under the Subordinated
Notes. If the Property Trustee fails to enforce its rights under the
Subordinated Notes, a holder of PERCS may, after a period of 30 days has elapsed
from such holder's written request to the Property Trustee to enforce such
rights, institute a legal proceeding against Time Warner to enforce the Property
Trustee's rights under the Subordinated Notes without first instituting any
legal proceeding against the Trust, the Property Trustee or any other person or
entity. Time Warner, under the Guarantee, acknowledges that the Guarantee
Trustee shall enforce the Guarantee on behalf of the holders of the PERCS. If
Time Warner fails to make payments under the Guarantee, the Guarantee provides a
mechanism whereby the holders of the PERCS may direct the Guarantee Trustee to
enforce its rights thereunder. If the Guarantee Trustee fails to enforce the
Guarantee, any holder of PERCS may, after a period of 30 Business Days has
elapsed from such holder's written request to the Guarantee Trustee to enforce
the Guarantee, institute a legal proceeding directly against Time Warner to
enforce the Guarantee Trustee's rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee, or any
other person or entity.
Time Warner and the Trust believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by Time Warner of payments due on the PERCS. See 'Description of the
Guarantee' and 'Description of the Subordinated Notes'.
If a Special Event shall occur and be continuing, the Trust shall be
dissolved unless the Subordinated Notes are redeemed or left outstanding in the
limited circumstances described herein, with the result that Subordinated Notes
held by the Trust having an aggregate principal amount equal to the aggregate
stated amount of the Trust Securities will be distributed on a Pro Rata Basis in
exchange for the outstanding Trust Securities, subject in the case of a Tax
Event to Time Warner's right to allow
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<PAGE>
the Subordinated Notes to remain outstanding and indemnify the Trust for any
taxes payable by it as a result of such Tax Event. See 'Description of the
PERCS -- Special Event Distribution or Redemption'.
Upon any voluntary or involuntary liquidation, dissolution, winding-up or
termination of the Trust, the holders of Trust Securities will be entitled to
receive Subordinated Notes or, on a Pro Rata Basis, the Liquidation
Distribution. Holders of the PERCS will be entitled to the benefits of the
Guarantee with respect to the Liquidation Distribution. See 'Description of the
PERCS -- Liquidation Distribution Upon Dissolution'. Upon any voluntary or
involuntary liquidation or bankruptcy of Time Warner, the holders of
Subordinated Notes would be subordinated creditors of Time Warner, subordinated
in right of payment to all Senior Indebtedness, but entitled to receive payment
in full of principal, premium, if any, and interest, before any stockholders of
Time Warner receive payments or distributions.
A default or event of default under any Senior Indebtedness would not
constitute a default or event of default under the Subordinated Notes. However,
in the event of payment defaults under, or acceleration of, Senior Indebtedness,
the subordination provisions of the Subordinated Notes provide that no payments
may be made in respect of the Subordinated Notes. Failure to make required
payments on the Subordinated Notes would constitute an Indenture Event of
Default.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material U.S. Federal income tax
consequences of acquiring, holding and disposing of the PERCS by a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or an estate or
trust the income of which is subject to U.S. Federal income taxation regardless
of its source (any of the foregoing, a 'U.S. person') who is the beneficial
owner of a PERCS (a 'U.S. Holder'). All references to 'holders' (including U.S.
Holders) are to beneficial owners of the PERCS. This summary is based on current
U.S. Federal income tax law and is for general information only. In the opinion
of Cravath, Swaine & Moore, tax counsel for Time Warner and the Trust ('Tax
Counsel'), the statements contained in the following summary, to the extent they
constitute matters of law, accurately describe the material U.S. Federal income
tax consequences to holders of the acquisition, holding and disposition of
PERCS.
This summary deals only with holders who are initial holders of the PERCS
and who will hold the PERCS as capital assets. It does not address tax
considerations applicable to investors that may be subject to special U.S.
Federal income tax treatment, such as dealers in securities or persons holding
the PERCS as a position in a 'straddle' for U.S. Federal income tax purposes
(within the meaning of Section 1092 of the Internal Revenue Code of 1986, as
amended (the 'Code')), or as part of a 'conversion transaction' (within the
meaning of Section 1258 of the Code) or 'synthetic security' or other integrated
investment comprised of a PERCS and one or more other investments, and does not
address the tax consequences under state, local or foreign law. Accordingly, a
prospective investor should consult its own tax advisor to determine whether it
is subject to such special U.S. Federal income tax treatment and, if so, to
determine the tax consequences of an investment in the PERCS.
No statutory, judicial or administrative authority directly addresses the
treatment of the Subordinated Notes or instruments similar to the Subordinated
Notes for U.S. Federal income tax purposes. Furthermore, no ruling is being
requested from the Internal Revenue Service (the 'IRS') with respect to the
PERCS or the Subordinated Notes. Therefore, no assurance can be given that the
IRS will agree with the conclusions expressed herein. Accordingly, a prospective
investor (including a tax-exempt investor) in the PERCS should consult its own
tax advisor in determining the tax consequences of an investment in the PERCS
including the application of state, local, foreign or other tax laws and the
possible effects of changes in Federal or other tax laws.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the PERCS, Tax Counsel will render its
opinion to the effect that, under current law and assuming full compliance with
the terms of the Declaration, the Trust will
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<PAGE>
be classified for U.S. Federal income tax purposes as a grantor trust and not as
an association taxable as a corporation or a partnership. Accordingly, each
holder of the PERCS will be considered to be the beneficial owner of an
allocable pro rata portion of the Subordinated Notes held by the Trust and each
U.S. Holder will be required to include in gross income its allocable pro rata
share of the interest, gain and loss arising with respect to the Subordinated
Notes held by the Trust.
DISTRIBUTION OF SUBORDINATED NOTES TO HOLDERS OF PERCS
Under current law, a distribution by the Trust of Subordinated Notes as
described under the captions 'Description of the PERCS -- Special Event
Distribution or Redemption' and ' -- Liquidation Distribution Upon Dissolution',
will not be taxable and will result in a U.S. Holder receiving directly its pro
rata share of Subordinated Notes previously held indirectly through the Trust,
with holding period and tax basis equal to the holding period and adjusted tax
basis such U.S. Holder was considered to have had in his pro rata share of the
underlying Subordinated Notes prior to such distribution.
TREATMENT OF THE SUBORDINATED NOTES
Pursuant to the terms of the Declaration, Time Warner, the Trust and the
holders of the PERCS will agree to treat the Subordinated Notes as debt
instruments for U.S. Federal, state and local income and franchise tax purposes,
with interest accruing thereon at the stated rate, and not to take any contrary
position before any taxing authority or on any tax return. In the opinion of Tax
Counsel, the Subordinated Notes are more likely than not to be treated as debt
for U.S. Federal income tax purposes. However, as noted above, there is no
direct legal authority concerning how a holder will account for income, gain or
loss with respect to the Subordinated Notes. Accordingly, Tax Counsel is unable
to opine as to this matter. See 'Description of the Subordinated
Notes -- Interest'.
Assuming that the Subordinated Notes are treated as debt for tax purposes,
under one approach:
(1) a U.S. Holder of PERCS would be required to include such U.S.
Holder's allocable pro rata share of interest on the Subordinated Notes in
taxable income for U.S. Federal income tax purposes as such interest is
paid to the Trust or accrued, in accordance with the U.S. Holder's method
of accounting for U.S. Federal income tax purposes; and
(2) upon the sale, redemption or other disposition of the PERCS
(including a redemption of the PERCS on the Mandatory Redemption Date or
Optional Redemption Dates or an exchange of PERCS for Hasbro Common Stock
and/or cash upon exercise of the Time Warner Exchange Right), a U.S. Holder
would recognize gain or loss for U.S. Federal income tax purposes equal to
the difference, if any, between the amount realized by the U.S. Holder upon
such sale, redemption or other disposition and the U.S. Holder's tax basis
in the PERCS. Such U.S. Holder's amount realized would be equal to the
amount of cash and the fair market value of any other property (including
Hasbro Common Stock) received by such U.S. Holder upon the sale, redemption
or other disposition. However, the amount realized would not include the
amount attributable to the Holder's allocable pro rata share of accrued but
unpaid interest on the Subordinated Notes, which would be treated as
interest. A U.S. Holder's tax basis in the PERCS would generally be equal
to its purchase price for the PERCS. It is believed that any such gain or
loss would be capital gain or loss, and would be long-term capital gain or
loss if the U.S. Holder held the PERCS for more than one year at the time
of the sale, redemption or other disposition, although the IRS might
require that any such gain be treated as ordinary (interest) income. If a
U.S. Holder received Hasbro Common Stock or other property upon the sale,
redemption or other disposition, such U.S. Holder's tax basis in the Hasbro
Common Stock or other property received would be equal to its fair market
value at the time of such sale, redemption or other disposition.
In the absence of pertinent legal authority concerning the proper tax
treatment of PERCS, however, no assurance can be provided that the
above-discussed tax treatment will be accepted by the IRS or upheld by a court.
As a result, different tax consequences might apply. For example, (i) gain on
the sale, redemption or other disposition of the PERCS might be ordinary income
rather than capital gain, (ii) a Holder might be required to include interest on
the Subordinated Notes in taxable income on an accrual basis (regardless of such
U.S. Holder's normal method of tax accounting) and/or at a rate
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<PAGE>
greater than the stated rate of interest on the Subordinated Notes, and
(correlatively) have less gain or income (or a greater loss) upon the sale,
redemption or other disposition of the PERCS, or (iii) all or part of the stated
interest on the Subordinated Notes might be treated as a nontaxable return of
capital, increasing the amount of income or gain (or decreasing the loss) upon
the subsequent sale, redemption or other disposition of the PERCS.
In connection with clause (ii) of the preceding paragraph, recently
proposed Treasury Regulations would require the accrual of interest income on
the Subordinated Notes based on their projected yield to maturity. The projected
yield would take into account a projected Redemption Payment Amount (based upon
forward pricing for the Hasbro Common Stock). This method might result in a U.S.
Holder's being required to recognize interest income each year at a rate in
excess of the stated rate of distributions on the PERCS. An adjustment would be
made at the time the PERCS are redeemed to reflect the actual Redemption Payment
Amount as compared to the projected amount. Moreover, any gain on the sale,
redemption or other disposition of the PERCS would be treated as ordinary
income. These proposed regulations by their terms only apply to debt instruments
issued at least 60 days after publication of final regulations, and therefore
would not apply to the Subordinated Notes. However, no assurance can be given
that the IRS or the courts would not apply the principles of the regulations to
the Subordinated Notes.
Even if U.S. Holders would generally recognize capital gain upon sale,
redemption or other disposition of the PERCS, under Section 1258 of the Internal
Revenue Code, such gain would be treated as ordinary income to a U.S. Holder
that had entered into certain offsetting positions or hedging transactions with
respect to the PERCS.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A holder of PERCS may be subject to information reporting and to backup
withholding at a rate of 31 percent of certain amounts paid to the holder unless
such holder provides proof of an applicable exemption or correct taxpayer
identification number, and otherwise complies with applicable requirements of
the backup withholding rules.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to the Employee
Retirement Income Security Act of 1974 ('ERISA'), or Section 4975 of the Code
('Plans') may purchase PERCS, subject to the investing fiduciary's determination
that the investment in PERCS satisfies ERISA's fiduciary standards and other
requirements applicable to investments by the Plan.
In any case, each of Time Warner, Hasbro and/or any of their respective
affiliates may be considered a 'party in interest' (within the meaning of ERISA)
or a 'disqualified person' (within the meaning of Section 4975 of the Code) with
respect to certain Plans (generally, Plans maintained or sponsored by, or
contributed to, by any such persons). The acquisition and ownership of PERCS by
a Plan (or by an individual retirement arrangement or other Plans described in
Section 4975(e)(i) of the Code) with respect to which Time Warner, Hasbro or any
of their affiliates is considered a party in interest or a disqualified person,
may constitute or result in a prohibited transaction under ERISA or Section 4975
of the Code, unless such PERCS are acquired pursuant to and in accordance with
an applicable exemption.
As a result, Plans with respect to which Time Warner, Hasbro or any of
their affiliates is a party in interest or a disqualified person should not
acquire PERCS. Any other Plans or other entities whose assets include Plan
assets subject to ERISA proposing to acquire PERCS should consult with their own
ERISA counsel.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the 'Underwriting Agreement'), the Underwriters
named below have severally and not jointly agreed to purchase, and the Trust has
agreed to sell to the Underwriters, severally and not jointly, the respective
number of PERCS set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
NAME OF PERCS
----------
<S> <C>
Morgan Stanley & Co. Incorporated.........................................................
----------
Total...................................................................... 12,057,561
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the PERCS are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are committed to take and pay for all the PERCS
offered hereby, if any are taken.
The Underwriters initially propose to offer part of the PERCS directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price which represents a concession not in excess
of $ per PERCS. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per PERCS to other Underwriters or to certain
other dealers.
Subject to certain exceptions, Time Warner has agreed with the Underwriters
that without the prior written consent of Morgan Stanley & Co. Incorporated, for
a period of 45 days following the sale by the Trust of the PERCS offered hereby,
it will not, directly or indirectly, sell, offer to sell, grant options for the
sale of, or otherwise dispose of or transfer, any Hasbro Common Stock or any
security convertible into or exchangeable for any Hasbro Common Stock.
Because the proceeds of the sale of the PERCS will be invested in the
Subordinated Notes, Time Warner has agreed to pay to the Underwriters as a
commission the amount per PERCS set forth on the cover page of this Prospectus.
Prior to this offering, there has been no public market for the PERCS.
Application has been made to list the PERCS on the NYSE.
Time Warner and the Trust, on the one hand, and the Underwriters, on the
other hand, have agreed to indemnify each other against certain liabilities
under the Securities Act.
Certain of the Underwriters have from time to time performed various
investment banking services for Time Warner and its subsidiaries, for which
customary compensation has been received.
The Underwriters have informed Time Warner and the Trust that they, and any
agents or dealers utilized in the sale of PERCS, will not confirm sales of PERCS
to accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the PERCS under Delaware law will be passed upon for the
Trust by Richards, Layton & Finger, Wilmington, Delaware, special Delaware
counsel to Time Warner and the Trust. The validity of the Guarantee and the
Subordinated Notes and certain Federal income tax matters will be passed upon
for Time Warner and the Trust by Cravath, Swaine & Moore, New York, New York.
Certain legal matters will be passed upon for the Underwriters by Davis Polk &
Wardwell, New York, New York, and by Shearman & Sterling, New York, New York.
EXPERTS
The consolidated financial statements of Time Warner and TWE appearing in
Time Warner's Annual Report on Form 10-K for the year ended December 31, 1994,
as amended by Amendment No. 1
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thereto dated June 28, 1995, and the combined financial statements of the Time
Warner Service Partnerships incorporated by reference therein, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon set forth therein and incorporated herein by reference. Such financial
statements have been incorporated herein by reference in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Summit Communications Group, Inc. as of
December 31, 1993 and 1994, and for the three years ended December 31, 1994,
incorporated by reference in this Prospectus, have been audited by Deloitte &
Touche LLP, independent auditors, as set forth in their report thereon and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report and upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Newhouse Broadcasting Cable Division of
Newhouse Broadcasting Corporation and subsidiaries as of July 31, 1993 and 1994,
and for the three years ended July 31, 1994, incorporated by reference in this
Prospectus, have been audited by Paul Scherer & Company LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Vision Cable Division of Vision Cable
Communications, Inc. and subsidiaries as of December 31, 1993 and 1994, and for
the three years ended December 31, 1994, incorporated by reference in this
Prospectus, have been audited by Paul Scherer & Company LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Cablevision Industries Corporation as of
December 31, 1993 and 1994, and for the three years ended December 31, 1994,
incorporated by reference in this Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
thereon and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Cablevision Industries Limited Partnership as
of December 31, 1993 and 1994, and for the three years ended December 31, 1994,
incorporated by reference in this Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
thereon and incorporated herein by reference. Such financial statements are
incorporated herein by reference in reliance upon such report and upon the
authority of such firm as experts in accounting and auditing.
The financial statements of KBLCOM Incorporated as of December 31, 1993 and
1994, and for the three years ended December 31, 1994, incorporated by reference
in this Prospectus, have been audited by Deloitte & Touche LLP, independent
auditors, as set forth in their report thereon and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report and upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Paragon Communications as of December 31, 1993
and 1994, and for the three years ended December 31, 1994, incorporated by
reference in this Prospectus, have been audited by Price Waterhouse LLP,
independent accountants, as set forth in their report thereon and incorporated
herein by reference. Such financial statements are incorporated herein by
reference in reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
Time Warner is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). Reports, proxy statements
and other information filed by Time Warner can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained upon written
request addressed to the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at
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prescribed rates. In addition, reports, proxy statements and other information
concerning Time Warner may be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005, and at the offices of
the Pacific Stock Exchange Incorporated, 233 South Beaudry Avenue, Los Angeles,
California 90012 and 301 Pine Street, San Francisco, California 94104, on which
one or more of Time Warner's securities are listed.
This Prospectus constitutes part of a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
'Registration Statement') filed by Time Warner and the Trust with the Commission
under the Securities Act of 1933. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement for further information
with respect to Time Warner, the Trust, the PERCS, the Guarantee, the
Subordinated Notes and the Time Warner Exchange Right. Statements contained in
this Prospectus or in any document incorporated in this Prospectus by reference
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete, and, in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to the
Registration Statement or such other document, each such statement being
qualified in all respects by such reference.
No separate financial statements of the Trust have been included herein.
Time Warner does not consider that such financial statements would be material
to holders of the PERCS because (i) the Trust is a direct wholly-owned
subsidiary of Time Warner, a reporting company under the Exchange Act; (ii) the
Trust does not have any independent operations but exists for the sole purpose
of issuing securities representing undivided beneficial interests in the assets
of the Trust and investing the proceeds thereof in the Subordinated Notes; and
(iii) the obligations of the Trust under the PERCS are fully and unconditionally
guaranteed by Time Warner, to the extent Time Warner has made payments of
interest and principal on the Subordinated Notes. See 'Description of the
Guarantee' and 'Description of the Subordinated Notes'.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by Time Warner with the Commission pursuant
to Section 13 of the Exchange Act (File No. 1-8637) are incorporated herein by
reference: (i) Time Warner's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, as amended by Amendment No. 1 thereto dated June 28,
1995; (ii) Time Warner's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995; (iii) Time Warner's Current Report on Form 8-K dated January 26,
1995; (iv) Time Warner's Current Report on Form 8-K dated February 6, 1995; (v)
Time Warner's Current Report on Form 8-K dated April 1, 1995; (vi) Time Warner's
Current Report on Form 8-K dated May 30, 1995; (vii) Time Warner's Current
Report on Form 8-K dated June 15, 1995; and (viii) Time Warner's Current Report
on Form 8-K dated July 6, 1995.
All documents and reports subsequently filed by Time Warner pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the PERCS shall be
deemed to be incorporated by reference and to be a part hereof from the date of
filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Time Warner will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all documents
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference in such documents, and
any other documents specifically identified herein as incorporated by reference
into the Registration Statement to which this Prospectus relates or into such
other documents. Requests should be directed to Shareholder Relations, Time
Warner Inc., 75 Rockefeller Plaza, New York, New York 10019; telephone number
(212) 484-6971.
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GLOSSARY OF TERMS
The following is an abbreviated definition of certain capitalized terms
used in this Prospectus. The Declaration, the Guarantee and the Indenture may
contain a more complete definition of certain of the terms defined herein and
reference should be made to the Declaration, the Guarantee or the Indenture, as
applicable, for a more complete definition of all such terms.
<TABLE>
<S> <C>
AMEX............................................... the American Stock Exchange.
AVERAGE QUOTED PRICE............................... the average of the Quoted Prices of Exchange Property for
the shortest of (i) the 30 consecutive Trading Days ending
on the last full Trading Day prior to the time of
determination with respect to the distribution in respect of
which the Average Quoted Price is being calculated; (ii) the
period (x) commencing on the date next succeeding the first
public announcement of the distribution in respect of which
the Average Quoted Price is being calculated and (y)
proceeding through the last full Trading Day prior to the
time of determination with respect to the distribution in
respect of which the Average Quoted Price is being
calculated (excluding the days within such period, if any,
which are not Trading Days); and (iii) the period, if any,
(x) commencing on the date next succeeding the time
immediately prior to the commencement of 'ex-dividend'
trading for such Exchange Property with respect to the next
preceding distribution for which an adjustment is required
and (y) proceeding through the last full Trading Day prior
to the time of determination with respect to the
distribution in respect of which the Average Quoted Price is
being calculated (excluding the days within such period, if
any, which are not Trading Days).
BENEFICIAL OWNER................................... each actual purchaser of a PERCS with an ownership interest.
BUSINESS DAY....................................... any day other than a Saturday or Sunday or any other day on
which banking institutions in New York, New York, are
authorized or required by law to close.
CALL PRICE......................................... with respect to each Trust Security on any date, an amount
equal to (a) $54.41 per Trust Security plus (b) an amount
initially equal to $ per Trust Security, declining by
$ for each day that shall have elapsed in the period
from the Issue Date to but excluding the applicable Optional
Redemption Date (the number of days in such period being
computed on the basis of a 360-day year of twelve 30-day
months) to $0 on October 23, 1997, and thereafter.
CODE............................................... the Internal Revenue Code of 1986, as amended.
COMMISSION......................................... the Securities and Exchange Commission.
COMMON SECURITIES.................................. the common securities of the Trust representing undivided
beneficial interests in the assets of the Trust, directly or
indirectly owned initially by Time Warner.
DECLARATION........................................ the Amended and Restated Declaration of Trust, dated as of
, 1995 by the trustees, Time
</TABLE>
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<TABLE>
<S> <C>
Warner, as sponsor, and the holders of undivided beneficial
interests in the assets of the Trust.
DECLARATION EVENT OF DEFAULT....................... in respect of the Trust Securities, an Indenture Event of
Default that has occurred and is continuing in respect of
the Subordinated Notes.
DISTRIBUTIONS...................................... cumulative cash distributions payable to holders of PERCS in
an amount equal to $ per PERCS per annum, or
$ per quarter, accruing from and including the
Issue Date and payable quarterly in arrears on the 30th day
of March, June, September and December of each year,
commencing September 30, 1995, except as described herein.
DTC................................................ the Depository Trust Company.
ERISA.............................................. the Employee Retirement Income Security Act of 1974.
EXCHANGE ACT....................................... the Securities Exchange Act of 1934, as amended.
EXCHANGE ADJUSTMENT EVENT.......................... (i) the distribution of a dividend on Exchange Property in
the same type of Exchange Property, (ii) the combination of
Exchange Property into a smaller number of shares or other
units, (iii) the subdivision of outstanding shares or other
units of Exchange Property, (iv) the conversion or
reclassification of Exchange Property by issuance or
exchange of other securities, (v) a distribution of cash or
other property (including rights, warrants or other
securities) on Exchange Property of a particular type
(excluding (A) cash dividends and other cash distributions
paid thereon by the issuer thereof other than Extraordinary
Cash Dividends, (B) interest, if any, paid thereon by the
issuer thereof and (C) dividends payable in Exchange
Property for which adjustment is made pursuant to (i)
through (iv) above).
EXCHANGE PROPERTY.................................. with respect to each PERCS on any date, (i) as of the date
of this Prospectus, one share of Hasbro Common Stock, (ii)
any cash or property (other than cash dividends and other
cash distributions paid by the issuer thereof that do not
constitute Extraordinary Cash Dividends and other than
interest, if any, paid in respect thereof) distributed in
respect of the Initial Shares or other Exchange Property,
(iii) any property issued or distributed upon the exchange
or conversion of Exchange Property, including upon any
reorganization, consolidation or merger or any sale or
transfer or lease of all or substantially all the assets of
the issuer of such Exchange Property and (iv) any cash or
property paid by an offeror in connection with a tender or
exchange offer for Exchange Property of a particular type;
provided that Exchange Property does not include any
property distributed in respect of other Exchange Property
for which an antidilution adjustment has been made pursuant
to the Declaration.
EXCHANGE RATE...................................... initially, with respect to the PERCS, one share of
</TABLE>
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<TABLE>
<S> <C>
Hasbro Common Stock per PERCS, and with respect to the
Subordinated Notes, one share of Hasbro Common Stock per
Minimum Denomination of Subordinated Notes, subject to
certain antidilution adjustments; with respect to any other
Exchange Property the Exchange Rate will be determined on
the basis of the portion of Hasbro Common Stock or other
Exchange Property in respect of which such Exchange Property
is issued, distributed or exchanged.
EXCHANGE VALUATION PRICE........................... on any date with respect to any Exchange Property, the
average of the Purchase Sale Prices of the applicable
Exchange Property for the five Trading Day period ending on
and including such date, adjusted to take into account the
occurrence, during such period, of any Exchange Adjustment
Events with respect to such Exchange Property.
EXTRAORDINARY CASH DIVIDEND........................ any cash dividend with respect to Exchange Property the
amount of which, together with the aggregate amount of such
cash dividends on the Exchange Property to be aggregated
with such cash dividend in accordance with the terms of the
Indenture, equals or exceeds certain threshold percentages
set forth in the Indenture.
GLOBAL NOTE........................................ issued in the form of one or more global certificates
distributed to holders of PERCS in connection with the
involuntary or voluntary dissolution, winding-up or
liquidation of the Trust as a result of the occurrence of a
Special Event.
GUARANTEE.......................................... the Guarantee Agreement dated as of , 1995, executed
by Time Warner on behalf of the holders of the PERCS.
GUARANTEE PAYMENTS................................. (i)(A) any accrued and unpaid distributions that are
required to be paid on the PERCS and (B) subject to the
exercise by Time Warner of the Time Warner Exchange Right,
the Redemption Payment Amount with respect to the PERCS
subject to mandatory redemption or called for redemption by
the Trust, but if and only to the extent that, in each of
cases (A) and (B), Time Warner has made a payment to the
Property Trustee of interest or principal on the
Subordinated Notes, and (ii) upon a Liquidation Event (other
than in connection with the distribution of the Subordinat-
ed Notes to the holders of PERCS or the redemption of all
the PERCS upon the maturity or redemption of the
Subordinated Notes), the lesser of (x) the Liquidation
Distribution, to the extent the Trust has funds available
therefor, and (y) the amount of assets of the Trust
remaining available for distribution to holders of the PERCS
in liquidation of the Trust.
GUARANTEE TRUSTEE.................................. The First National Bank of Chicago.
HASBRO............................................. Hasbro, Inc., a Rhode Island corporation.
HASBRO COMMON STOCK................................ common stock, par value $.50 per share, of Hasbro.
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INDENTURE.......................................... the Indenture dated as of , 1995, between Time Warner
and the Indenture Trustee.
INDENTURE EVENT OF DEFAULT......................... (i) default for 30 days in the payment of interest on the
Subordinated Notes; (ii) default in payment of the Maturity
Payment Amount or any amount payable upon optional or
special redemption of the Subordinated Notes; (iii) failure
by Time Warner for 90 days after receipt of notice to it to
comply with any of its covenants or agreements contained in
the Indenture; (iv) failure by the Property Trustee or any
Regular Trustee to comply with the terms of the Declaration;
and (v) certain events of bankruptcy, insolvency,
receivership or reorganization involving Time Warner.
INDENTURE TRUSTEE.................................. Chemical Bank.
INITIAL SHARES..................................... the 12,057,561 shares of Hasbro Common Stock initially
constituting Exchange Property.
INTEREST PAYMENT DATE.............................. with respect to the Subordinated Notes, the 30th day of
March, June, September and December of each year.
INVESTMENT COMPANY EVENT........................... the receipt by the Regular Trustees of an opinion of a
nationally recognized independent counsel experienced in
such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a written
change in interpretation or application of law or regulation
by any legislative body, court, governmental agency or
regulatory authority (a 'Change in 1940 Act Law'), there is
more than an insubstantial risk that the Trust is or will be
considered an 'investment company' that is required to be
registered under the 1940 Act, which Change in 1940 Act Law
becomes effective on or after the date of this Prospectus.
IRS................................................ Internal Revenue Service
ISSUE DATE......................................... , 1995
LIQUIDATION DISTRIBUTION........................... in respect of any Liquidation Event, (a)(i) if such
Liquidation Event occurs at the stated maturity of the
Subordinated Notes, the Mandatory Redemption Price, (ii) if
such Liquidation Event occurs in connection with the
optional redemption of the Subordinated Notes, the Call
Price, (iii) if such Liquidation Event occurs in connection
with the special redemption of the Subordinated Notes, the
Special Redemption Price and (iv) if such Liquidation Event
occurs in connection with an acceleration of the
Subordinated Notes in any other circumstance, the Note
Acceleration Price, in each case plus (b) the amount of
accrued and unpaid distributions on the Trust Securities to
but excluding the date of payment.
LIQUIDATION EVENT.................................. any liquidation, dissolution, winding-up or termination of
the Trust, whether voluntary or involuntary.
LYONS.............................................. Time Warner's $1,651,494,000 principal amount at
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maturity Liquid Yield Option Notes due 2012, exchangeable
for shares of Hasbro Common Stock.
MANDATORY REDEMPTION DATE.......................... December 23, 1997.
MANDATORY REDEMPTION PRICE......................... with respect to any Trust Security, an amount equal to the
lesser of (a) $54.41 and (b) the Exchange Valuation Price on
the Trading Day immediately preceding December 17, 1997, of
such amount of Exchange Property (which initially consists
of one share of Hasbro Common Stock for each PERCS) as
relates to one PERCS on the Mandatory Redemption Date.
MATURITY DATE...................................... December 23, 1997.
MATURITY PAYMENT AMOUNT............................ the amount payable upon maturity for each Minimum
Denomination of the Subordinated Notes equal to (a) the
lesser of (i) $54.41 and (ii) the Exchange Valuation Price
on the Trading Day immediately preceding December 17, 1997,
of such amount of Exchange Property as relates to each
Minimum Denomination of Subordinated Notes at such time.
MINIMUM DENOMINATION............................... with respect to the Subordinated Notes, $ .
NASDAQ............................................. The Nasdaq Stock Market.
1940 ACT........................................... the Investment Company Act of 1940, as amended.
NO RECOGNITION OPINION............................. opinion of nationally recognized independent tax counsel, to
the effect that the holders of the PERCS will not recognize
any gain or loss for United States Federal income tax
purposes as a result of the dissolution of the Trust and
distribution of the Subordinated Notes.
NOTE ACCELERATION PRICE............................ with respect to any Subordinated Note, an amount per Minimum
Denomination equal to the lesser of (a) $54.41 and (b) the
Exchange Valuation Price on the Trading Day immediately
preceding the Indenture Event of Default resulting in an
acceleration of the Subordinated Notes of such amount of
Exchange Property as relates to each Minimum Denomination of
Subordinated Notes on such Trading Day.
NOTE CALL PRICE.................................... with respect to each Minimum Denomination of Subordinated
Notes, an amount equal to (a) $54.41 per Minimum
Denomination of Subordinated Notes plus (b) an amount
initially equal to $ per Minimum Denomination,
declining by $ for each day that shall have elapsed
in the period from the Issue Date to but excluding the date
of redemption (the number of days in such period being
computed on the basis of a 360-day year of twelve 30-day
months) to $0 on October 23, 1997, and thereafter.
NYSE............................................... the New York Stock Exchange, Inc.
OPTIONAL REDEMPTION DATE........................... any date in respect of which, upon the call for redemption
prior to maturity by Time Warner of the Subordinated Notes,
the Trust shall have called for redemption at the Call Price
outstanding Trust Securi-
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ties having an aggregate stated amount equal to the
aggregate principal amount of the Subordinated Notes to be
so redeemed.
PERCS.............................................. the Trust's 12,057,561 $ Preferred Exchangeable
Redemption Cumulative Securities.
PRINCIPAL AMOUNT................................... with respect to each Subordinated Note, the Minimum
Denomination thereof.
PRO RATA BASIS..................................... with respect to any payment, pro rata to each holder of
Trust Securities according to the aggregate stated amount of
the Trust Securities held by such holder in relation to the
aggregate stated amount of all Trust Securities outstanding;
provided, however, that if the assets of the Trust are
insufficient to make such payment in full as a result of a
default with respect to the Subordinated Notes, any funds
available to make such payment shall be paid (i) first to
each holder of PERCS pro rata according to the aggregate
stated amount of all the PERCS outstanding up to an
aggregate amount equal to the amount then owed to the
holders of the PERCS and (ii) only after satisfaction of all
amounts owed to the holders of the PERCS, to each holder of
Common Securities pro rata according to the aggregate stated
amount of the Common Securities held by such holder in
relation to the aggregate stated amount of all the Common
Securities outstanding.
PROPERTY TRUSTEE................................... The First National Bank of Chicago.
PURCHASE SALE PRICE................................ on any date with respect to any Exchange Property, the
closing per share sale price for the applicable Exchange
Property (or, if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in
either case, the average of the average bid and average ask
prices) on such date as reported in the composite
transactions for the principal United States securities
exchange on which such Exchange Property is traded or, if
such Exchange Property is not listed on a United States
national or regional securities exchange, as reported by
Nasdaq, or, if such Exchange Property is not reported by
Nasdaq, the high per share bid price for such Exchange
Property in the over-the-counter market as reported by the
National Quotation Bureau or similar organization, or, if
such bid price is not available, the per unit market value
of such Exchange Property on such date as determined by a
nationally recognized investment banking firm retained for
such purpose by Time Warner.
QUOTED PRICE....................................... for any given day, the last reported per share sale price
(or, if no sale price is reported, the average of the bid
and ask prices or, if more than one in either case, the
average of the average bid and average ask prices) on such
day for the applicable Exchange Property in the composite
transactions for the principal United States
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securities exchange on which such shares are traded, or, if
such Exchange Property is not listed on a United States
national or regional securities exchange, as reported by
Nasdaq, or, if such Exchange Property is not reported by
Nasdaq, the high per share bid price for such Exchange
Property in the over-the-counter market as reported by the
National Quotation Bureau or similar organization or, if
such bid price is not available, the Quoted Price shall not
be determinable.
REDEMPTION/DISTRIBUTION NOTICE..................... notice provided by the Trust of any redemption (other than
mandatory redemption) of, or any distribution of the
Subordinated Notes in exchange for, the PERCS to all holders
of PERCS to be redeemed or exchanged stating, among other
things, (i) the date of such redemption or of such
distribution, as the case may be, and (ii) in the case of
any early or special redemption, the applicable Call Price
or Special Redemption Price, as the case may be.
REDEMPTION PAYMENT AMOUNT.......................... any of the Mandatory Redemption Price, the Call Price or the
Special Redemption Price.
REDEMPTION PAYMENT DATE............................ any of a Mandatory Redemption Date, Optional Redemption Date
or Special Redemption Date.
REGULAR TRUSTEES................................... the three Time Warner Trustees who are employees or officers
of, or affiliated with, Time Warner.
SECURITIES ACT..................................... the Securities Act of 1933.
SENIOR INDEBTEDNESS................................ with respect to Time Warner, all indebtedness or obli-
gations, whether outstanding at the date of execution of the
Indenture or thereafter incurred, assumed, guaranteed or
otherwise created, unless the terms of the instrument or
instruments by which Time Warner incurred, assumed,
guaranteed or otherwise created any such indebtedness or
obligation expressly provide that such indebtedness or
obligation is subordinate to all other indebtedness of Time
Warner or that such indebtedness or obligation is not
superior in right of payment to the Subordinated Notes with
respect to any of the following (including, without
limitation, interest accruing on or after a bankruptcy or
other similar event, whether or not an allowed claim
therein): (i) any indebtedness incurred by Time Warner or
assumed or guaranteed, directly or indirectly, by Time
Warner (a) for money borrowed (including Time Warner's out-
standing 8 3/4% Convertible Subordinated Debentures due
2015), (b) in connection with the acquisition of any
business, property or other assets (other than trade
payables incurred in the ordinary course of business) or (c)
for advances or progress payments in connection with the
construction or acquisition of any building, motion picture,
television production or other entertainment of any kind;
(ii) any obligation of Time Warner (or of a subsidiary which
is guaranteed by Time Warner) as lessee under a lease of
real or personal property; (iii) any obligation of Time
Warner to
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purchase property at a future date in connection with a
financing by Time Warner or a subsidiary of Time Warner;
(iv) letters of credit; (v) currency swaps and interest rate
hedges; and (vi) any deferral, renewal, extension or
refunding of any of the foregoing.
7.75% NOTES........................................ Time Warner's $500,000,000 7.75% Notes due 2005.
SPECIAL EVENT...................................... either a Tax Event or an Investment Company Event.
SPECIAL REDEMPTION DATE............................ any date in respect of which upon the occurrence and
continuation of a Tax Event or an Investment Company Event,
Time Warner shall have called for redemption in whole the
Subordinated Notes, and the Trust shall have called for
redemption the PERCS, at the Special Redemption Price.
SPECIAL REDEMPTION PRICE........................... with respect to any Trust Security or Minimum Denomination
of Subordinated Notes on any date, an amount equal to (i)
the lesser of (A) $54.41 and (B) an amount equal to the
Exchange Valuation Price on the Trading Day immediately
preceding such Special Redemption Date of the amount of
Exchange Property that relates to one PERCS or such Minimum
Denomination of Subordinated Notes at such time (based on
the Exchange Rate in effect as of such Trading Day), plus
(ii) an amount initially equal to $ per Trust
Security or such Minimum Denomination of Subordinated Notes,
declining by $ on each day following the Issue Date
(computed on the basis of a 360-day year of twelve 30-day
months) to $0 on October 23, 1997 and thereafter.
SPECIAL REGULAR TRUSTEE............................ a special trustee appointed by the majority vote of the
holders of the PERCS if (i) the Trust shall have failed to
pay distributions in full on the PERCS and such failure
shall have continued unremedied for 30 days or shall have
failed to pay the Redemption Payment Amount in respect of
any PERCS to be redeemed on the applicable Redemption
Payment Date, together with any accrued and unpaid
distributions thereon to such date or (ii) a Declaration
Event of Default shall have occurred and shall be
continuing.
STATED AMOUNT...................................... with respect to each Trust Security, the per PERCS Price to
Public shown on the cover page hereof.
SUBORDINATED NOTES................................. Time Warner's % Subordinated Notes due December 23,
1997.
TAX EVENT.......................................... the receipt by the Regular Trustees of an opinion of
nationally recognized independent tax counsel experienced in
such matters (a 'Dissolution Tax Opinion') to the effect
that, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws
(or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or
therein, (b) any amendment to, or change in, an
interpretation or application of such laws or regulations,
by any legislative body, court, governmental agency or
regulatory authority (including the enactment of any
legislation and the publication of
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any judicial decision or regulatory determination), (c) any
interpretation or pronouncement that provides for a position
with respect to such laws or regulations that differs from
the theretofore generally accepted position or (d) any
action taken by any governmental agency or regulatory
authority, which amendment or change is enacted,
promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is
taken, in each case on or after the date of this Prospectus,
that there is more than an insubstantial risk that at such
time or within 90 days of the date thereof (i) the Trust
would be subject to United States Federal income tax with
respect to income accrued or received on the Subordinated
Notes, (ii) less than 25% of the interest payable on the
Subordinated Notes would be deductible by Time Warner for
United States Federal income tax purposes, (iii) the Trust
would be subject to more than a de minimis amount of other
taxes, duties or other governmental charges or (iv) as a
result of the issuance of the PERCS and/or the Subordinated
Notes, Time Warner (or an affiliate of Time Warner) would be
treated as having disposed, for United States Federal income
tax purposes, of the Hasbro Common Stock owned by it.
TIME WARNER........................................ Time Warner Inc., a Delaware corporation.
TIME WARNER EXCHANGE RIGHT......................... Time Warner's right to require the holders of the PERCS to
exchange on any Redemption Payment Date PERCS (or, if the
Subordinated Notes shall have been distributed to the
holders of the PERCS, Subordinated Notes) for a combination
of Hasbro Common Stock and cash.
TIME WARNER TRUSTEES............................... the Trustees that conduct the Trust's business and affairs
as appointed by Time Warner, the direct or indirect holder
of all the Common Securities.
TRADING DAY........................................ a day on which the AMEX (or any successor thereto) or, to
the extent that neither the Hasbro Common Stock nor any
other Exchange Property is listed on the AMEX, such other
national securities exchanges on which the Exchange Property
is listed or, if none, the NYSE, is open for the transaction
of business.
TRUST.............................................. Time Warner Financing Trust, a statutory business trust
formed under the laws of the State of Delaware.
TRUST ACT.......................................... the Delaware Business Trust Act.
TRUST INDENTURE ACT................................ the Trust Indenture Act of 1939, as amended.
TRUST SECURITIES................................... the Common Securities and the PERCS.
TWE................................................ Time Warner Entertainment Company, L.P., a Delaware limited
partnership.
UNDERWRITING AGREEMENT............................. the underwriting agreement dated , 1995,
among Time Warner, the Trust and Morgan Stanley & Co.
Incorporated, as representative of the several underwriters
named therein, with respect to, among other things, the
PERCS.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses in connection with the issuance and
distribution of the securities being registered. All amounts shown are
estimated, except the SEC Filing Fee and the Stock Exchange Listing Fees.
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Securities and Exchange Commission Filing Fee................................... $ 138,766
Trustees' Fees.................................................................. 25,000
Rating Agency Fees.............................................................. 250,000
Accounting Fees and Expenses.................................................... 125,000
Legal Fees and Expenses......................................................... 300,000
Blue Sky Fees and Expenses...................................................... 23,500
Printing and Engraving Fees..................................................... 200,000
Stock Exchange Listing Fee...................................................... 36,251
NASD Filing Fee................................................................. 30,500
Miscellaneous................................................................... 45,983
----------
Total...................................................................... $1,175,000
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* To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the 'DGCL') provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation -- a
'derivative action'), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) actually and reasonably incurred
in connection with the defense or settlement of such action, and the statute
requires court approval before there can by any in indemnification where the
person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's charter, by-laws, disinterested director vote,
stockholder vote, agreement or otherwise.
Article VI of Time Warner's By-Laws requires indemnification to the fullest
extent permitted under Delaware law of any person who is or was a director or
officer of Time Warner who is or was involved or threatened to be made so
involved in any action, suit or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person is or
was serving as a director, officer or employee of the Registrant or any
predecessor of Time Warner or was serving at the request of Time Warner as a
director, officer or employee of any other enterprise.
Section 102(b)(7) of the DGCL permits a provision in the certificate of
incorporation of each corporation organized thereunder, such as Time Warner,
eliminating or limiting, with certain exceptions, the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director. Section 1, Article X of the Certificate of
Incorporation of Time Warner eliminates the liability of directors to the extent
permitted by Section 102(b)(7).
The foregoing statements are subject to the detailed provisions of Section
145 and 102(b)(7) of the DGCL, Article VI of such By-laws and Section 1, Article
X of such Certificate of Incorporation, as applicable.
Time Warner's Directors' and Officers' Liability and Reimbursement
Insurance Policy is designed to reimburse the Registrant for any payments made
by it pursuant to the foregoing indemnification. Such policy has coverage of
$50,000,000.
The Declaration provides that no Trustee, affiliate of any Trustee or any
officers, directors, shareholders, members, partners, employees, representatives
or agents of any Trustee or any employee or agent of the Trust or its affiliates
(each, an 'Indemnified Person') shall be liable, responsible or
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accountable in damages or otherwise to any employee or agent of the Trust or its
affiliates, or any officers, directors, shareholders, employees, representatives
or agents of Time Warner or its affiliates or to any holders of Trust Securities
of the Trust for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by the
Declaration or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's gross
negligence (or, in the case of the Property Trustee, negligence, as more
specifically described in Section 3.10 of the Declaration) or willful misconduct
with respect to such acts or omission. The Declaration also provides that, to
the fullest extent permitted by applicable law, Time Warner shall indemnify and
hold harmless each Indemnified Person from and against any loss, damage or claim
incurred by such Indemnified Person by reason of any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of the Trust and
in a manner such Indemnified Person reasonably believed to be within the scope
of authority conferred on such Indemnified Person by the Declaration, except
that no Indemnified Person shall be entitled to be indemnified in respect of any
loss, damage or claim incurred by such Indemnified Person by reason of gross
negligence (or, in the case of the Property Trustee, negligence, as more
specifically described in Section 3.10 of the Declaration) or willful misconduct
with respect to such acts or omissions. The Declaration further provides that to
the fullest extent permitted by applicable law, expenses (including legal fees)
incurred by an Indemnified Person in defending any claim, demand, action, suit
or proceeding shall, from time to time, be advanced by Time Warner prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by Time Warner of an undertaking by or on behalf of the Indemnified Person to
repay such amount if it shall be determined that the Indemnified Person is not
entitled to be indemnified pursuant to the Declaration.
ITEM 16. EXHIBITS.
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1.1 -- Form of Underwriting Agreement
4.1 -- Certificate of Trust of the Trust*
4.2 -- Declaration of Trust of the Trust*
4.3 -- Form of Amended and Restated Declaration of Trust of the Trust
4.4 -- Form of Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as Trustee
4.5 -- Form of PERCS (included in Exhibit 4.3)
4.6 -- Form of Guarantee with respect to PERCS
4.7 -- Form of Subordinated Note (included in Exhibit 4.4)
5.1 -- Opinion of Cravath, Swaine & Moore
5.2 -- Opinion of Richards, Layton & Finger
8.1 -- Opinion of Cravath, Swaine & Moore
12.1 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Inc.*
12.2 -- Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends of Time Warner
Inc.*
12.3 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Entertainment Company, L.P.*
23.1 -- Consent of Ernst & Young LLP, Independent Auditors
23.2 -- Consent of Cravath, Swaine & Moore (included in Exhibits 5.1 and 8)
23.3 -- Consent of Deloitte & Touche LLP, Independent Auditors
23.4 -- Consent of Paul Scherer & Company LLP, Independent Auditors
23.5 -- Consent of Arthur Andersen LLP, Independent Public Accountants
23.6 -- Consent of Deloitte & Touche LLP, Independent Auditors
23.7 -- Consent of Price Waterhouse LLP, Independent Accountants
23.8 -- Consent of Richards, Layton & Finger (included in Exhibit 5.2)
24.1 -- Powers of Attorney for Time Warner Inc.*
24.2 -- Powers of Attorney for Time Warner Inc., as sponsor, to sign this Registration Statement on behalf of the
Trust (included in Exhibit 4.2)*
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Chemical Bank, as Trustee
under the Subordinated Notes Indenture*
25.2 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of
Chicago, as Property Trustee under the Declaration of Trust of the Trust*
25.3 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The First National Bank of
Chicago, as Guarantee Trustee under the Guarantee of Time Warner Inc. for the benefit of the holders of
PERCS*
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* Previously filed.
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ITEM 17. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(a) That, for purposes of determining any liability under the
Securities Act of 1933 (the 'Securities Act'), each filing of Time Warner's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act') (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act), that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering hereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the provisions referred to in Item
15 of this registration statement, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or
controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereby, the Registrants will, unless in the opinion of counsel to the
Registrants the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(c) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering hereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act, Time Warner Inc. hereby
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
be signed on its behalf by the undersigned, thereunto duly authorized, in The
City of New York, State of New York, on the 3rd day of August, 1995.
TIME WARNER INC.
By /s/ PETER R. HAJE
...................................
PETER R. HAJE
EXECUTIVE VICE PRESIDENT
GENERAL COUNSEL AND SECRETARY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
* Director, Chairman of the Board and Chief August 3, 1995
......................................... Executive Officer (principal executive
(GERALD M. LEVIN) officer)
* Director, President August 3, 1995
.........................................
(RICHARD D. PARSONS)
* Senior Vice President and Chief Financial August 3, 1995
......................................... Officer (principal financial officer)
(RICHARD J. BRESSLER)
* Vice President and Controller (principal August 3, 1995
......................................... accounting officer)
(JOHN A. LABARCA)
* Director August 3, 1995
.........................................
(MERV ADELSON)
* Director August 3, 1995
.........................................
(LAWRENCE B. BUTTENWIESER)
* Director August 3, 1995
.........................................
(EDWARD S. FINKELSTEIN)
* Director August 3, 1995
.........................................
(BEVERLY SILLS GREENOUGH)
* Director August 3, 1995
.........................................
(CARLA A. HILLS)
* Director August 3, 1995
.........................................
(DAVID T. KEARNS)
* Director August 3, 1995
.........................................
(HENRY LUCE III)
* Director August 3, 1995
.........................................
(REUBEN MARK)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
* Director August 3, 1995
.........................................
(MICHAEL A. MILES)
* Director August 3, 1995
.........................................
(J. RICHARD MUNRO)
* Director August 3, 1995
.........................................
(DONALD S. PERKINS)
* Director August 3, 1995
.........................................
(RAYMOND S. TROUBH)
* Director August 3, 1995
.........................................
(FRANCIS T. VINCENT, JR.)
*By: /s/ PETER R. HAJE
.........................................
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Time Warner Financing
Trust hereby certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York, State of New York, on the 3rd day of
August, 1995.
TIME WARNER FINANCING TRUST
By: TIME WARNER INC., as Sponsor
By /s/ PETER R. HAJE
...................................
PETER R. HAJE
EXECUTIVE VICE PRESIDENT
GENERAL COUNSEL AND SECRETARY
II-6
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as 'r'
The section symbol shall be expressed as 'ss'
The trade mark symbol shall be expressed as 'tm'
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------- ------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.........................................................
4.1 -- Certificate of Trust of the Trust*.....................................................
4.2 -- Declaration of Trust of the Trust*.....................................................
4.3 -- Form of Amended and Restated Declaration of Trust of the Trust.........................
4.4 -- Form of Subordinated Notes Indenture between Time Warner Inc. and Chemical Bank, as
Trustee.................................................................................
4.5 -- Form of PERCS (included in Exhibit 4.3)................................................
4.6 -- Form of Guarantee with respect to PERCS................................................
4.7 -- Form of Subordinated Note (included in Exhibit 4.4)....................................
5.1 -- Opinion of Cravath, Swaine & Moore.....................................................
5.2 -- Opinion of Richards, Layton & Finger...................................................
8.1 -- Opinion of Cravath, Swaine & Moore.....................................................
12.1 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Inc.*.................
12.2 -- Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends of Time Warner Inc.*..........................................................
12.3 -- Computation of Ratio of Earnings to Fixed Charges of Time Warner Entertainment Company,
L.P.*...................................................................................
23.1 -- Consent of Ernst & Young LLP, Independent Auditors.....................................
23.2 -- Consent of Cravath, Swaine & Moore (included in Exhibits 5.1 and 8)....................
23.3 -- Consent of Deloitte & Touche LLP, Independent Auditors.................................
23.4 -- Consent of Paul Scherer & Company LLP, Independent Auditors............................
23.5 -- Consent of Arthur Andersen LLP, Independent Public Accountants.........................
23.6 -- Consent of Deloitte & Touche LLP, Independent Auditors.................................
23.7 -- Consent of Price Waterhouse LLP, Independent Accountants...............................
23.8 -- Consent of Richards, Layton & Finger (included in Exhibit 23.8)
24.1 -- Powers of Attorney for Time Warner Inc.*...............................................
24.2 -- Powers of Attorney for Time Warner Inc., as sponsor, to sign this Registration
Statement on behalf of the Trust (included in Exhibit 4.2)*.............................
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of Chemical
Bank, as Trustee under the Subordinated Notes Indenture*................................
25.2 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The
First National Bank of Chicago, as Property Trustee under the Declaration of Trust of
the Trust*..............................................................................
25.3 -- Statement of Eligibility under the Trust Indenture Act of 1939, as amended, of The
First National Bank of Chicago, as Guarantee Trustee under the Guarantee of Time Warner
Inc. for the benefit of the holders of PERCS*...........................................
</TABLE>
- ------------
* Previously filed.
<PAGE>
TIME WARNER FINANCING TRUST and TIME WARNER INC.
Underwriting Agreement
New York, New York
August __, 1995
Morgan Stanley & Co. Incorporated
as Representative of the several Underwriters
1251 Avenue of the Americas
New York, New York 10020
Dear Sirs:
Time Warner Financing Trust (the 'Trust'), a statutory business trust
organized under the Business Trust Act (the 'Delaware Act') of the State of
Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C. SECTION 3801 et
seq.), proposes to sell to the underwriters named in Schedule I hereto (the
'Underwriters'), for whom you (the 'Representative') are acting as
representative, 12,057,561 [$___] Preferred Exchangeable Redemption Cumulative
Securities (the 'Preferred Securities') to be specified in Schedule II hereto.
The Preferred Securities and the Common Securities (as defined herein) are to be
issued pursuant to the terms of a declaration of trust, dated as of June 7,
1995, as amended and restated (the 'Declaration'), among Time Warner Inc., a
Delaware corporation (the 'Company' and, together with the Trust, the
'Offerors'), as sponsor, the trustees named therein (the 'Time Warner Trustees')
and the holders from time to time of undivided beneficial interests in the
assets of the Trust. The Declaration is qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the 'Trust Indenture Act'). Pursuant to
the Declaration, the number of Time Warner Trustees will initially be five.
Three of the Time Warner Trustees (the 'Regular Trustees') will be persons who
are employees or officers of, or affiliated with, the Company. The fourth
trustee will be a financial institution unaffiliated with the Company that will
serve as property trustee under the Declaration and as indenture trustee with
respect to the Preferred Securities for purposes of the Trust Indenture Act (the
'Property Trustee'). The fifth Time Warner Trustee will be a financial
institution or an affiliate thereof which maintains a principal place of
business or residence in the State of Delaware (the 'Delaware Trustee'). The
First National Bank of Chicago will act as the Property Trustee and its
affiliate will act as the Delaware Trustee until removed or replaced by the
holder of the Common Securities. The Preferred Securities will be guaranteed by
the Company on a subordinated basis with respect to distributions and payments
upon liquidation, redemption or otherwise (the 'Guarantee') pursuant to the
Guarantee Agreement dated as of August , 1995 (the 'Guarantee Agreement')
between the Company and The First National Bank of Chicago, as Trustee (the
'Guarantee Trustee'). The assets of the Trust will consist of, among other
things, % Subordinated Notes due December 23, 1997 (the 'Subordinated Notes') of
the Company which will be
<PAGE>
2
issued under an indenture, dated as of August , 1995 (the 'Subordinated Notes
Indenture'), between the Company and Chemical Bank, as Trustee (the 'Indenture
Trustee'). Under certain circumstances, the Subordinated Notes will be
distributable to the holders of undivided beneficial interests in the assets of
the Trust. The Preferred Securities, the related Guarantee and the Subordinated
Notes are referred to herein as the 'Securities'.
The Company has the right (the 'Time Warner Exchange Right') to require the
holders of the Preferred Securities, in whole or in part, to exchange, on
December 23, 1997, or upon the earlier redemption thereof from time to time,
Preferred Securities for shares of common stock, par value $.50 per share (the
'Hasbro Common Stock'), of Hasbro, Inc., a Rhode Island corporation ('Hasbro'),
subject to certain adjustments, in accordance with the terms and subject to the
conditions set forth in the Declaration.
The Offerors understand that the Underwriters propose to make a public
offering of the Preferred Securities as soon as the Underwriters deem advisable
after this Agreement has been executed and delivered, and the Declaration, the
Guarantee Agreement and the Indenture have been qualified under the Trust
Indenture Act. The entire proceeds from the sale of the Securities will be
combined with the entire proceeds from the sale by the Trust to the Company of
its common securities (the 'Common Securities'), and will be used by the Trust
to purchase an equivalent amount of the Subordinated Notes.
1. Representations and Warranties. The Offerors jointly and severally
represent and warrant to, and agree with, each Underwriter as set forth below in
this Section 1. Certain terms used in this Section 1 are defined in paragraph
(bb) hereof.
(a) Each of the Offerors meets the requirements for the use of Form
S-3 under the Securities Act of 1933 (the 'Act') and has filed with the
Securities and Exchange Commission (the 'Commission') a registration
statement (File No. 33-60203 and 33-60203-01) on such Form, including a
prospectus, for registration under the Act of the Preferred Securities, the
Guarantee, the Subordinated Notes and the Time Warner Exchange Rights. The
Hasbro Common Stock currently owned by an indirect wholly owned subsidiary
of the Company into which the Preferred Securities are exchangeable is not
required to be registered under the Act in connection with the offering and
sale of the Preferred Securities or the exchange of the Preferred
Securities as described in the Prospectus. As of the date of this
Agreement, the Exchange Property (as defined in the Prospectus) consists
solely of the Hasbro Common Stock owned by such subsidiary on the date
hereof.
(b) On the Effective Date, the Registration Statement did and on the
Closing Date, the Prospectus will, comply in all material respects with the
applicable requirements of the Act, the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), the Trust Indenture Act and the respective
rules thereunder; on the
<PAGE>
3
Effective Date, the Registration Statement did not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein not
misleading; on the Effective Date and on the Closing Date, each of the
Declaration, the Indenture and the Guarantee Agreement did and will comply
in all material respects with the requirements of the Trust Indenture Act
and the rules thereunder; and, on the date hereof, the Prospectus does not,
and on the Closing Date, the Prospectus will not, include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to (i) those parts of the
Registration Statement which shall constitute the Statements of Eligibility
and Qualification (Form T-1) under the Trust Indenture Act of the Property
Trustee, the Guarantee Trustee and the Indenture Trustee or (ii) the
information contained in or omitted from the Registration Statement or the
Prospectus in reliance upon and in conformity with information furnished in
writing to the Offerors by or on behalf of any Underwriter through the
Representative specifically for inclusion in the Registration Statement or
the Prospectus.
(c) The Company is validly existing as a corporation in good standing
under the laws of the State of Delaware, with full corporate power and
authority under such laws to own its properties and conduct its business as
described in the Prospectus, to enter into and perform its obligations
under this Agreement, the Declaration, the Indenture and the Guarantee
Agreement and to purchase, own and hold the Common Securities issued by the
Trust; and the Company is duly qualified to transact business as a foreign
corporation and is in good standing in each other jurisdiction in which it
owns or leases property of a nature, or transacts business of a type, that
would make such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, considered as one
enterprise.
(d) Each of the Company's significant subsidiaries, as such term is
defined in Rule 1-02(v) of Regulation S-X under the Act, is validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with full power and authority under such
laws to own its properties and conduct its business as described in the
Prospectus and is duly qualified to transact business as a foreign
corporation or partnership and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to
the extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
considered as one enterprise.
<PAGE>
4
(e) The Company's authorized equity capitalization and pro forma
equity capitalization is as set forth in the Prospectus.
(f) The Trust has been duly created and is validly existing and in
good standing as a business trust under the Delaware Act with the power and
authority to own property and to conduct its business as described in the
Registration Statement and Prospectus and to enter into and perform its
obligations under this Agreement, the Preferred Securities and the
Declaration and is not required to be authorized to do business in any
other jurisdiction; the Trust is not a party to or otherwise bound by any
agreement other than those described in the Prospectus; the Trust is not
and will not be classified as an association taxable as a corporation for
United States federal income tax purposes; and the Trust is and will be
treated as a consolidated subsidiary of the Company pursuant to generally
accepted accounting principles.
(g) This Agreement has been duly authorized, executed and delivered by
each of the Offerors.
(h) The Preferred Securities have been duly authorized by the
Declaration and, when issued and delivered pursuant to this Agreement
against payment of the consideration set forth in Schedule II hereto, will
be validly issued and (subject to the terms of the Declaration) fully paid
and non-assessable undivided beneficial interests in the assets of the
Trust, will be entitled to the benefits of the Declaration and will conform
to all statements relating thereto contained in the Prospectus; the
issuance of the Preferred Securities is not subject to preemptive or other
similar rights; holders of Preferred Securities will be entitled to the
same limitation of personal liability extended to stockholders of private
corporations for profit; the Offerors have filed a preliminary listing
application and all required supporting documents with respect to the
Preferred Securities with the New York Stock Exchange and the Offerors have
no reason to believe that the Preferred Securities will not be authorized
for listing, subject to official notice of issuance and evidence of
satisfactory distribution.
(i) The Declaration has been duly authorized by the Company and, at
the Closing Date, will have been duly executed and delivered by the Company
and the Time Warner Trustees, and assuming due authorization, execution and
delivery of the Declaration by the Property Trustee, the Declaration will,
at the Closing Date, be a valid and binding obligation of the Company and
the Time Warner Trustees, enforceable against the Company and the Time
Warner Trustees in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other laws affecting creditors' rights generally from time to time in
effect and subject as to enforceability to general principles of equity,
regardless of whether considered in a proceeding in equity or at law); and
the Declaration will conform to all statements relating thereto contained
in the Prospectus.
<PAGE>
5
(j) The Guarantee Agreement has been duly authorized by the Company
and, when validly executed and delivered by the Company, will constitute a
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms and the Guarantee and the Guarantee
Agreement will conform to all statements relating thereto contained in the
Prospectus; and the Guarantee Agreement, at the Closing Date, will have
been duly qualified under the Trust Indenture Act.
(k) The Indenture has been duly authorized, executed and delivered by
the Company, has been duly qualified under the Trust Indenture Act and
constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other laws affecting creditors' rights generally from time to time in
effect and subject as to enforceability to general principles of equity,
regardless of whether considered in a proceeding in equity or at law); and
the Indenture will conform to all statements relating thereto contained in
the Prospectus.
(l) The Subordinated Notes have been duly authorized by the Company
and, at the Closing Date, will have been duly executed by the Company and,
when authenticated in the manner provided for in the Indenture and
delivered against payment therefor as described in the Prospectus, will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, will be in the form
contemplated by, and entitled to the benefits of, the Indenture and will
conform to all statements relating thereto in the Prospectus.
(m) The Company's obligations under the Guarantee are subordinate and
junior in right of payment to all other liabilities of the Company and pari
passu with the most senior preferred stock issued from time to time, if
any, by the Company.
(n) The Subordinated Notes are subordinated and junior in right of
payment to all present and future Senior Debt (as defined in the Indenture)
of the Company.
(o) There is no pending or threatened action, suit or proceeding
before any court or governmental agency, authority or body or any
arbitrator involving the Trust, the Company or any of its subsidiaries of a
character required to be disclosed in the Registration Statement which is
not adequately disclosed in the Prospectus and there is no franchise,
contract or other document of a character required to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit, which
is not described or filed as required.
<PAGE>
6
(p) No authorization, approval, consent, order or license of any
government, governmental instrumentality, agency or body or court (other
than under the Act and the securities or blue sky laws of various
jurisdictions) is required for the authorization, issuance, sale and
delivery of the Preferred Securities, the Subordinated Notes or the
Guarantee, the consummation by the Trust and the Company of the
transactions contemplated by this Agreement or the delivery of shares of
Hasbro Common Stock upon the exchange of the Preferred Securities.
(q) Neither the Company nor any of its subsidiaries is in violation of
its certificate of incorporation or by-laws; the Trust is not in violation
of the Declaration or its Certificate of Trust filed with the State of
Delaware on June 7, 1995 (the 'Certificate of Trust'); and the execution,
delivery and performance of this Agreement, the Declaration, the Preferred
Securities, the Indenture, the Subordinated Notes, the Guarantee Agreement
and the Guarantee, the delivery of shares of Hasbro Common Stock upon the
exchange of the Preferred Securities and the consummation of the
transactions contemplated herein and therein and compliance by the Offerors
with their respective obligations hereunder and thereunder have been duly
authorized by all necessary action (corporate or otherwise) on the part of
the Offerors and do not and will not result in any violation of the
certificate of incorporation or by-laws of the Company or the Declaration
or Certificate of Trust of the Trust and do not and will not conflict with,
or result in a breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Trust or the Company
under (i) that certain Amended and Restated Credit Agreement (the 'TWE
Credit Agreement'), dated as of June 23, 1992, among Time Warner
Entertainment Company, L.P., a Delaware limited partnership ('TWE'),
Bankers Trust Company and Chemical Bank, as Managing Agents, the Agents and
the Co-Agents named therein and the Banks named therein, that certain
revolving credit facility (the 'New Credit Agreement'), dated as of June ,
1995, among TWE, the Time Warner Entertainment-Advance/Newhouse
Partnership, a New York general partnership, TWI Cable, a wholly owned
subsidiary of the Company and , as Managing Agent, the Agents and
the Co-Agents named therein and the Banks named therein or any indenture,
mortgage or loan agreement, or any other agreement or instrument, to which
the Trust or the Company is a party or by which the Trust or the Company
may be bound or to which any of the Trust's or the Company's properties may
be subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not have a material adverse effect on
the condition (financial or otherwise), earnings, business prospects of the
Trust or of the Company and its subsidiaries, considered as one
enterprise), (ii) any existing applicable law, rule or regulation (except
for such conflicts, breaches, liens, charges or encumbrances that would not
have a material adverse effect on the condition (financial or otherwise),
earnings, business affairs or business prospects of the Trust
<PAGE>
7
or of the Company and its subsidiaries, considered as one enterprise, and
other than the securities or blue sky laws of various jurisdictions), or
(iii) any judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over the Trust, the Company or
any of their respective properties.
(r) The documents incorporated by reference in the Prospectus, as of
the dates they were filed with the Commission, complied as to form in all
material respects with the requirements of the Exchange Act.
(s) Peter R. Haje, Richard J. Bressler and Thomas W. McEnerney (the
'Regular Trustees') of the Trust are employees of the Company and have been
duly authorized by the Company to execute and deliver the Declaration; the
Declaration has been duly executed and delivered by the Regular Trustees
and is a valid and binding obligation of each Regular Trustee, enforceable
against such Regular Trustee in accordance with its terms.
(t) The Trust is not an 'investment company' or an entity 'controlled'
by an 'investment company' as such terms are defined in the Investment
Company Act of 1940, as amended (the '1940 Act').
(u) Each of Ernst & Young LLP, Deloitte & Touche LLP, Paul Scherer &
Company LLP and Arthur Andersen LLP, which are reporting upon the audited
financial statements and schedules included or incorporated by reference in
the Registration Statement, are independent accountants in accordance with
the provisions of the Exchange Act and the rules and regulations
thereunder.
(v) The consolidated financial statements and the related notes of the
Company, TWE and the Trust included or incorporated by reference in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the consolidated financial position of the Company,
TWE and the Trust, as of the dates indicated, and the consolidated results
of operations and cash flows of the Company, TWE and the Trust, for the
periods specified. Such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as otherwise noted
therein and subject, in the case of interim statements, to normal year-end
audit adjustments. The financial statement schedules included or
incorporated by reference in the Registration Statement present fairly in
accordance with generally accepted accounting principles the information
required to be stated therein. Any pro forma financial statements of the
Company and other pro forma financial information included or incorporated
by reference in the Registration Statement present fairly the information
shown therein. Such pro forma financial statements and other pro forma
financial information, to the extent required, have been prepared in
accordance with
<PAGE>
8
applicable rules and guidelines of the Commission, if any, with respect
thereto, have been properly compiled on the pro forma basis described
therein, and, in the opinion of the Company, the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
(w) The shares of Hasbro Common Stock owned by an indirect wholly
owned subsidiary of the Company at the Closing Date are sufficient in
number to meet the initial exchange requirements of the Preferred
Securities and such shares have been duly authorized and validly issued,
and, except to the extent (if any) otherwise provided in the laws of the
State of Rhode Island, are fully paid and nonassessable.
(x) The shares of Hasbro Common Stock owned by an indirect wholly
owned subsidiary of the Company at the Closing Date are owned free and
clear of any pledge, lien, security interest, encumbrance or claim, and if
certificates for such shares are delivered upon the surrender of the
Preferred Securities for exchange in accordance with the Declaration, such
shares will be free and clear of any pledge, lien, security interest,
encumbrance or claim created or suffered to exist by the Company or any of
its subsidiaries.
(y) To the best knowledge of the Company, the shares of Hasbro Common
Stock owned by an indirect wholly owned subsidiary of the Company as
described in the Prospectus are listed on the American Stock Exchange.
(z) The Company has no reason to believe that the periodic reports and
other documents filed by Hasbro under sections 13 and 15 of the 1934 Act
contain any material misstatements or have material omissions.
(aa) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term the 'Effective Date' shall mean each date
that the Registration Statement and any post-effective amendment or
amendments thereto became or become effective and each date after the date
hereof on which a document incorporated by reference in the Registration
Statement is filed. 'Execution Time' shall mean the date and time that this
Agreement is executed and delivered by the parties hereto. The registration
statement referred to in paragraph (a) above (as amended, if applicable)
and the prospectus constituting a part thereof (including, in each case,
all documents incorporated or deemed to be incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Act and the information,
if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and
regulations of the Commission under the 1933 Act (the 'Regulations')), as
from time to time amended or supplemented pursuant to the Act, the Exchange
Act or otherwise, are herein after
<PAGE>
9
referred to as the 'Registration Statement' and the 'Prospectus',
respectively, except that if any revised prospectus shall be provided to
the Underwriters by the Offerors for use in connection with the offering of
the Preferred Securities, which differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective
(whether or nor such revised prospectus is required to be filed by the
Offerors pursuant to Rule 424(b) of the Regulations), the term 'Prospectus'
shall refer to such revised prospectus from and after the time it is first
provided to the Underwriters for such use. All references in this Agreement
to financial statements and schedules and other information that is
'contained', 'included' or 'stated' in the Registration Statement or the
Prospectus (and all other references of like import) shall be deemed to
mean and include all such financial statements and schedules and other
information that are or are deemed to be incorporated by reference in the
Registration Statement or the Prospectus, as the case may be; and all
references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and
include the filing of any document under the Act that is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus,
as the case may be.
(bb) None of the Trust, the Time Warner Trustees, the Company, its
directors or officers or any person who controls the Trust or the Company,
as the case may be, within the meaning of Section 15 of the Act has taken,
directly or indirectly, any action which has constituted or resulted in
stabilization or manipulation of the price of any debt security of the
Trust or the Company or any equity security of Hasbro in order to
facilitate the sale or resale of the Preferred Securities.
(cc) None of the Trust, the Time Warner Trustees, the Company, its
directors or any persons who controls the Trust or the Company, as the case
may be, within the meaning of Section 15 of the Act is an affiliate of
Hasbro within the meaning of the Act or the regulations issued thereunder
and the factual statements set forth in the opinion of Paul, Weiss,
Rifkind, Wharton & Garrison attached as Exhibit C hereto are true and
correct.
2. Purchase and Sale. Subject to the terms and conditions and in reliance
upon the representations and warranties herein set forth, the Trust agrees to
sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Trust, at the purchase price set forth in Schedule
I hereto, the Preferred Securities set forth opposite such Underwriter's name in
Schedule II hereto.
3. Delivery and Payment. (a) The Company will deliver the Preferred
Securities to you for the respective accounts of the several Underwriters at the
office of Shearman & Sterling, 599 Lexington Avenue, New York, New York 10022,
against payment of the purchase price by certified or official bank check or
checks in funds available the next
<PAGE>
10
succeeding business day drawn to the order of the Trust on the third business
day after the date hereof, or at such other time not later than five business
days thereafter that you and the Company determine (such time being herein
referred to as the 'Closing Date'). Certificates for the Preferred Securities
shall be registered in such names and in such denominations as the
Representative may request not less than two full business days in advance of
the Closing Date.
The Company agrees to have the Preferred Securities available for
inspection, checking and packaging by the Representative in New York, New York,
not later than 1:00 P.M. on the business day prior to the Closing Date.
4. Agreements. The Offerors agree with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment
thereto, to become effective. Prior to the termination of the offering of
the Securities, the Offerors will not file any amendment to the
Registration Statement or supplement to the Prospectus unless the Offerors
have furnished you a copy for your review prior to filing and will not file
any such proposed amendment or supplement to which you reasonably object on
a timely basis. Subject to the foregoing sentence, the Offerors will cause
the Prospectus, properly completed, to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Representative of
such timely filing. The Offerors will promptly advise the Representative
(i) when the Registration Statement, if not effective at the Execution
Time, and any amendment thereto, shall have become effective, (ii) when the
Prospectus shall have been filed with the Commission pursuant to Rule
424(b), (iii) when, prior to termination of the offering of the Preferred
Securities, any amendment to the Registration Statement shall have been
filed or become effective, (iv) of any request by the Commission for any
amendment or supplement to the Registration Statement or the Prospectus or
for any additional information relating to the offering of the Preferred
Securities, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (vi) of
the receipt by the Offerors of any notification with respect to the
suspension of the qualification of the Preferred Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Offerors will use their efforts to prevent the issuance of any
such stop order and, if issued, to obtain as soon as possible the
withdrawal thereof.
(b) If, at any time when a prospectus relating to the Preferred
Securities is required to be delivered under the Act, any event occurs as a
result of which the Prospectus would include any untrue statement of a
material fact or omit to state any
<PAGE>
11
material fact necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if it shall be
necessary, in the opinion of counsel for you or counsel for the Offerors,
to amend or supplement the Registration Statement or the Prospectus to
comply with the Act or the Exchange Act or the respective rules thereunder,
the Offerors promptly will prepare and file with the Commission, subject to
the second sentence of paragraph (a) of this Section 4, an amendment or
supplement which will correct such statement or omission or effect such
compliance.
(c) As soon as practicable, the Trust will make generally available to
its security holders and to the Representative an earnings statement or
statements of the Company and its subsidiaries which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 under the Act.
(d) The Offerors will use their best efforts to cause the Preferred
Securities to be duly authorized for listing on the New York Stock Exchange
and to be registered under the Exchange Act.
(e) For a period of three years after the Closing Date, the Company
will furnish to you and, upon request, to each Underwriter, copies of all
annual reports, quarterly reports and current reports filed with the
Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may
be designated by the Commission, and such other documents, reports and
information as shall be furnished by the Company to its stockholders
generally.
(f) The proceeds of the offering of the Preferred Securities will be
applied as set forth in the Prospectus.
(g) The Offerors will furnish to the Representative and counsel for
the Underwriters, without charge, copies of the Registration Statement
(including exhibits thereto) and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Act, as many copies of any
preliminary prospectus and the Prospectus as the Representative may
reasonably request.
(h) The Company will pay and bear all costs and expenses incident to
the performance of each Offeror's obligations under this Agreement,
including (i) the preparation, printing and filing of the Registration
Statement (including financial statements and exhibits), as originally
filed and as amended, any preliminary prospectus and the Prospectus and any
amendments or supplements thereto, and the cost of furnishing copies
thereof to the Underwriters, (ii) the preparation, printing and
distribution of this Agreement, the Declaration, the Indenture, the
Guarantee Agreement, the Preferred Securities, the Blue Sky Survey and the
Legal Investment
<PAGE>
12
Survey, (iii) the delivery of the Preferred Securities to the Underwriters,
(iv) the fees and disbursements of the Trust's and the Company's counsel
and accountants required hereby to provide comfort letters, (v) the
qualification of the Preferred Securities and the Subordinated Notes under
the applicable securities laws in accordance with Section 4(i) and any
filing for review of the offering with the National Association of
Securities Dealers, Inc., including filing fees and fees and disbursements
of counsel for the Underwriters in connection therewith and in connection
with the Blue Sky Survey and the Legal Investment Survey, (vi) any fees
charged by rating agencies for rating the Preferred Securities and the
Subordinated Notes, (vii) the fees and expenses of the Indenture Trustee,
including the fees and disbursements of counsel for the Indenture Trustee,
in connection with the Indenture and the Subordinated Notes, (viii) the
fees and expenses of the Property Trustee, including the fees and
disbursements of counsel for the Property Trustee and Delaware Trustee in
connection with the Declaration and the Certificate of Trust, (ix) any
expenses and listing fees in connection with the listing of the Preferred
Securities and, if applicable, the Subordinated Notes on the New York Stock
Exchange, (x) the cost and charges of any transfer agent or registrar and
(xi) the costs of qualifying the Preferred Securities with The Depository
Trust Company.
(i) The Offerors will arrange for the qualification of the Preferred
Securities and the Subordinated Notes for distribution, offering and sale
under the laws of such jurisdictions as the Representative may designate,
will maintain such qualifications in effect so long as required for the
distribution of the Preferred Securities and the Subordinated Notes and
will arrange for the determination of the legality of the Preferred
Securities and the Subordinated Notes for purchase by institutional
investors; provided, however, that the Trust or the Company, as the case
may be, shall not be required to (i) qualify as a foreign corporation or as
a dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 4(i), (ii) file any general
consent to service of process or (iii) subject itself to taxation in any
such jurisdiction if it is not so subject.
(j) Until the business day following the Closing Date, neither of the
Offerors will, without the consent of Morgan Stanley & Co. Incorporated,
offer, sell or contract to sell, or announce the offering of, any debt
securities designed or intended to be traded or distributed in the public
or private securities markets; provided, however, that the foregoing shall
not prohibit (i) the Company or TWE from issuing long-term debt as all or
part of the consideration in any merger or acquisition or in connection
with the settlement of any litigation, (ii) the Company or TWE from filing
with the Commission a 'shelf' registration statement for the offering of
securities under Rule 415 of the Act (or any similar rule that may be
adopted by the Commission) or amending any existing shelf registration
statement provided that (subject to clause (iii) below) such securities are
not issued until the business day
<PAGE>
13
following the Closing Date or such other date as may be specified in
Schedule I or (iii) the Company from issuing debt securities as part of any
redemption or repurchase of the Company's outstanding Redeemable Reset
Notes due August 15, 2005.
(k) Each of the Offerors confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of Doing Business with Cuba, and each
of the Offerors further agrees that if the information reported in the
Prospectus concerning its business with Cuba or with any person or
affiliate located in Cuba changes in any material way, such Offeror will
provide the Florida Department of Banking and Finance (the 'Department')
notice of such business or change, as appropriate, in a form acceptable to
the Department.
(l) During the period of 45 days after the date hereof, the Trust and
the Company will not make or contract to make any offering, sale or other
disposition of any shares of Hasbro Common Stock (except (i) in connection
with exchanges of the Preferred Securities for shares of Hasbro Common
Stock in accordance with the terms of the Declaration, (ii) upon the
exercise of exchange rights by holders of the Company's Liquid Yield
Option'tm' Notes due 2012 (the 'LYON'tm's') in accordance with the terms
thereof, (iii) to an affiliate of the Trust or the Company if such
affiliate shall have executed an appropriate document in form and substance
satisfactory to the Underwriters to the effect that such affiliate will be
subject to the same restrictions as are imposed upon the Trust and the
Company pursuant to this subsection (l) or (iv) in connection with a tender
offer or exchange offer for Hasbro Common Stock) or any securities
convertible into or exchangeable for shares of Hasbro Common Stock (except
to the Underwriters pursuant to this Agreement), without the prior written
consent of Morgan Stanley & Co. Incorporated.
5. Conditions to the Obligations of the Underwriters. The obligations of
the Underwriters to purchase the Securities shall be subject to the accuracy in
all material respects of the representations and warranties on the part of the
Offerors contained herein as of the Execution Time and the Closing Date, to the
accuracy in all material respects of the statements of the Trust and the Company
made in any certificates pursuant to the provisions hereof, to the performance
by the Trust and the Company of their obligations hereunder, to the due
execution and delivery of the Declaration, the Indenture and the Guarantee
Agreements, to the absence of any event or condition which would give you the
right to terminate this Agreement and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or with your consent, at a later time
and date, not later, however, than 5:30 P.M. on the first business day
following the date hereof; and at the Closing Date no stop order suspending
the effectiveness of the Registration
<PAGE>
14
Statement shall have been issued under the Act or proceedings therefor
initiated or threatened by the Commission. The Prospectus shall have been
filed with the Commission pursuant to Rule 424(b) within the applicable
time period prescribed for such filing by Rule 424(b).
(b) At the Closing Date, the Offerors shall have furnished to you the
opinion of Peter R. Haje, General Counsel to the Offerors, dated the
Closing Date, substantially in the form of Exhibit A hereto.
(c) At the Closing Date, the Offerors shall have furnished to you the
opinion of Cravath, Swaine & Moore, counsel to the Offerors, dated the
Closing Date, substantially in the form of Exhibit B hereto.
(d) At the Closing Date, the Offeror shall have furnished to you the
opinion of Richards, Layton & Finger, special counsel to the Offerors,
dated the Closing Date, substantially in the form of Exhibit C hereto.
(e) At the Closing Date, the Offerors shall have furnished to you the
opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Offerors, dated the Closing Date, substantially in the form of Exhibit D
hereto.
(f) At the Closing Date, you shall have received from The Law
Department, The First National Bank of Chicago, counsel of The First
National Bank of Chicago, as Property Trustee under the Declaration and
Guarantee Trustee under the Guarantee Agreement, dated the Closing Date,
substantially in the form of Exhibit E hereto.
(g) The Representative shall have received from Shearman & Sterling,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the legal existence of the Trust, the Preferred
Securities, the Indenture, the Guarantee Agreement, this Agreement, the
Registration Statement, the Prospectus and other related matters as you may
reasonably require, and the Offerors shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass
upon such matters.
(h) The Representative shall have received from Davis, Polk &
Wardwell, counsel for the Underwriters, such opinion or opinions, dated the
Closing Date, with respect to the 1940 Act and other related matters as you
may reasonably require, and the Offerors shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters.
<PAGE>
15
(i) Each of the Trust and the Company shall have furnished to you a
certificate of the Trust and the Company, respectively, signed by any two
Time Warner Trustees for the Trust and by any two officers who are an
Executive or Senior Vice President of the Company for the Company,
respectively, dated the Closing Date, to the effect that the signers of
such certificates have carefully examined the Registration Statement, the
Prospectus and this Agreement and that:
(i) the representations and warranties of the Trust and the
Company, as the case may be, in this Agreement are true and correct in
all material respects on and as of the Closing Date with the same
effect as if made on the Closing Date and the Trust and the Company,
as the case may be, has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or
prior to the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to the Trust's or the Company's, as
the case may be, knowledge, threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus, there has been no material adverse change
in the condition (financial or otherwise), earnings, or business
prospects of the Company and its subsidiaries, whether or not arising
from transactions in the ordinary course of business, except as set
forth in or contemplated in the Prospectus.
(j) At the Closing Date and at the Execution Time, Ernst & Young shall
have furnished to you a letter or letters, dated respectively as of the
Closing Date and the Execution Time, in form and substance satisfactory to
you, confirming that they are independent auditors with respect to the
Company and TWE within the meaning of the Act and the Exchange Act and the
respective applicable published rules and regulations thereunder and
stating in effect that:
(i) in their opinion the audited financial statements and
financial statement schedules of the Company and TWE included or
incorporated in the Registration Statement and the Prospectus comply
in form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations;
(ii) on the basis of a reading of the latest unaudited financial
statements (including the notes thereto) made available by the Company
and TWE and their respective consolidated subsidiaries; carrying out
certain specified procedures (but not an examination in accordance
with generally
<PAGE>
16
accepted auditing standards) which would not necessarily reveal
matters of significance with respect to the comments set forth in such
letter; a reading of the minutes of the meetings of the stockholders,
directors and executive, finance and audit committees of the Company
and TWE and their respective consolidated subsidiaries; and inquiries
of certain officials of the Company and TWE who have responsibility
for financial and accounting matters of the Company and TWE and their
respective consolidated subsidiaries as to transactions and events
subsequent to the date of the most recent audited financial statements
in or incorporated in the Prospectus, and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention which caused them to believe that:
(A) any of such unaudited financial statements included or
incorporated in the Registration Statement and the Prospectus do
not comply in form in all material respects with applicable
accounting requirements of the Act and the Exchange Act and with
the published rules and regulations of the Commission with
respect to financial statements included or incorporated in
quarterly reports on Form 10-Q under the Exchange Act; or said
unaudited financial statements are not in conformity with
generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial
statements included or incorporated in the Registration Statement
and the Prospectus; or
(B) with respect to the period subsequent to the date of the
most recent unaudited financial statements in or incorporated in
the Registration Statement and the Prospectus, there were any
increases, at a specified date not more than five business days
prior to the date of the letter, in the long-term debt of the
Company, TWE and the Entertainment Group and their respective
consolidated subsidiaries or any decreases in stockholders'
equity or the consolidated capital stock of the Company, TWE and
the Entertainment Group as compared with the amounts shown on the
most recent consolidated balance sheet included or incorporated
in the Registration Statement and the Prospectus for such
entities, or for the period from the date of the most recent
unaudited financial statements included or incorporated in the
Registration Statement and the Prospectus for such entities to
such specified date there were any decreases, as compared with
the corresponding period in the preceding year, in revenues,
income before income taxes (or any increase in the loss before
income taxes) or net income (or any increase in net loss), except
in all instances for decreases or increases disclosed in the
Prospectus;
<PAGE>
17
(iii) they are unable to and do not express any opinion on the
pro forma adjustments to the financial statements included or
incorporated by reference in the Registration Statement and the
Prospectus or on the pro forma adjustments applied to the historical
amounts included or incorporated by reference in the Registration
Statement and the Prospectus; however, for purposes of such letter
they have:
(A) read the pro forma adjustments to such financial
statements;
(B) made inquiries of certain officials of the Company who
have responsibility for financial and accounting matters about
the basis for their determination of the pro forma adjustments to
such financial statements and whether such pro forma adjustments
comply as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X; and
(C) proved the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts included or
incorporated by reference in the Registration Statement and the
Prospectus; and
on the basis of such procedures, and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that the pro forma adjustments
to the financial statements included or incorporated by reference in
the Registration Statement and the Prospectus do not comply as to form
in all material respects with the applicable requirements of Rule
11-02 of Regulation S-X and that such pro forma adjustments have not
been properly applied to the historical amounts in the compilation of
such financial statements; and
(iv) they have performed certain other specified procedures as a
result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the
general accounting records of the Company and its subsidiaries) set
forth in the Registration Statement and the Prospectus and in Exhibit
12 to the Registration Statement agrees with the accounting records of
the Company and its subsidiaries, excluding any questions of legal
interpretation.
(k) At the Closing Date and at the Execution Time, each of (i) Paul
Scherer & Company LLP, (ii) Deloitte & Touche LLP and (iii) Arthur Andersen
<PAGE>
18
LLP shall have furnished to you a letter or letters, dated respectively as
of the Closing Date and the Execution Time, in form and substance
satisfactory to you, confirming that they are independent auditors with
respect to (i) Vision Cable Division of Vision Cable Communications, Inc.
and Subsidiaries and Newhouse Broadcasting Cable Division of Newhouse
Broadcasting Corporation and Subsidiaries, (ii) KBLCOM Incorporated, and
(iii) Cablevision Industries Limited Partnership and Combined Entities and
Cablevision Industries Corporation and Subsidiaries, respectively, within
the meaning of the Act and Exchange Act and the respective applicable
published rules and regulations thereunder and to the same effect as the
letter or letters of Ernst & Young LLP as described in Section 5(j)(i) and
5(j)(ii)(1) hereto.
(l) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Registration Statement (exclusive of any
amendment thereof) and the Prospectus, there shall not have been (i) any
decrease or increase specified in the letter or letters referred to in
paragraph (h) of this Section 5 or (ii) any change, or any development
involving a prospective change, in or affecting the business (including the
results of operations or management) or properties of the Trust or the
Company and its subsidiaries or of Hasbro and its subsidiaries the effect
of which, in any case referred to in clause (i) or (ii) above, is, in the
reasonable judgment of the Representative, so material and adverse as to
make it impractical or inadvisable to proceed with the offering or delivery
of the Securities as contemplated by the Registration Statement (exclusive
of any amendment thereof) and the Prospectus.
(m) Subsequent to the Execution Time, there shall not have been any
downgrade in the credit ratings of the Company's debt securities by Moody's
Investor Services, Inc. or Standard & Poor's Ratings Group, nor shall the
Company have been placed under special surveillance, with negative
implications, by Moody's Investors Service, Inc.
(n) At the Closing Date, the Preferred Securities shall have been
approved for listing on the New York Stock Exchange upon notice of
issuance.
(o) Prior to the Closing Date, the Offerors shall have furnished to
the Representative such further information, certificates and documents as
the Representative may reasonably request.
If any of the conditions specified in this Section 5 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representative and counsel for
<PAGE>
19
the Underwriters, this Agreement and all obligations of the Underwriters
hereunder may be canceled at, or at any time prior to, the Closing Date by you
and such cancellation shall be without liability of any party to any other
party, except to the extent provided in Sections 4 and 6. Notice of such
cancellation shall be given to the Offerors in writing or by telephone or
telegraph confirmed in writing.
6. Reimbursement of Underwriter's Expenses. If the sale of the Securities
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 5 hereof is not satisfied or because of
any refusal, inability or failure on the part of the Trust or the Company to
perform any agreement herein or comply with any provision hereof other than by
reason of a default by any of the Underwriters, the Company will reimburse the
Underwriters upon demand for all out-of-pocket expenses (including reasonable
fees and disbursements of counsel) that shall have been incurred by them in
connection with the proposed purchase and sale of the Securities.
7. Indemnification and Contribution. (a) The Offerors agree to jointly and
severally indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person who controls any
Underwriter within the meaning of either the Act or the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to which they
or any of them may become subject under the Act, the Exchange Act or other
Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i)(A) any failure to register the
Hasbro Common Stock under the Act in connection with the initial offering of the
Preferred Securities or the exchange of Preferred Securities for Hasbro Common
Stock pursuant to the terms of the Preferred Securities, (B) any untrue
statement or alleged untrue statement of a material fact contained in the
reports and other documents filed by Hasbro under the Exchange Act or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or (C)
any untrue statement or omission or alleged untrue statement or alleged omission
made or alleged to have been made by or on behalf of Hasbro regarding Hasbro or
the market value of the Hasbro Common Stock and which statements or omissions,
in the case of the foregoing clauses (B) or (C), adversely affect or allegedly
adversely affect a holder of Securities, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the registration statement for
the registration of the Securities as originally filed or in any amendment
thereof, or in any preliminary prospectus or the Prospectus, or in any amendment
thereof or supplement thereto or (iii) the omission or alleged omission to state
in the documents referred to in clause (ii) above a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
in each case agrees to reimburse each such indemnified party, as incurred, for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the Trust and the Company will
<PAGE>
20
not be liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon (i) any such untrue statement or
alleged untrue statement or omission or alleged omission made in the documents
referred to in clause (ii) above in reliance upon and in conformity with written
information furnished to the Trust and the Company by or on behalf of the
Underwriters specifically for inclusion therein or (ii) those parts of the
Registration Statement which shall constitute the Statement of Eligibility (Form
T-1) under the Trust Indenture Act of the Property Trustee, the Guarantee
Trustee and the Indenture Trustee. This indemnity agreement will be in addition
to any liability which the Trust or the Company may otherwise have.
(b) The Company agrees to indemnify the Trust against all loss, liability,
claim, damage and expense whatsoever, as due from the Trust under 7(a)
hereunder.
(c) Each Underwriter agrees to indemnify and hold harmless the Offerors,
their directors, trustees, each of their officers who signs the Registration
Statement, and each person who controls the Offerors within the meaning of
either the Act or the Exchange Act, to the same extent as the foregoing
indemnity from the Offerors to each Underwriter, but only with reference to
written information relating to such Underwriter furnished to the Offerors by or
on behalf of such Underwriter specifically for inclusion in the documents
referred to in clause (ii) in 7(a). This indemnity agreement will be in addition
to any liability which any Underwriter may otherwise have. The Offerors
acknowledge that the statements set forth in the last paragraph of the cover
page and the first, third and ninth paragraphs under the heading 'Underwriting'
constitute the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in the documents referred to in the foregoing
indemnity, and you, as the Representative, confirm that such statements are
correct.
(d) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the indemnifying party's expense to represent the
indemnified party in any action for which indemnification is sought (in which
case the indemnifying party shall not thereafter be responsible for the fees and
expenses of any separate counsel retained by the indemnified party or parties
except as set forth below); provided, however, that such counsel shall be
reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's
<PAGE>
21
election to appoint counsel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel (including
local counsel), and the indemnifying party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party (it being understood, however, that in connection with such
action, the indemnifying party shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, representing the indemnified
parties who are parties to such action or actions), (iii) the indemnifying party
shall not have employed counsel reasonably satisfactory to the indemnified party
to represent the indemnified party within a reasonable time after notice of the
institution of such action or (iv) the indemnifying party shall authorize the
indemnified party to employ separate counsel at the expense of the indemnifying
party. An indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.
(e) In the event that the indemnity provided in paragraph (a), (b) or (c)
of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Offerors and the Underwriters agree to
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively 'Losses') to which the Offerors and one or more of
the Underwriters may be subject in such proportion as is appropriate to reflect
the relative benefits received by the Offerors and by the Underwriters from the
offering of the Securities; provided, however, that in no case shall any
Underwriter (except as may be provided in any agreement among underwriters
relating to the offering of the Securities) be responsible for any amount in
excess of the underwriting discount or commission applicable to the Securities
purchased by such Underwriter hereunder. If the allocation provided by the
immediately preceding sentence is unavailable for any reason, the Offerors and
the Underwriters shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Offerors, on the one hand, and of the Underwriters, on the other hand, in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Offerors shall be deemed to be equal to the total net proceeds from the
<PAGE>
22
offering (before deducting expenses), and benefits received by the Underwriters
shall be deemed to be equal to the total underwriting discounts and commissions,
in each case as set forth on the cover page of the Prospectus. Relative fault
shall be determined by reference to whether any alleged untrue statement or
omission relates to information provided by or concerning the Trust, the Company
or Hasbro on the one hand or provided by the Underwriters on the other. The
Offerors and the Underwriters agree that it would not be just and equitable if
contribution were determined by pro rata allocation or any other method of
allocation which does not take account of the equitable considerations referred
to above. Notwithstanding the provisions of this paragraph (e), no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Trust or the Company within the meaning of either the Act or the Exchange
Act, each trustee of the Trust or officer of the Company who shall have signed
the Registration Statement and each trustee of the Trust or director of the
Company shall have the same rights to contribution as the Offerors, subject in
each case to the applicable terms and conditions of this paragraph (e).
8. Default by an Underwriter. If any one or more Underwriters shall fail to
purchase and pay for any one of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 8, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representative shall determine in order that the required
changes in the Registration Statement and the Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the Trust
and the Company and any nondefaulting Underwriter for damages occasioned by its
default hereunder.
<PAGE>
23
9. Termination. This Agreement shall be subject to termination in the
absolute discretion of the Representative, by notice given to the Offerors prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in the Company's Common Stock shall have been suspended by the Commission or the
New York Stock Exchange or the Pacific Stock Exchange or trading in Hasbro
Common Stock shall have been suspended by the Commission or the American Stock
Exchange or trading in securities generally on either of such Exchanges shall
have been suspended or limited or minimum or maximum prices shall have been
established on either of such Exchanges, or maximum ranges for prices for
securities have been required, by such Exchanges or by order of the Commission
or any other governmental authority, (ii) a banking moratorium shall have been
declared either by Federal or New York State authorities or (iii) there shall
have occurred any new outbreak or escalation of hostilities, declaration by the
United States of a national emergency or war or other calamity or crisis the
effect of which on financial markets of the United States is such as to make it,
in the judgment of the Representative, impracticable or inadvisable to proceed
with the offering or delivery of the Securities as contemplated by the
Prospectus. If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party, except
to the extent provided in Sections 4 and 6.
10. Representations and Indemnities to Survive. The respective agreements,
representations, warranties, indemnities and other statements of the Trust or
the Time Warner Trustees, the Company or its officers and of the Underwriters
set forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter,
the Trust or the Time Warner Trustees or the Company or any of the officers,
directors, trustees or controlling persons referred to in Section 7 hereof, and
will survive delivery of and payment for the Securities. The provisions of
Sections 6 and 7 hereof shall survive the termination or cancellation of this
Agreement.
11. Notices. All communications hereunder will be in writing and effective
only on receipt, and, if sent to the Representative, will be mailed, delivered
or telegraphed and confirmed to it, at the address set forth on page 1 hereof,
or, if sent to the Offerors, will be mailed, delivered or telegraphed and
confirmed to the Company, or the Trust in care of the Company, at 75 Rockefeller
Plaza, New York, New York 10019, attention of General Counsel.
12. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the officers,
directors, trustees and controlling persons referred to in Section 7 hereof, and
no other person will have any right or obligation hereunder.
13. Applicable Law. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
24
14. Business Day. For purposes of this Agreement, 'business day' means any
day on which the New York Stock Exchange is open for trading.
15. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
<PAGE>
25
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the Trust,
the Company and the several Underwriters.
Very truly yours,
TIME WARNER FINANCING TRUST
By: Time Warner Inc., as Sponsor
By: ______________________________
Peter R. Haje
Executive Vice President
TIME WARNER INC.
By: ______________________________
Peter R. Haje
Executive Vice President
The foregoing Agreement is hereby confirmed and accepted.
MORGAN STANLEY & CO. INCORPORATED
By: ______________________________
Name:
Title:
For themselves and the other
several Underwriters, if any,
named in Schedule I to
the foregoing Agreement.
<PAGE>
SCHEDULE I
12,053,561 [$___] Preferred Exchange Redemption Cumulative Securities
<TABLE>
<CAPTION>
Number of Preferred
Securities to Be
Underwriter Purchased
- ----------- -------------------
<S> <C>
----------
Total............................................. 12,057,561
==========
</TABLE>
<PAGE>
SCHEDULE II
TIME WARNER FINANCING TRUST and TIME WARNER INC.
Underwriting Agreement: dated August , 1995
Registration Statement: No. 33-60203
Representative: Morgan Stanley & Co. Incorporated
Title, Purchase Price and Description of Securities:
12,053,561 $[ ] Preferred Exchange Redemption Cumulative Securities:
Title: Preferred Exchange Redemption
Cumulative Securities
Securities issued: 12,053,561
Distribution rate: ____% per annum
Distribution dates: March 30, June 30, September 30 and
December 30, beginning September 30, 1995
Mandatory redemption date: December 23, 1997
Purchase price (include accrued
interest or amortization, if
any): _____%
Closing Date, Time and Location: August __, 1995 at 10 A.M.
at the offices of Cravath, Swaine & Moore, Worldwide Plaza,
825 Eighth Avenue, New York, New York 10019-7475.
Type of funds payable at Closing: Next day funds
Listing requirements: New York Stock Exchange
<PAGE>
EXHIBIT A
FORM OF OPINION OF PETER R. HAJE, ESQ.
(i) the Company is validly existing as a corporation in good standing
under the laws of the State of Delaware, with full corporate power and
authority under such laws to own its properties and conduct its business as
described in the Prospectus, and the Company is duly qualified to transact
business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to
the extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
considered as one enterprise;
(ii) each of the Company's significant subsidiaries, as such term is
defined in Rule 1-02(v) of Regulation S-X under the Act, is validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with full power and authority under such
laws to own its properties and conduct its business as described in the
Prospectus and is duly qualified to transact business as a foreign
corporation or partnership and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or transacts
business of a type, that would make such qualification necessary, except to
the extent that the failure to so qualify or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
considered as one enterprise;
(iii) the Company's authorized equity capitalization and pro forma
equity capitalization is as set forth in the Prospectus;
(iv) the Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Act; and the Trust is and
will be treated as a consolidated subsidiary of the Company pursuant to
generally accepted accounting principles;
(v) to the best knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Trust, the
Company or any of its subsidiaries of a character required to be disclosed
in the Registration Statement which is not adequately disclosed in the
Prospectus, and there is no franchise, contract or other document of a
character required to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit, which is not described or filed
as required;
<PAGE>
2
EXHIBIT A (continued)
(vi) no authorization, approval, consent or license of any government,
governmental instrumentality, agency or body or court (other than under the
Act and the securities or blue sky laws of various jurisdictions) is
required for the authorization, issuance, sale and delivery of the
Preferred Securities or the offering of the Common Securities, the
Subordinated Notes or the Guarantee, the consummation by the Company of the
transactions contemplated by the Underwriting Agreement or the delivery of
shares of Hasbro Common Stock upon the exchange of the Preferred
Securities;
(vii) the Declaration, the Underwriting Agreement, the Indenture and
the Guarantee Agreement have been duly authorized, executed and delivered
by the Company;
(viii) the execution, delivery and performance of this Agreement, the
Declaration, the Indenture, the Subordinated Notes and the Guarantee
Agreement, the delivery of shares of Hasbro Common Stock upon the exchange
of the Preferred Securities and the consummation of the transactions
contemplated herein and therein and compliance by the Company with its
obligations hereunder and thereunder have been duly authorized by all
necessary action (corporate or otherwise) on the part of the Company and do
not and will not result in any violation of the Restated Certificate of
Incorporation, as amended, or By-laws, as amended, of the Company and do
not and will not conflict with, or result in a breach of any of the terms
or provisions of, or constitute a default under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company under (i) the TWE Credit Agreement, the New Credit
Agreement or any indenture, mortgage or loan agreement, or any other
agreement or instrument known to such counsel, to which the Company is a
party or by which the Company may be bound or to which any of the Company's
properties may be subject (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that would not have a material adverse
effect on the condition (financial or otherwise), earnings or business
prospects of the Company and its subsidiaries, considered as one
enterprise), (ii) any existing applicable law, rule or regulation (except
for such conflicts, breaches, liens, charges or encumbrances that would not
have a material adverse effect on the condition (financial or otherwise),
earnings or business prospects of the Company and its subsidiaries,
considered as one enterprise, and other than the securities or blue sky
laws of various jurisdictions), or (iii) any judgment, order or decree of
any government, governmental instrumentality or court having jurisdiction
over the Company or any of its properties;
<PAGE>
3
EXHIBIT A (continued)
(ix) the documents incorporated by reference in the Prospectus (except
for the financial statements and other financial or statistical data
included therein or omitted therefrom, as to which such counsel need
express no opinion), as of the dates they were filed with the Commission,
complied as to form in all material respects with the requirements of the
Exchange Act;
(x) the Regular Trustees are employees of the Company and have been
duly authorized by the Company to execute and deliver the Declaration; the
Declaration has been duly executed and delivered by the Regular Trustees
and is a valid and binding obligation of each Regular Trustee, enforceable
against such Regular Trustee in accordance with its terms (subject to
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other laws affecting creditors' rights generally from time to
time in effect and subject as to enforceability to general principles of
equity regardless of whether considered in a proceeding in equity or at
law); and
(xi) to the best knowledge of such counsel, the shares of Hasbro
Common Stock owned by an indirect wholly owned subsidiary of the Company as
described in the Prospectus are owned by such subsidiary, free and clear of
any pledge, lien, security interest, encumbrance or claim.
In addition, such counsel shall also state as follows: As General Counsel,
I have reviewed and participated in the preparation of the Registration
Statement and the Prospectus, including the documents incorporated by reference
therein. In examining the Registration Statement and Prospectus, I have
necessarily assumed the correctness and completeness of the statements made or
included therein by the Trust and the Company, as the case may be, and take no
responsibility therefor. However, in the course of the preparation by the Trust
and the Company of the Registration Statement and the Prospectus, I have
participated in conferences with the Time Warner Trustees and certain officers
of, and accountants for, the Company with respect thereto, and my examination of
the Registration Statement and Prospectus and my discussions in the
above-mentioned conferences did not disclose any information which gave me
reason to believe that the Registration Statement (except for the financial
statements and other financial or statistical data included therein or omitted
therefrom, as to which I express no opinion) at the time it became effective
included an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or that the Prospectus
(except as aforesaid), at its issue date or on the date of this opinion,
included or includes any untrue statement of a material fact or omitted or omits
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
<PAGE>
4
EXHIBIT A (continued)
Such counsel shall also state that he has reviewed the opinion of Paul,
Weiss, Rifkind, Wharton & Garrison delivered to you on the date hereof and that
he believes you are justified in relying thereon.
[Such counsel may also state that, for the purposes of such opinion, the
Prospectus and the Registration Statement do not include any documents or other
information concerning Hasbro that may have been provided to investors
separately from the Trust's and the Company's prospectus dated ______ __, 1995
or their preliminary prospectus dated _______ __, 1995.]
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
United States, the State of New York, the Delaware Act and the General
Corporation Law of the State of Delaware, to the extent such counsel deems
proper and specified in such opinion, upon the opinion of other counsel of good
standing whom such counsel believes to be reliable and who are satisfactory to
counsel for the Underwriters and (B) as to matters of fact, to the extent such
counsel deems proper, on certificates of the Trustees and responsible officers
of the Company and public officials.
<PAGE>
EXHIBIT B
FORM OF OPINION OF CRAVATH, SWAINE & MOORE
(i) the Company is validly existing as a corporation in good standing
under the laws of the State of Delaware, with full corporate power and
authority under such laws to own its properties and conduct its business as
described in the Prospectus;
(ii) the Declaration has been duly authorized, executed and delivered
by the Company and each of the Time Warner Trustees, has been duly
qualified under the Trust Indenture Act, and constitutes a legal, valid and
binding instrument enforceable against the Company and each of the Time
Warner Trustees in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or
other laws affecting creditors' rights generally from time to time in
effect and subject as to enforceability to general principles of equity,
regardless of whether considered in a proceeding in equity or at law); the
Trust is not and will not be classified as an association taxable as a
corporation for United States federal income tax purposes;
(iii) the Trust is not and will not be classified as an association
taxable as a corporation for United States federal income tax purposes;
(iv) the Trust is not an 'investment company' or an entity
'controlled' by an 'investment company' and is exempt from the relevant
provisions of the 1940 Act;
(v) the Preferred Securities have been approved for listing on the New
York Stock Exchange upon notice of issuance;
(vi) the Guarantee Agreement has been duly authorized, executed and
delivered by the Company and assuming it is duly authorized, executed and
delivered by the Guarantee Trustee, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms (subject to applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other laws affecting creditors'
rights generally from time to time in effect and subject as to
enforceability to general principles of equity, regardless of whether
considered in a proceeding in equity or at law); and the Guarantee
Agreement has been duly qualified under the Trust Indenture Act;
(vii) the Indenture has been duly authorized, executed and delivered
by the Company, has been duly qualified under the Trust Indenture Act and
constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company
<PAGE>
2
EXHIBIT B (continued)
in accordance with its terms (subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other laws affecting
creditors' rights generally from time to time in effect and subject as to
enforceability to general principles of equity, regardless of whether
considered in a proceeding in equity or at law);
(viii) the Subordinated Notes have been duly authorized, executed and
delivered by the Company and, when authenticated in the manner provided for
in the Indenture and delivered against payment therefor as described in the
Prospectus, will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms;
(ix) the Preferred Securities, the Subordinated Notes, the
Declaration, the Indenture and the Guarantee Agreement conform to all
statements relating thereto contained in the Prospectus;
(x) the Registration Statement has become effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); to the best
knowledge of such counsel, no stop order suspending the effectiveness of
the Registration Statement has been issued, no proceedings for that purpose
have been instituted or threatened; the Registration Statement and the
Prospectus (other than the financial statements and other financial and
statistical information contained therein as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Exchange Act and the respective
rules thereunder; and, assuming that the shares of Hasbro Common Stock
currently owned by an indirect wholly owned subsidiary of the Company may
be resold pursuant to Rule 144(k), registration of such Hasbro Common Stock
is not required under the Act in connection with the offering and sale of
the Securities or the exchange of Securities as described in the
Prospectus;
(xi) the Underwriting Agreement has been duly authorized, executed and
delivered by the Trust and the Company; and
(xii) the statements made in the Prospectus under 'Description of the
PERCS', 'Description of the Guarantee', 'Description of the Subordinated
Notes', 'Effect of Obligations Under the Subordinated Notes and the
Guarantee' and 'Federal Income Tax Consequences', to the extent that they
constitute matters of law or legal conclusions, have been reviewed by us
and fairly present the information discussed therein in all material
respects.
<PAGE>
3
EXHIBIT B (continued)
In addition, such counsel shall also state as follows: We have necessarily
assumed the correctness and completeness of the statements made or included in
the Registration Statement and the Prospectus by the Trust and the Company, as
the case may be, and take no responsibility therefor, except insofar as such
statements relate to the description of the Securities or relate to us. However,
in the course of the preparation by the Trust and the Company of the
Registration Statement and the Prospectus (the documents incorporated by
reference in the Prospectus having been prepared and filed by the Trust and the
Company, as the case may be, without our participation), we participated in
conferences with the Trustees of the Trust and certain officers of, and
accountants for, the Company with respect thereto, and our examination of the
Registration Statement and the Prospectus and our discussions in the
above-mentioned conferences did not disclose any information which gave us
reason to believe that (i) the Registration Statement (except for the financial
statements and other financial or statistical data included therein or omitted
therefrom, as to which we express no opinion), at the time the Registration
Statement became effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or (ii) the Prospectus (except as
aforesaid), at its issue date or on the date of this opinion, included or
includes an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
[Such counsel may also state that for the purposes of such opinion, the
Prospectus and the Registration Statement do not include any documents or other
information concerning Hasbro that may have been provided to investors
separately from the Trust's and the Company's prospectus dated ______ __, 1995
or their preliminary prospectus supplement dated _______ __, 1995.]
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the United
States, the State of New York and the General Corporation Law of the State of
Delaware, to the extent they deem proper and specified in such opinion, upon the
opinion of other counsel of good standing whom they believe to be reliable and
who are satisfactory to counsel for the Underwriter and (B) as to matters of
fact, to the extent they deem proper, on certificates of the Trustees and
responsible officers of the Company and public officials.
<PAGE>
EXHIBIT C
FORM OF OPINION OF RICHARDS, LAYTON AND FINGER
(i) the Trust has been duly created and is validly existing in good
standing as a business trust under the Delaware Act with the power and
authority to own property and to conduct its business as described in the
Registration Statement and Prospectus and to enter into and perform its
obligations under the Underwriting Agreement, the Preferred Securities, the
Common Securities and the Declaration and is not required to be authorized
to do business in any other jurisdiction; the Trust is not a party to or
otherwise bound by any agreement other than those described in the
Prospectus; and the Trust is and will be treated as a consolidated
subsidiary of the Company pursuant to generally accepted accounting
principles;
(ii) to the best knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Trust or any of
its subsidiaries of a character required to be disclosed in the
Registration Statement which is not adequately disclosed in the Prospectus,
and there is no franchise, contract or other document of a character
required to be described in the Registration Statement or Prospectus, or to
be filed as an exhibit, which is not described or filed as required;
(iii) no authorization, approval, consent or license of any
government, governmental instrumentality, agency or body or court (other
than under the Act and the securities or blue sky laws of various
jurisdictions) is required for the authorization, issuance, sale and
delivery of the Preferred Securities or the consummation by the Trust of
the transactions contemplated by the Underwriting Agreement;
(iv) the Underwriting Agreement has been duly authorized, executed and
delivered by the Trust;
(v) the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein and compliance by the
Trust with its obligations hereunder have been duly authorized by all
necessary action (corporate or otherwise) on the part of the Trust and do
not and will not result in any violation of the Declaration and do not and
will not conflict with, or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the
<PAGE>
2
EXHIBIT C (continued)
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company under (i) any indenture, mortgage or loan
agreement, or any other agreement or instrument known to such counsel, to
which the Trust is a party or by which the Trust may be bound or to which
any of the Trust's properties may be subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have
a material adverse effect on the condition (financial or otherwise),
earnings or business prospects of the Trust and its subsidiaries,
considered as one enterprise), (ii) any existing applicable law, rule or
regulation (except for such conflicts, breaches, liens, charges or
encumbrances that would not have a material adverse effect on the condition
(financial or otherwise), earnings or business prospects of the Trust and
other than the securities or blue sky laws of various jurisdictions), or
(iii) any judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over the Trust or any of its
properties; and
(vi) the Preferred Securities have been duly authorized by the Trust
and are validly issued and (subject to the terms of the Declaration) when
delivered to and paid for by the Underwriters pursuant to the Underwriting
Agreement will be fully paid and non-assessable preferred undivided
beneficial interests in the assets of the Trust and will be entitled to the
benefits of the Declaration; the issuance of the Preferred Securities is
not subject to preemptive or other similar rights; and the holders of
Preferred Securities will be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit.
In addition, such counsel shall also state as follows: We have reviewed and
participated in the preparation of the Registration Statement and the
Prospectus, including the documents incorporated by reference therein. In
examining the Registration Statement and Prospectus, we have necessarily assumed
the correctness and completeness of the statements made or included therein by
the Trust and take no responsibility therefor. However, in the course of the
preparation by the Trust of the Registration Statement and the Prospectus, we
have participated in conferences with the Time Warner Trustees of the Trust and
certain officers of, and accountants for, the Company with respect thereto, and
our examination of the Registration Statement and Prospectus and our discussions
in the above-mentioned conferences did not disclose any information which gave
us reason to believe that the Registration Statement (except for the financial
statements and other financial or statistical data included therein or omitted
therefrom, as to which we express no opinion) at the time it became effective
included an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or that the Prospectus
(except as aforesaid), at its issue date or on the date of this opinion,
included or includes any untrue statement of a
<PAGE>
3
EXHIBIT C (continued)
material fact or omitted or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
<PAGE>
EXHIBIT D
FORM OF OPINION OF
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
You have requested our opinion set forth below in connection with the
ownership by Warner Communications Inc., a Delaware corporation ('WCI'), which
is a direct or indirect wholly owned subsidiary of Time Warner Inc., a Delaware
corporation ('TWI'), of 12,057,561 shares (the 'Hasbro Shares') of common stock,
par value $.50 per share ('Hasbro Common Stock'), of Hasbro, Inc. ('Hasbro').
In this connection, we have been advised by TWI and WCI that the facts
below in this paragraph are true and correct.
(i) WCI purchased 7,838,811 of the Hasbro Shares on May 17, 1983. Such
Hasbro Shares were purchased either from Hasbro pursuant to a Purchase
Agreement dated March 8, 1983 among Hasbro, WCI and Knickerbocker Toy Co.,
Inc. or from certain shareholders of Hasbro pursuant to a Stock Purchase
Agreement dated March 8, 1983 among WCI and such shareholders.
(ii) The 7,838,811 Hasbro Shares purchased by WCI on May 17, 1983 were
transferred (i) by WCI to its direct or indirect wholly owned subsidiary,
Warner Communications Investors, Inc. (whose name was changed to Time
Warner Investors Inc.) ('Investors') on May 5, 1986, (ii) by Investors to
WCI's direct or indirect wholly owned subsidiary, TW Investment Corp.
('Investment') on February 28, 1992 and (iii) by Investment to WCI on June
22, 1992.
(iii) WCI purchased 4,218,750 of the Hasbro Shares on July 11, 1989
upon the exercise of warrants by WCI. WCI acquired such warrants on May 17,
1983.
(iv) On the date hereof, WCI is not the beneficial owner of any shares
of Hasbro Common Stock other than the Hasbro Shares. The Hasbro Shares
represent approximately 13.86% of the outstanding Hasbro Common Stock
(based upon the most recent report by Hasbro of the outstanding Hasbro
Common Stock as of , 199 November 2, 1992 in Hasbro's Quarterly
Report on Form 10-Q for the period ended , 199 ).
(v) On the date hereof, TWI is not the beneficial owner of any shares
of Hasbro Common Stock except to the extent it may be deemed to be the
beneficial owner of the Hasbro Shares.
<PAGE>
2
EXHIBIT D (continued)
(vi) Hasbro had, pursuant to a Shareholder Rights Agreement dated May
17, 1983 between WCI and Hasbro (the 'Shareholder Rights Agreement'),
rights of first refusal to purchase the Hasbro Shares under certain
circumstances. The Shareholder Rights Agreement expired on May 17, 1993.
(vii) WCI is not a party to any agreements, written or oral, with any
party (other than the Shareholder Rights Agreement) relating to its
ownership of Hasbro Common Stock or providing it any rights with respect to
the management or operations of Hasbro.
(viii) Neither TWI nor WCI has, at any time, directly or indirectly,
taken an active role in the management or the day-to-day operations of
Hasbro, and no designee of TWI or WCI has ever served as a director of
Hasbro. Neither TWI nor WCI has any rights to purchase any additional
shares of Hasbro Common Stock or to name a representative to the board of
directors of Hasbro.
(ix) All of the facts set forth above in this paragraph were true and
correct on, and have remained unchanged since September 3, 1992.
We have also made such other investigations of fact and law as we have
deemed appropriate to form the basis for this opinion.
Based upon the foregoing and assuming the accuracy of all facts set forth
in the second paragraph of this letter, we are of the opinion that:
1. Neither TWI nor WCI is an 'affiliate' of Hasbro, as such term is
defined in Section(a)(1) of Rule 144 of the Rules and Regulations under the
Securities Act of 1933, as amended ('Rule 144'), and neither TWI nor WCI
has been an affiliate of Hasbro during the three months preceding the
Closing Date (as defined in the Underwriting Agreement).
2. WCI has beneficially owned all of the Hasbro Shares for a period of
at least three years prior to the Closing Date (as defined in the
Underwriting Agreement).
3. The Hasbro Shares are eligible for sale for the account of WCI
pursuant to Rule 144, and the provisions of paragraph (k) of Rule 144 will
apply to such sale.
<PAGE>
EXHIBIT E
FORM OF OPINION OF
THE LAW DEPARTMENT OF
THE FIRST NATIONAL BANK OF CHICAGO
______ ___, 1995
(i) The Property Trustee is a national banking association with trust
powers, duly organized, validly existing and in good standing under the
laws of the United States of America, with all necessary power and
authority to execute and deliver, and to carry out and perform its
obligations under the Declaration.
(ii) The execution, delivery and performance by the Property Trustee
of the Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee and the Declaration has been
duly executed and delivered by the Property Trustee. The Declaration and
the Guarantee Agreement have been duly executed and delivered by the
Property Trustee, and constitute the legal, valid and binding obligation of
the Property Trustee, enforceable against the Property Trustee in
accordance with their terms, except as enforcement thereof may be limited
by applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or other laws affecting creditors' rights generally from time to
time in effect and subject as to enforceability to general principles of
equity, regardless of whether considered in a proceeding in equity or at
law.
(iii) To the best of our knowledge, there are no actions, proceedings
or investigations pending or threatened against or affecting the Property
Trustee before any court, arbitrator, administrative agency or other
governmental authority which, if adversely decided, would materially and
adversely affect the Property Trustee's ability to carry out the
transactions contemplated in the Declaration. [not asked for, but ok]
(iv) The execution, delivery and performance of the Declaration and
the Guarantee Agreement by the Property Trustee does not conflict with or
constitute a breach of the Articles of Association or By-Laws of the
Property Trustee.
(v) No consent, approval or authorization of, or registration with or
notice to, any Illinois or federal banking authority, other than such as
has been obtained or accomplished, is required for the execution, delivery
or performance by the Property Trustee of the Declaration.
<PAGE>
2
EXHIBIT E (continued)
(vi) The Property Trustee is the record holder of the Subordinated
Notes and the Guarantee and no security interest, mortgage, pledge, lien,
encumbrance, claim or equity is noted thereon or on the register.
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
('Declaration'), dated as of [ ], 1995, by the
undersigned trustees (together with all other Persons
from time to time duly appointed and serving as
trustees in accordance with the provisions of this
Declaration, the 'Trustees'), Time Warner Inc., a
Delaware corporation, as trust sponsor ('Time Warner'
or the 'Sponsor'), and by the holders, from time to
time, of undivided beneficial interests in the assets
of the Trust to be issued pursuant to this
Declaration.
WHEREAS the Sponsor and the Trustees entered into a
Declaration of Trust dated as of June 7, 1995 (the 'Original Declaration') in
order to establish a statutory business trust (the 'Trust') under the Business
Trust Act (as hereinafter defined);
WHEREAS the Certificate of Trust (the 'Certificate of Trust')
of the Trust was filed with the office of the Secretary of State of the State of
Delaware on June 9, 1995;
WHEREAS the Trustees and the Sponsor desire to continue the
Trust pursuant to the Business Trust Act for the sole purpose of, as described
more fully in Section 3.03 hereof, issuing and selling certain securities
representing undivided beneficial interests in the assets of the Trust and
investing the proceeds thereof in certain Subordinated Notes (as defined herein)
of Time Warner issued under the Indenture (as (defined herein) and to engage
pursuant to the terms hereof in only those other activities necessary or
incidental thereto; and
WHEREAS, as of the date hereof, no interests in
the Trust have been issued; and
WHEREAS all of the Trustees and the Sponsor, by this
Declaration, amend and restate each and every term and provision of the Original
Declaration.
NOW, THEREFORE, it being the intention of the parties hereto
to continue the Trust as a business trust under the Business Trust
Act, that the Original Declaration
<PAGE>
2
be amended and restated in its entirety as provided herein and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to or purchased by the Trust will
be held in trust for the benefit of the holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE I
Definitions
SECTION 1.01. Terms Generally. (a) The definitions in Section
1.02 shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words 'include',
'includes' and 'including' shall be deemed to be followed by the phrase 'without
limitation'. All references herein to Articles, Sections, Exhibits and Annexes
shall be deemed references to Articles and Sections of, and Exhibits and Annexes
to this Declaration unless the context shall otherwise require. Except as
otherwise expressly provided herein, any reference in this Declaration to any
other document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time.
(b) Capitalized terms used in this Declaration but not defined
in the preamble above have the respective meanings assigned to them in Section
1.02.
(c) A term defined anywhere in this Declaration
has the same meaning throughout.
SECTION 1.02. Definitions. As used in this
Declaration, the following terms have the meanings specified
below:
'Affiliate' has the same meaning as given to that term in Rule
405 of the Trust Indenture Act or any successor rule thereunder.
'Appointment Event' means an event defined in the terms of the
Preferred Securities set forth in Exhibit B which entitles the Holders of a
Majority in Stated Amount
<PAGE>
3
of the Preferred Securities to appoint a Special Regular Trustee.
'Book Entry Interest' means a beneficial interest in a
Certificate registered in the name of a Clearing Agency or a nominee thereof,
ownership and transfers of which shall be maintained and made through book
entries by such Clearing Agency as described in Section 9.04.
'Business Day' means any day other than a Saturday or Sunday
or any other day on which banking institutions in New York, New York, are
authorized or required by law to close.
'Business Trust Act' means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. C. 'ss''ss' 3801 et seq., as it may be amended from time
to time.
'Certificate' means a Common Security Certificate
or a Preferred Security Certificate.
'Clearing Agency' means an organization registered as a
'Clearing Agency' pursuant to Section 17A of the Exchange Act that is acting as
depositary for the Preferred Securities and in whose name or in the name
of a nominee of that organization shall be registered a Global Certificate
and which shall undertake to effect book entry transfers and pledges of the
Preferred Securities.
'Clearing Agency Participant' means a broker, dealer, bank,
other financial institution or other Person for whom from time to time the
Clearing Agency effects book entry transfers and pledges of securities deposited
with the Clearing Agency.
'Closing Date' means [ ], 1995.
'Code' means the Internal Revenue Code of 1986, as amended
from time to time or any successor legislation. A reference to a specific
section ((Sec.)) of the Code refers not only to such specific section but also
to any corresponding provision of any federal tax statute enacted after the date
of this Declaration, as such specific section or corresponding provision is in
effect on the date of application of the provisions of this Declaration
containing such reference.
<PAGE>
4
'Commission' means the Securities and Exchange
Commission.
'Common Security' has the meaning specified in
Section 7.01(b).
'Common Security Certificate' means a definitive certificate
in fully registered form representing a Common Security substantially in the
form of Annex I to Exhibit C.
'Covered Person' means (i) any officer, director, shareholder,
partner, member, representative, employee or agent of the Trust or its
Affiliates, (ii) any officer, director, shareholder, employee,
representative or agent of Time Warner or its Affiliates and (iii) the Holders
from time to time of the Trust Securities.
'Delaware Trustee' has the meaning set forth in
Section 5.01(a)(C).
'Distribution' means a distribution payable to Holders of
Trust Securities in accordance with Section 6.01.
'DTC' means The Depository Trust Company, the
initial Clearing Agency.
'Event of Default' in respect of the Trust Securities means an
Indenture Event of Default that has occurred and is continuing in respect of the
Subordinated Notes.
'Exchange Act' means the Securities Exchange Act of 1934, as
amended from time to time or any successor legislation.
'Fiscal Year' has the meaning specified in
Section 11.01.
'Global Certificate', when used with respect to any Preferred
Security, means a Preferred Security executed by the Trust and delivered to the
Depositary or pursuant to the Depositary's instruction, all in accordance with
this Declaration, which shall be registered in the name of the Depositary or its
nominee and which shall represent all of the outstanding Preferred Securities.
'Guarantee' means the Guarantee Agreement to be dated as of
[ ], 1995, of Time Warner in respect of the Preferred Securities.
<PAGE>
5
'Holder' means a Person in whose name a Certificate
representing a Trust Security is registered, such Person being a beneficial
owner within the meaning of the Business Trust Act.
'Indemnified Person' means any Trustee, any Affiliate of any
Trustee, any officer, director, shareholder, member, partner, employee,
representative or agent of any Trustee, or any employee or agent of the Trust
or its Affiliates.
'Indenture' means the Indenture dated as of [ ], 1995,
between Time Warner and the Indenture Trustee pursuant to which the Subordinated
Notes are to be
issued.
'Indenture Event of Default' means any event or condition
defined as an 'Event of Default' with respect to the Subordinated Notes under
Section 6.01(a) of the Indenture that has occurred and is continuing.
'Indenture Trustee' means Chemical Bank as trustee under
the Indenture until a successor is appointed thereunder and thereafter means
such successor trustee.
'Investment Company' means an investment company
as defined in the Investment Company Act.
'Investment Company Act' means the Investment Company Act of
1940, as amended from time to time or any successor legislation.
'Legal Action' has the meaning specified in
Section 3.06(e).
'Liquidation Distribution' has the meaning set forth in
Exhibits B and C hereto establishing the terms of the Trust Securities.
'Majority in Stated Amount of the Trust Securities' means,
except as otherwise required by the Trust Indenture Act and except as provided
in the penultimate paragraph of Section 5 of Exhibit B hereto, Holder(s) of
outstanding Trust Securities voting together as a single class or, as the
context may require, Holder(s) of outstanding Preferred Securities or Common
Securities voting
<PAGE>
6
separately as a class, who are the record owners of a relevant class of Trust
Securities whose Stated Amount represents more than 50% of the Stated Amount of
all outstanding Trust Securities of such class.
'Maturity Payment Amount' has the meaning assigned to such
term in the Indenture.
'Ministerial Action' has the meaning set forth in the terms of
the Trust Securities as set forth in Exhibits B and C hereto.
'Paying Agent' has the meaning specified in
Section 3.08(i).
'Person' means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
'Preferred Security' has the meaning specified in
Section 7.01(b).
'Preferred Security Beneficial Owner' means, with respect to a
Book Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
'Preferred Security Certificate' means a definitive
certificate in fully registered form representing a Preferred Security
substantially in the form of Annex I to Exhibit B.
'Property Trustee' means the Trustee meeting the eligibility
requirements set forth in Section 5.01(c) and having the duties set forth for
the Property Trustee herein.
'Property Account' has the meaning specified in
Section 3.08(c)(i).
<PAGE>
7
'Quorum' means a majority of the Regular Trustees or, if there
are only two Regular Trustees, both such Regular Trustees.
'Redemption Payment Amount' has the meaning
assigned to such term in the Indenture.
'Regular Trustee' means any Trustee other than the Property
Trustee and the Delaware Trustee.
'Related Party' means any direct or indirect wholly owned
subsidiary of Time Warner or any other Person which owns, directly or
indirectly, 100% of the outstanding voting securities of Time Warner.
'Resignation Request' has the meaning specified in
Section 5.02(d).
'Responsible Officer' means, with respect to the Property
Trustee, the chairman of the board of directors, any vice chairman, the
president, any executive vice president, any senior vice president, any
vice-president, any assistant vice president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer, any trust officer or
assistant trust officer or any other officer of the Property Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of that officer's
knowledge of and familiarity with the particular subject.
'Rule 3a-5' means Rule 3a-5 under the Investment Company Act
or any successor rule thereunder.
'Securities Act' means the Securities Act of 1933, as amended
from time to time, or any successor legislation.
'Special Event' has the meaning set forth in the terms of the
Trust Securities as set forth in Exhibits B and C hereto.
'Special Redemption Date' has the meaning set forth in the
terms of the Trust Securities as set forth in Exhibits B and C hereto.
<PAGE>
8
'Special Redemption Price' has the meaning set forth in the
terms of the Trust Securities as set forth in Exhibits B and C hereto.
'Special Regular Trustee' means a Regular Trustee appointed by
the Holders of a Majority in Stated Amount of the Preferred Securities in
accordance with Section 5.02(a)(ii)(B).
'Sponsor' or 'Time Warner' means Time Warner Inc., a Delaware
corporation, or any successor entity, in its capacity as sponsor of the
Trust.
'Stated Amount' means, with respect to each Trust
Security, $[ ].
'Subordinated Notes' means the series of Subordinated Notes
issued by Time Warner under the Indenture to the Property Trustee and entitled
the [ ]% Subordinated Notes due December 23, 1997.
'Successor Delaware Trustee' has the meaning specified in
Section 5.02(b)(ii).
'Successor Property Trustee' means a successor Trustee
possessing the qualifications to act as Property Trustee set forth in
Section 5.01(c).
'10% in Stated Amount of the Trust Securities' means,
except as otherwise required by the Trust Indenture Act and except as provided
in the penultimate paragraph of paragraph 5 of Exhibit B hereto, Holder(s) of
outstanding Trust Securities voting together as a single class or, as the
context may require, Holder(s) of outstanding Preferred Securities or Common
Securities, voting separately as a class, who are the record owners of a
relevant class of Trust Securities whose Stated Amount represents 10% or
more of the Stated Amount of all outstanding Trust Securities of such
class.
'Treasury Regulations' means the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by the
United States Treasury, as such regulations may be amended from time to
time (including corresponding provisions of succeeding
regulations).
'Trustee' or 'Trustees' means each Person who has signed this
Declaration as a trustee, so long as such Person
<PAGE>
9
shall continue in office in accordance with the terms hereof, and all other
Persons who may from time to time be duly appointed, qualified and serving as
Trustees in accordance with the provisions hereof, and references herein to
a Trustee or the Trustees shall refer to such Person or Persons solely in their
capacity as trustees hereunder.
'Trust Indenture Act' means the Trust Indenture Act of 1939,
as amended.
'Trust Securities' means the Common Securities and the
Preferred Securities.
'Underwriting Agreement' means the underwriting agreement
dated [ ], 1995, among Time Warner, the Trust and Morgan Stanley & Co.
Incorporated, as representative of the several underwriters named therein, with
respect to, among other things, the Preferred Securities.
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and
shall, to the extent applicable, be governed by such provisions;
(b) if and to the extent that any provision of this
Declaration limits, qualifies or conflicts with the duties imposed by
ss.ss. 310 to 317, inclusive, of the Trust Indenture Act, such imposed
duties shall control;
(c) the Property Trustee shall be the only Trustee which is
a trustee for the purposes of the Trust Indenture Act; and
(d) the application of the Trust Indenture Act to this
Declaration shall not affect the nature of the Trust Securities as
equity securities representing undivided beneficial interests in the
assets of the Trust.
<PAGE>
10
SECTION 2.02. Lists of Holders of Preferred Securities. (a)
Each of the Sponsor and the Regular Trustees on behalf of the Trust shall
provide the Property Trustee with such information as is required under 'ss'
312(a) of the Trust Indenture Act at the times and in the manner provided in
'ss' 312(a).
(b) The Property Trustee shall comply with its obligations
under 'ss''ss' 310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Property Trustee. Within 60 days
after May 15 of each year, the Property Trustee shall provide to the Holders of
the Trust Securities such reports as are required by 'ss' 313 of the Trust
Indenture Act, if any, in the form, in the manner and at the times provided by
'ss' 313 of the Trust Indenture Act. The Property Trustee shall also comply with
the requirements of 'ss' 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Property Trustee. Each of
the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the
Property Trustee, the Commission and the Holders of the Trust Securities, as
applicable, such documents, reports and information as required by 'ss'
314(a)(l)-(3), if any, of the Trust Indenture Act and the compliance
certificates required by 'ss' 314(a)(4) and (c) of the Trust Indenture Act, any
such certificates to be provided in the form, in the manner and at the times
required by 'ss' 314(a)(4) and (c) of the Trust Indenture Act, provided that any
certificate to be provided pursuant to 'ss' 314(a)(4) of the Trust Indenture Act
shall be provided within 120 days of the end of each Fiscal Year.
SECTION 2.05. Evidence of Compliance with Conditions
Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration which relate to
any of the matters set forth in 'ss' 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given pursuant to 'ss' 314(c) shall comply
with 'ss' 314(e) of the Trust Indenture Act.
SECTION 2.06. Events of Default; Waiver. (a) Subject to
Section 2.06(c), Holders of Preferred Securities may by vote of at least a
Majority in Stated Amount of the Preferred Securities (i) in accordance with
<PAGE>
11
the terms of the Preferred Securities direct the time, method, and place of
conducting any proceeding for any remedy available to the Property Trustee, or
exercising any trust or power conferred upon the Property Trustee hereunder or
(ii) on behalf of the Holders of all Preferred Securities waive any past Event
of Default in respect of the Preferred Securities and its consequences, provided
that if the Event of Default arises out of an Indenture Event of Default:
(A) which is not waivable under the Indenture, the Event of
Default under this Declaration shall also be not waivable; or
(B) which requires the consent or vote of (1) holders of
Subordinated Notes representing a specified percentage greater than a
majority in Principal Amount (as such term is defined in the
Indenture) of the Subordinated Notes, or (2) each holder of
Subordinated Notes, the Event of Default under this Declaration may
only be waived by, in the case of clause (1) above, the vote of
Holders of Preferred Securities representing such specified percentage
of the aggregate Stated Amount of the Preferred Securities, or, in the
case of clause (2) above, each Holder of Preferred Securities.
Upon such waiver, any such default shall cease to exist, and any Event of
Default with respect to the Preferred Securities arising therefrom shall be
deemed to have been cured, for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or Event of Default with
respect to the Preferred Securities or impair any right consequent thereon.
(b) Subject to Section 2.06(c), Holders of Common Securities
may by vote of at least a Majority in Stated Amount of the Common Securities,
(i) in accordance with the terms of the Common Securities, direct the time,
method, and place of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon the Property
Trustee or (ii) on behalf of the Holders of all of the Common Securities, waive
any past Event of Default with respect to the Common Securities and its
consequences, provided that, if the Event of Default arises out of an Indenture
Event of Default:
(A) which is not waivable under the Indenture, except where
the Holders of the Common Securities are
<PAGE>
12
deemed to have waived such Event of Default under the Declaration as
provided below, the Event of Default under this Declaration shall also
not be waivable; or
(B) which requires the consent or vote of (1) holders of
Subordinated Notes representing a specified percentage greater than a
majority in Principal Amount of the Subordinated Notes or (2) each
holder of Subordinated Notes, except where the holders of the Common
Securities are deemed to have waived such Event of Default under this
Declaration as provided below, the Event of Default under this
Declaration may only be waived by, in the case of clause (1) above,
the vote of Holders of Common Securities representing such specified
percentage of the aggregate Stated Amount of the Common Securities,
or, in the case of clause (2) above, each holder of Common Securities;
and
provided, further that, each Holder of Common Securities will be deemed to have
waived any Event of Default with respect to the Common Securities and its
consequences until all Events of Default with respect to the Preferred
Securities have been cured, waived by the Holders of Preferred Securities as
provided in this Declaration or otherwise eliminated and until all Events of
Default with respect to the Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of the Preferred Securities and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of this Declaration or the Trust Securities. In the
event that any Event of Default with respect to the Preferred Securities is
waived by the Holders of Preferred Securities as provided in this Declaration,
the Holders of Common Securities agree that such waiver shall also constitute
the waiver of such Event of Default with respect to the Common Securities for
all purposes under this Declaration without any further act, vote or consent of
the Holders of the Common Securities. Subject to the foregoing provisions of
this Section 2.06(b), upon such waiver, any such default shall cease to exist
and any Event of Default with respect to the Common Securities arising therefrom
shall be deemed to have been cured, for every purpose of this Declaration, but
no such waiver shall extend to any subsequent or other default or Event of
Default with respect to the Common Securities or impair any right consequent
thereon.
<PAGE>
13
(c) The right of any Holder of Trust Securities to receive
payment of Distributions on the Trust Securities in accordance with this
Declaration and the terms of the Trust Securities set forth in Exhibits B and C
on or after the respective payment dates therefor, or to institute suit for the
enforcement of any such payment on or after such payment dates, shall not be
impaired without the consent of each such Holder.
(d) As provided in the terms of the Trust Securities set
forth in Exhibits B and C hereto, a waiver of an Indenture Event of Default by
the Property Trustee at the written direction of the Holders of the Preferred
Securities constitutes a waiver of the corresponding Event of Default under this
Declaration in respect of the Trust Securities.
SECTION 2.07. Disclosure of Information. The disclosure of
information as to the names and addresses of the Holders of the Trust Securities
in accordance with 'ss' 312 of the Trust Indenture Act, regardless of the source
from which such information was derived, shall not be deemed to be a violation
of any existing law, or any law hereafter enacted which does not specifically
refer to 'ss' 312 of the Trust Indenture Act, nor shall the Property Trustee be
held accountable by reason of mailing any material pursuant to a request made
under 'ss' 312(b) of the Trust Indenture Act.
ARTICLE III
Organization
SECTION 3.01. Name. The Trust is named 'Time Warner Financing
Trust' as such name may be modified from time to time by the Regular Trustees
following written notice to the Holders of Trust Securities. The Trust's
activities may be conducted under the name of the Trust or any other name deemed
advisable by the Regular Trustees.
SECTION 3.02. Office. The address of the principal office of
the Trust is c/o Time Warner Inc., 75 Rockefeller Plaza, New York, New York
10019. Upon ten days written notice to the Holders, the Regular Trustees may
change the location of the Trust's principal office.
SECTION 3.03. Purpose. The exclusive purposes and functions of
the Trust are: (a) to issue and sell Trust Securities and use the proceeds from
such sale to acquire
<PAGE>
14
the Subordinated Notes and (b) except as otherwise limited herein, to engage in
only those other activities necessary or incidental thereto. The Trust shall not
borrow money, issue debt or reinvest proceeds derived from investments, pledge
any of its assets or at any time otherwise undertake (or permit to be
undertaken) any activity that would result in or cause the Trust to be treated
as an association taxable as a corporation or partnership for United States
Federal income tax purposes or as anything other than a grantor trust for United
States Federal income tax purposes.
SECTION 3.04. Authority. Subject to the limitations provided
in this Declaration and to the specific duties of the Property Trustee, the
Regular Trustees shall have exclusive and complete authority to carry out the
purposes of the Trust. An action taken by the Regular Trustees in accordance
with their powers shall constitute the act of and serve to bind the Trust and an
action taken by the Property Trustee in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no Person shall be required to inquire into the
authority of the Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.
SECTION 3.05. Title to Property of the Trust. Except as
provided in Section 3.08 with respect to the Subordinated Notes and the Property
Account or unless otherwise provided in this Declaration, legal title to all
assets of the Trust shall be vested in the Trust. The Holders of Trust
Securities shall not have legal title to any part of the assets of the Trust,
but shall have an undivided beneficial interest in the assets of the Trust.
SECTION 3.06. Powers and Duties of the Regular Trustees. The
Regular Trustees shall have the exclusive power, authority and duty to cause the
Trust, and shall cause the Trust, to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities, in each case in accordance with this Declaration; provided,
however, that the Trust may issue no more than one series of Preferred
Securities and no more than one series of Common Securities; and,
provided further, there shall be no interests in the Trust other than
the Trust Securities
<PAGE>
15
and the issuance of Trust Securities shall be limited to a one-time,
simultaneous issuance of both Preferred Securities and Common
Securities;
(b) to acquire the Subordinated Notes with the proceeds of
the sale of the Preferred Securities and the Common Securities;
provided, however, the Regular Trustees shall cause legal title to all
of the Subordinated Notes to be vested in, and the Subordinated Notes
to be held of record in the name of, the Property Trustee for the
benefit of the Holders of the Preferred Securities and the Common
Securities;
(c) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of any Special Event and to take any
Ministerial Actions in connection therewith; provided, that the
Regular Trustees shall consult with the Sponsor and the Property
Trustee before taking or refraining to take any Ministerial Action in
relation to a Special Event;
(d) to establish a record date with respect to all actions
to be taken hereunder that require a record date be established,
including for the purposes of Section 316(c) of the Trust Indenture
Act and with respect to Distributions, voting rights, redemptions, and
exchanges, and to issue relevant notices to Holders of the Preferred
Securities and Common Securities as to such actions and applicable
record dates;
(e) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or
against the Trust ('Legal Action'), unless pursuant to Section
3.08(e), the Property Trustee has the exclusive power to bring such
Legal Action;
(f) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors,
advisors, and consultants and pay reasonable compensation for such
services;
(g) to cause the Trust to comply with the Trust's
obligations under the Trust Indenture Act;
<PAGE>
16
(h) to give the certificate to the Property Trustee required
by 'ss' 314(a)(4) of the Trust Indenture Act, which certificate may be
executed by any Regular Trustee;
(i) to incur expenses which are necessary or incidental to
carrying out any of the purposes of the Trust;
(j) to act as, or appoint another Person to act as,
registrar and transfer agent for the Trust Securities, the Regular
Trustees hereby initially appointing the Property Trustee for such
purposes;
(k) to take all actions and perform such duties as may be
required of the Regular Trustees pursuant to the terms of the Trust
Securities set forth in Exhibits B and C hereto;
(l) to execute all documents or instruments, perform all
duties and powers, and do all things for and on behalf of the Trust in
all matters necessary or incidental to the foregoing;
(m) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid
existence, rights, franchises and privileges as a statutory business
trust under the laws of the State of Delaware and of each other
jurisdiction in which such existence is necessary to protect the
limited liability of the Holders of the Trust Securities or to enable
the Trust to effect the purposes for which the Trust has been created;
(n) to take any action, not inconsistent with this
Declaration or with applicable law, which the Regular Trustees
determine in their discretion to be reasonable and necessary or
desirable in carrying out the activities of the Trust as set out in
this Section 3.06, in order that:
(i) the Trust will not be deemed to be an
Investment Company required to be registered under the
Investment Company Act;
(ii) the Trust will not be classified for United
States federal income tax purposes as an association taxable
as a corporation or a
<PAGE>
17
partnership and will be treated as a granto trust for United
States federal income tax purposes; and
(iii) the Trust comply with any requirements
imposed by any taxing authority on holders of instruments
treated as indebtedness for United States federal income tax
purposes;
provided that such action does not adversely affect the interests of
Holders;
(o) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with
respect to the Trust to be duly prepared and filed by the Regular
Trustees, on behalf of the Trust; and
(p) subject to the requirements of 'ss'317(b) of the Trust
Indenture Act, to appoint one or more Paying Agents in addition to the
Property Trustee.
The Regular Trustees must exercise the powers set forth in
this Section 3.06 in a manner which is consistent with the purposes and
functions of the Trust set out in Section 3.03 and the Regular Trustees shall
not take any action which is inconsistent with the purposes and functions of the
Trust set forth in Section 3.03; and
Subject to this Section 3.06, the Regular Trustees shall have
none of the powers nor any of the authority of the Property Trustee set forth in
Section 3.08.
SECTION 3.07. Prohibition of Actions by Trust and Trustees.
The Trust shall not, and the Trustees (including the Property Trustee) shall
cause the Trust not to, engage in any activity other than as required or
authorized by this Declaration. In particular, the Trust shall not and the
Trustees (including the Property Trustee) shall cause the Trust not to:
(a) invest any proceeds received by the Trust from holding
the Subordinated Notes but shall promptly distribute all such proceeds
to Holders of Trust Securities pursuant to the terms of this
Declaration and of the Trust Securities;
(b) acquire any assets other than as expressly provided
herein;
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18
(c) possess Trust property for other than a Trust purpose;
(d) make any loans, other than loans represented by the
Subordinated Notes;
(e) possess any power or otherwise act in such a way as to
vary the Trust assets or the terms of the Trust Securities in any way
whatsoever;
(f) issue any securities or other evidences of beneficial
ownership of, or beneficial interests in, the Trust other than the
Trust Securities;
(g) incur any indebtedness for borrowed money;
(h) except as contemplated by Section 2.06, (i) direct the
time, method and place of exercising any trust or power conferred upon
the Indenture Trustee with respect to the Subordinated Notes, (ii)
waive any past default that is waivable under Section 6.04 of the
Indenture, (iii) exercise any right to rescind or annul any
declaration that the Subordinated Notes shall be due and payable or
(iv) consent to any amendment, modification or termination of the
Indenture or the Subordinated Notes, where such consent shall be
required, unless the Property Trustee shall have received an
unqualified opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that such action will not
result in the Trust being treated as an association taxable as a
corporation or partnership for United States Federal income tax
purposes and that, following such action, each holder of Trust
Securities will be treated for United States Federal income tax
purposes as owning an undivided beneficial interest in the
Subordinated Notes; or
(i) consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
to, any corporation or other body.
SECTION 3.08. Powers and Duties of the Property Trustee. (a)
The legal title to the Subordinated Notes shall be owned by and held of record
in the name of the Property Trustee in trust for the benefit of the Trust and
the Holders of the Trust Securities. The right, title and
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19
interest of the Property Trustee to the Subordinated Notes shall vest
automatically in each Person who may hereafter be appointed as Property Trustee
in accordance with Article V. Such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and
delivered.
(b) The Property Trustee shall not transfer its right, title
and interest in the Subordinated Notes to the Regular Trustees or, if the
Property Trustee does not also act as the Delaware Trustee, the Delaware
Trustee.
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing
bank account (the 'Property Account') in the name of and under the
exclusive control of the Property Trustee on behalf of the Trust and
the Holders of the Trust Securities and on the receipt of payments of
funds made in respect of the Subordinated Notes held by the Property
Trustee, deposit such funds into the Property Account and, without any
further acts of the Property Trustee or the Regular Trustees, promptly
make payments to the Holders of the Preferred Securities and Common
Securities from the Property Account in accordance with Section 6.01.
Funds in the Property Account shall be held uninvested, and without
liability for interest thereon, until disbursed in accordance with
this Declaration. The Property Account shall be an account which is
maintained with a banking institution whose long term unsecured
indebtedness is rated by a 'nationally recognized statistical rating
organization', as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act, at least equal to (but in no event less than
'A' or the equivalent) the rating assigned to the Preferred Securities
by a nationally recognized statistical rating organization;
(ii) engage in such ministerial activities as shall be
necessary or appropriate to effect promptly the redemption of the
Preferred Securities and the Common Securities to the extent the
Subordinated Notes are redeemed or mature;
(iii) upon notice of distribution issued by the Regular
Trustees in accordance with the terms of the Preferred Securities and
the Common Securities, engage
<PAGE>
20
in such ministerial activities as shall be necessary or appropriate to
effect promptly the distribution pursuant to terms of the Trust
Securities of Subordinated Notes to Holders of Trust Securities upon
the occurrence of a Special Event; and
(iv) have the legal power to exercise all of the rights,
powers and privileges of a holder of the Subordinated Notes under the
Indenture and, if an Event of Default occurs and is continuing, the
Property Trustee, subject to Section 2.06, shall for the benefit of
the Holders of the Trust Securities, enforce its rights as holder of
the Subordinated Notes under the Indenture, subject to the rights of
the Holders of the Trust Securities pursuant to the terms of the Trust
Securities, this Declaration, the Business Trust Act and the Trust
Indenture Act.
(d) The Property Trustee shall take all actions and perform
such duties as may be specifically required of the Property Trustee pursuant to
the terms of the Trust Securities set forth in Exhibits B and C hereto.
(e) Subject to Section 2.06, the Property Trustee shall take
any Legal Action which arises out of or in connection with an Event of Default
or the Property Trustee's duties and obligations under this Declaration, the
Business Trust Act or the Trust Indenture Act.
(f) All moneys deposited in the Property Account, and all
Subordinated Notes held by the Property Trustee for the benefit of the Trust and
the Holders of the Trust Securities, will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of, or for the benefit of,
the Property Trustee or its agents or their creditors.
(g) The Property Trustee shall, within 90 days after the
occurrence of a default with respect to the Trust Securities, transmit by mail,
first class postage prepaid, to the holders of the Trust Securities, as their
names and addresses appear upon the register, notice of all defaults with
respect to the Trust Securities known to the Property Trustee, unless such
defaults shall have been cured before the giving of such notice (the term
'defaults' for the purposes of this Section 3.08(g) being hereby defined to be
an Indenture Event of Default, not including any periods of grace provided for
in the Indenture and irrespective of the
<PAGE>
21
giving of any notice provided therein); provided, that, except in the case of
default in the payment of the Maturity Payment Amount or any Redemption Payment
Amount or interest on any of the Subordinated Notes, the Property Trustee shall
be protected in withholding such notice if and so long as the board of
directors, the executive committee, or a trust committee of directors and/or
Responsible Officers, of the Property Trustee in good faith determine that the
withholding of such notice is in the interests of the Holders of the Trust
Securities. The Property Trustee shall not be deemed to have knowledge of any
default, except (i) a default in the payment of Maturity Payment Amount or
Redemption Payment Amount or interest on the Subordinated Notes or (ii) any
default as to which the Property Trustee shall have received written notice or a
Responsible Officer charged with the administration of this Declaration shall
have obtained written notice.
(h) The Property Trustee shall continue to serve as Property
Trustee unless either:
(i) the Trust has been completely liquidated and the
proceeds thereof distributed to the Holders of Trust Securities
pursuant to the terms of the Trust Securities; or
(ii) a Successor Property Trustee has been appointed and
accepted that appointment in accordance with Article V.
(i) The Property Trustee shall act as paying agent in respect
of the Trust Securities and may authorize one or more Persons (each, a 'Paying
Agent') to pay Distributions, redemption payments or liquidation payments on
behalf of the Trust with respect to the Trust Securities. Any such Paying Agent
shall comply with 'ss' 317(b) of the Trust Indenture Act. Any Paying Agent may
be removed by the Property Trustee, after consultation with the Regular
Trustees, at any time and a successor Paying Agent or additional Paying Agents
may be appointed at any time by the Property Trustee.
(j) Subject to this Section 3.08, the Property Trustee shall
have none of the powers or the authority of the Regular Trustees set forth in
Section 3.06.
The Property Trustee shall exercise the powers, duties and rights set forth in
this Section 3.08 and Section 3.10 in a
<PAGE>
22
manner that is consistent with the purposes and functions of the Trust set out
in Section 3.03 and the Property Trustee shall not take any action which is
inconsistent with the purposes and functions of the Trust set forth in Section
3.03.
SECTION 3.09. Delaware Trustee. Notwithstanding any other
provision of this Declaration other than Section 5.01(a)(C), the Delaware
Trustee shall not be entitled to exercise any powers, nor shall the Delaware
Trustee have any of the duties and responsibilities of the Regular Trustees and
the Property Trustee described in this Declaration. Except as set forth in
Section 5.01(a)(C), the Delaware Trustee shall be a Trustee for the sole and
limited purpose of fulfilling the requirements of 'ss' 3807 of the Business
Trust Act.
SECTION 3.10. Certain Rights and Duties of the Property
Trustee. (a) The Property Trustee, before the occurrence of an Event of Default
and after the curing or waiver of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Declaration, and no implied covenants shall be read into this Declaration
against the Property Trustee. In case an Event of Default has occurred (that has
not been cured or waived pursuant to Section 2.06), the Property Trustee shall
exercise such of the rights and powers vested in it by this Declaration, and use
the same degree of care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) No provision of this Declaration shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act or its own wilful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Property
Trustee shall be determined solely by the express provisions
of this Declaration, and the Property Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this
Declaration, and no implied covenants or obligations shall
be
<PAGE>
23
read into this Declaration against the Property Trustee; and
(B) in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may conclusively
rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon any certificates or
opinions furnished to the Property Trustee and conforming to
the requirements of this Declaration; but in the case of any
such certificates or opinions that by any provision hereof
are specifically required to be furnished to the Property
Trustee, the Property Trustee shall be under a duty to
examine the same to determine whether or not they conform to
the requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the
Property Trustee, unless it shall be proved that the Property Trustee
was negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders as provided herein
relating to the time, method and place of conducting any proceeding
for any remedy available to the Property Trustee hereunder or under
the Indenture, or exercising any trust or power conferred upon the
Property Trustee under this Declaration; and
(iv) no provision of this Declaration shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Declaration or adequate indemnity against such risk or liability is
not reasonably assured to it.
<PAGE>
24
(c) Subject to the provisions of Section 3.10(a) and (b):
(i) whenever in the administration of this Declaration, the
Property Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Property Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part
request and rely upon a certificate, which shall comply with the
provisions of 'ss' 314(e) of the Trust Indenture Act, signed by any
two of the Regular Trustees or by an authorized officer of the
Sponsor, as the case may be;
(ii) the Property Trustee (A) may consult with counsel
(which may be counsel to the Sponsor or any of its Affiliates and may
include any of its employees) selected by it in good faith and with
due care and the written advice or opinion of such counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon and in accordance with
such advice and opinion and (B) shall have the right at any time to
seek instructions concerning the administration of this Declaration
from any court of competent jurisdiction;
(iii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Property Trustee shall not be
responsible for any misconduct or negligence on the part of any agent
or attorney appointed by it in good faith and with due care;
(iv) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration
at the request or direction of any Holders, unless such Holders shall
have offered to the Property Trustee reasonable security and indemnity
against the costs, expenses (including attorneys' fees and expenses)
and liabilities that might be incurred by it in complying with such
request or direction; provided that nothing contained in this clause
(iv) shall relieve the Property Trustee of the obligation, upon the
occurrence
<PAGE>
25
of an Event of Default (which has not been cured or waived) to
exercise such of the rights and powers vested in it by this
Declaration, and to use the same degree of care and skill in this
exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs; and
(v) any action taken by the Property Trustee or its agents
hereunder shall bind the Trust and the Holders of the Trust Securities
and the signature of the Property Trustee or its agents alone shall be
sufficient and effective to perform any such action; and no third
party shall be required to inquire as to the authority of the Property
Trustee to so act, or as to its compliance with any of the terms and
provisions of this Declaration, both of which shall be conclusively
evidenced by the Property Trustee's or its agent's taking such action.
SECTION 3.11. Registration Statement and Related Matters. In
accordance with the Original Declaration, Time Warner and the Trustees have
authorized and directed, and hereby confirm the authorization of, Time Warner,
as the sponsor of the Trust, (a) to file with the Commission and execute, in
each case on behalf of the Trust, (i) the Registration Statement on Form S-3
(File Nos. 33-60203 and 33-60203-01) (the '1933 Act Registration Statement')
including any pre-effective or post-effective amendments to such Registration
Statement, relating to the registration under the Securities Act of the
Preferred Securities of the Trust and (ii) a Registration Statement on Form 8-A
or other appropriate form (the '1934 Act Registration Statement') (including all
pre-effective and post-effective amendments thereto) relating to the
registration of the Preferred Securities of the Trust under Section 12(b) of the
Exchange Act; (b) to file with the New York Stock Exchange or any other national
securities exchange and execute on behalf of the Trust a listing application and
all other applications, statements, certificates, agreements and other
instruments as shall be necessary or desirable to cause the Preferred Securities
to be listed on the New York Stock Exchange or such other national securities
exchange; (c) to file and execute on behalf of the Trust such applications,
reports, surety bonds, irrevocable consents, appointments of attorney for
service of process and other papers and documents as shall be necessary or
desirable to register the Preferred Securities under the securities or 'Blue
Sky' laws of such jurisdictions as Time Warner on
<PAGE>
26
behalf of the Trust may deem necessary or desirable and (d) to execute on behalf
of the Trust the Underwriting Agreement relating to the issuance and sale of the
Preferred Securities, substantially in the form included as Exhibit 1 to the
1933 Act Registration Statement with such changes thereto as may be approved by
the authorized officer of the Sponsor executing the same, such approval to be
evidenced by such officer's execution thereof. In the event that any filing
referred to in clauses (a)-(c) above is required by the rules and regulations of
the Commission, the New York Stock Exchange or state securities or blue sky
laws, to be executed on behalf of the Trust by the Trustees, the Regular
Trustees, in their capacities as Trustees of the Trust, are hereby authorized
and directed to join in any such filing and to execute on behalf of the Trust
any and all of the foregoing, it being understood that the Property Trustee and
the Delaware Trustee, in their capacities as Trustees of the Trust, shall not be
required to join in any such filing or execute on behalf of the Trust any such
document unless required by the rules and regulations of the Commission, the New
York Stock Exchange or state securities or blue sky laws. In connection with all
of the foregoing, Time Warner and each Trustee, solely in its capacity as
Trustee of the Trust, have constituted and appointed, and hereby confirm the
appointment of, Gerald M. Levin, Richard D. Parsons, Richard J. Bressler, Peter
R. Haje and Philip R. Lochner, and each of them, as his, her or its, as the case
may be, true and lawful attorneys-in-fact, and agents, with full power of
substitution and resubstitution, for Time Warner or such Trustee or in Time
Warner's or such Trustee's name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to the 1933
Act Registration Statement and the 1934 Act Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, and to execute and file with the New York Stock
Exchange or any other national securities exchange a listing application and all
other applications and documents as shall be necessary or desirable in
connection therewith, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as Time Warner or such Trustee might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his or her substitute or substitutes, shall do or cause to be
done by virtue hereof.
<PAGE>
27
SECTION 3.12. Filing of Amendments to Certificate of Trust.
The Certificate of Trust as filed with the Secretary of State of the State of
Delaware on June 9, 1995 is attached hereto as Exhibit A. On or after the date
of execution of this Declaration, the Trustees shall cause the filing with the
Secretary of State of the State of Delaware of such amendments to the
Certificate of Trust as the Trustees shall deem necessary or desirable.
SECTION 3.13. Execution of Documents by Regular Trustees.
Unless otherwise determined by the Regular Trustees and except as otherwise
required by the Business Trust Act with respect to the Certificate of Trust or
otherwise, a majority of, or if there are only two, both of, the Regular
Trustees are authorized to execute and deliver on behalf of the Trust any
documents which the Regular Trustees have the power and authority to execute or
deliver pursuant to this Declaration; provided that any listing application
prepared by the Sponsor referred to in Section 3.11(b) may be executed by any
Regular Trustee.
SECTION 3.14. Trustees Not Responsible for Recitals or
Issuance of Trust Securities. The recitals contained in this Declaration and the
Trust Securities shall be taken as the statements of the Sponsor and the
Trustees do not assume any responsibility for their correctness. The Trustees
make no representations as to the value or condition of the property of the
Trust or any part thereof. The Trustees make no representations as to the
validity or sufficiency of this Declaration or the Trust Securities.
SECTION 3.15. Duration of Trust. The Trust, absent
termination pursuant to the provisions of Article VIII hereof, shall have
existence until December 31, 1998.
ARTICLE IV
Sponsor
SECTION 4.01. Purchase of Common Securities by Sponsor. The
Sponsor will purchase all the Common Securities issued by the Trust at the same
time as the Preferred Securities are sold, in an amount equal to 3% of the
capital of the Trust after giving effect to such purchase.
<PAGE>
28
SECTION 4.02. Expenses. (a) The Sponsor, in its capacity as
Sponsor and not as a Holder, shall be responsible for and shall pay for all
debts and obligations (other than with respect to the Trust Securities) and all
costs and expenses of the Trust (including costs and expenses relating to the
organization of the Trust, the issuance of the Preferred Securities, the fees
and expenses (including reasonable counsel fees and expenses) of the Trustees
(including any amounts payable under Article X) and the costs and expenses
relating to the operation of the Trust, including costs and expenses of
accountants, attorneys, statistical or bookkeeping services, expenses for
printing and engraving and computing or accounting equipment, paying agent(s),
registrar(s), transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the disposition of Trust assets).
(b) The Sponsor, in its capacity as Sponsor and not as a
Holder, will pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
(c) The Sponsor's obligations under this Section 4.02 shall
be for the benefit of, and shall be enforceable by, any Person to whom any such
debts, obligations, costs, expenses and taxes are owed (a 'Creditor') whether or
not such Creditor has received notice hereof. Any such Creditor may enforce the
Sponsor's obligations under this Section 4.02 directly against the Sponsor and
the Sponsor irrevocably waives any right or remedy to require that any such
Creditor take any action against the Trust or any other Person before proceeding
against the Sponsor. The Sponsor agrees to execute such additional agreements as
may be necessary or desirable in order to give full effect to the provisions of
this Section 4.02.
SECTION 4.03. Exchanges of LYONs and Redemptions. So long as
it is subject to Section 16 of the Exchange Act with respect to Hasbro, the
Sponsor shall take such steps as may be necessary in connection with any
exchange of LYONs by the holders thereof or any redemption of PERCS or
Subordinated Notes so that it is not in a net short position with respect to its
obligations to deliver Hasbro Common Stock (treating the outstanding LYONs and
PERCS, Preferred Securities (or, if distributed to the
<PAGE>
29
holders of the Preferred Securities, Subordinated Notes) as derivative
securities and treating the Hasbro Common Stock subject to only one put
equivalent position), including through the redemption or purchase of Preferred
Securities (or, if distributed to the holders of the Preferred Securities,
Subordinated Notes, the purchase of LYONs, the settlement of exchanges or
redemptions in cash (rather than Hasbro Common Stock) and the purchase of
additional shares of Hasbro Common Stock.
ARTICLE V
Trustees
SECTION 5.01. Number of Trustees; Qualifications. (a) The
number of Trustees initially shall be five. At any time (i) before the issuance
of the Trust Securities, the Sponsor may, by written instrument, increase or
decrease the number of, and appoint, remove and replace the, Trustees, and (ii)
after the issuance of the Trust Securities and except as provided in subsection
(E) below and Section 5.02(a)(ii)(B) with respect to the Special Regular
Trustee, the number of Trustees may be increased or decreased solely by, and
Trustees may be appointed, removed or replaced solely by, vote of Holders of
Common Securities representing a Majority in Stated Amount of the Common
Securities voting as a class; provided that in any case:
(A) the number of Trustees shall be at least five unless the
Trustee that acts as the Property Trustee also acts as the Delaware
Trustee, in which case the number of Trustees shall be at least four;
(B) unless a Special Regular Trustee has been appointed
(which appointment shall not impair the right of the Holders of Common
Securities to increase or decrease the number of, or to appoint,
remove or replace, Trustees (other than the Special Regular Trustee)
as provided above), at least a majority of the Trustees shall at all
times be officers, directors or employees of Time Warner;
(C) if required by the Business Trust Act, one Trustee (the
'Delaware Trustee') shall be either a natural person who is a resident
of the State of Delaware or, if not a natural person, an entity that
has its principal place of business in the State of Delaware and
otherwise is permitted to act as a
<PAGE>
30
Delaware Trustee hereunder under the laws of the State of Delaware,
except that if the Property Trustee has its principal place of
business in the State of Delaware and otherwise is permitted to act as
a Trustee hereunder under the laws of the State of Delaware, then the
Property Trustee shall also be the Delaware Trustee and Section 3.09
shall have no application;
(D) there shall at all times be a Property Trustee hereunder
that shall satisfy the requirements of Section 5.01(c); and
(E) the number of Trustees shall be increased automatically
by one if an Appointment Event has occurred and is continuing and the
Holders of a Majority in Stated Amount of the Preferred Securities
appoint a Special Regular Trustee in accordance with Section
5.02(a)(ii)(B) and the terms of the Preferred Securities.
Each Trustee shall be either a natural person at least 21 years of age or a
legal entity which shall act through one or more duly appointed representatives.
(b) The initial Regular Trustees shall be:
Peter R. Haje
Richard J. Bressler
Thomas W. McEnerney
c/o Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
(c) There shall at all times be one Trustee that
shall act as Property Trustee. In order to act as Property
Trustee hereunder, such Trustee shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted
by the Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000,
and subject to supervision or examination by Federal,
<PAGE>
31
State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the supervising or examining
authority referred to above, then for the purposes of this Section
5.01(c)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published.
If at any time the Property Trustee shall cease to satisfy
any of the requirements of clauses (i) and (ii) above, the Property Trustee
shall immediately resign in the manner and with the effect set out in Section
5.02(d). If the Property Trustee has or shall acquire any 'conflicting interest'
within the meaning of 'ss' 310(b) of the Trust Indenture Act, the Property
Trustee and the Holders of the Common Securities (as if such Holders were the
obligor referred to in 'ss' 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of 'ss' 310(b) of the Trust Indenture Act.
The Guarantee shall be deemed to be specifically described in this Declaration
for the purposes of clause (i) of the first proviso contained in 'ss' 310(b) of
the Trust Indenture Act.
The initial Trustee that shall serve as the Property Trustee
is The First National Bank of Chicago, whose address is as set forth in Section
14.01(b).
(d) The initial Trustee that shall serve as the Delaware
Trustee is Michael J. Majchrzak whose address is as set forth in Section
14.01(c).
(e) Any action taken by (i) Holders of Common Securities
pursuant to this Article V or (ii) Holders of Preferred Securities pursuant to
this Article V to appoint or remove a Special Regular Trustee upon the
occurrence of an Appointment Event, shall be taken at a meeting of Holders of
Common Securities or Preferred Securities, as the case may be, convened for such
purpose or by written consent as provided in Section 12.02.
(f) No amendment may be made to this Section 5.01 which would
change any rights with respect to the number, existence or appointment and
removal of Trustees (other than
<PAGE>
32
any Special Regular Trustee), except with the consent of each Holder of Common
Securities.
(g) No amendment may be made to this Section 5.01 or Section
5.02(a)(ii)(B), which would change the rights of Holders of Preferred Securities
to appoint, remove or replace a Special Regular Trustee except with the consent
of each Holder of Preferred Securities.
SECTION 5.02. Appointment, Removal and Resignation of
Trustees. (a) Subject to Section 5.02(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of the Trust Securities, by written
instrument executed by the Sponsor; and
(ii) after the issuance of the Trust Securities,
(A) other than with respect to the Special Regular
Trustee, by vote of the Holders of a Majority in Stated
Amount of the Common Securities voting as a class; and
(B) if an Appointment Event has occurred and is
continuing, one additional Regular Trustee (the 'Special
Regular Trustee') may be appointed, who shall not be an
Affiliate of the Sponsor, by vote of the Holders of a
Majority in Stated Amount of the Preferred Securities,
voting as a class and such Special Regular Trustee may only
be removed (otherwise than by the operation of Section
5.02(c)), by vote of the Holders of a Majority in Stated
Amount of the Preferred Securities voting as a class.
(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.02(a) until a Successor Property
Trustee possessing the qualifications to act as Property Trustee under
Section 5.01(c) has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and
delivered to the Regular Trustees, the Sponsor and the Property Trustee
being removed; and
(ii) the Trustee that acts as Delaware Trustee shall not be
removed in accordance with Section 5.02(a)
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until a successor Trustee possessing the qualifications to act as
Delaware Trustee under Section 5.01(a)(C) (a 'Successor Delaware
Trustee') has been appointed and has accepted such appointment by
written instrument executed by such Successor Delaware Trustee and
delivered to the Regular Trustees, the Sponsor and the Delaware
Trustee being removed.
(c) A Trustee appointed to office shall hold office until
such Trustee's successor shall have been appointed or until such
Trustee's death, removal or resignation, provided that a Special Regular
Trustee shall only hold office while an Appointment Event is continuing and
shall cease to hold office immediately after the Appointment Event pursuant to
which the Special Regular Trustee was appointed and all other Appointment Events
cease to be continuing.
(d) Any Trustee may resign from office (without need for prior
or subsequent accounting) by an instrument (a 'Resignation Request') in writing
signed by the Trustee and delivered to the Sponsor and the Trust, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the
Property Trustee shall be effective until a Successor Property Trustee
possessing the qualifications to act as Property Trustee under Section
5.01(c) has been appointed and has accepted such appointment by
instrument executed by such Successor Property Trustee and delivered
to the Trust, the Sponsor and the resigning Property Trustee;
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor Delaware Trustee
has been appointed and has accepted such appointment by instrument
executed by such Successor Delaware Trustee and delivered to the
Trust, the Sponsor and the resigning Delaware Trustee; and
(iii) no such resignation of a Special Regular Trustee shall
be effective until the 60th day following delivery of the Resignation
Request to the Sponsor and the Trust or such later date specified in
the Resignation Request during which period the Holders of the
Preferred Securities shall have the right to
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appoint a successor Special Regular Trustee as provided in this
Article V.
(e) If no Successor Property Trustee or Successor Delaware
Trustee shall have been appointed and accepted appointment as provided in this
Section 5.02 within 60 days after delivery to the Sponsor and the Trust of a
Resignation Request, the resigning Property Trustee or Delaware Trustee may
petition any court of competent jurisdiction for appointment of a Successor
Property Trustee or Successor Delaware Trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, appoint a Successor
Property Trustee or Successor Delaware Trustee, as the case may be.
SECTION 5.03. Vacancies Among Trustees. If a Trustee ceases to
hold office for any reason and the number of Trustees is not reduced pursuant to
Section 5.01 or if the number of Trustees is increased pursuant to Section 5.01,
a vacancy shall occur. A resolution certifying the existence of such vacancy by
a majority of the Regular Trustees shall be conclusive evidence of the existence
of such vacancy. The vacancy shall be filled with a Trustee appointed in
accordance with the requirements of this Article V.
SECTION 5.04. Effect of Vacancies. The death, resignation,
retirement, removal, bankruptcy, dissolution, liquidation, incompetence or
incapacity to perform the duties of a Trustee, or any one of them, shall not
operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees
shall occur until such vacancy is filled as provided in this Article V, the
Regular Trustees in office, regardless of their number, shall have all the
powers granted to the Regular Trustees and shall discharge all the duties
imposed upon the Regular Trustees by this Declaration.
SECTION 5.05. Meetings. Meetings of the Regular Trustees
shall be held from time to time upon the call of any Trustee. Regular meetings
of the Regular Trustees may be held at a time and place fixed by resolution of
the Regular Trustees. Notice of any in-person meeting of the Regular Trustees
shall be hand-delivered or otherwise delivered in writing (including by
facsimile) not less than 24 hours before such meeting. Notice of any telephonic
meeting of the Regular Trustees or any committee thereof shall be hand-delivered
or otherwise delivered in writing
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(including by facsimile) not less than 24 hours before such meeting. Notices
shall contain a brief statement of the time, place and anticipated purposes of
the meeting. The presence (whether in person or by telephone) of a Regular
Trustee at a meeting shall constitute a waiver of notice of such meeting except
where a Regular Trustee attends a meeting for the express purpose of objecting
to the transaction of any activity on the ground that the meeting has not been
lawfully called or convened. Unless provided otherwise in this Declaration, any
action of the Regular Trustees may be taken at a meeting by vote of a majority
of the Regular Trustees present (whether in person or by telephone) and eligible
to vote with respect to such matter, provided that a Quorum is present, or
without a meeting by the unanimous written consent of the Regular Trustees.
SECTION 5.06. Delegation of Power. (a) Any Regular Trustee
may, by power of attorney consistent with applicable law, delegate to any other
natural person over the age of 21 his or her power for the purpose of executing
any documents contemplated in Section 3.11, including any registration statement
or amendment thereto or other document or schedule filed with the Commission, or
making any other governmental filing.
(b) The Regular Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Regular Trustees or otherwise as the Regular Trustees
may deem expedient, to the extent such delegation is not prohibited by
applicable law or contrary to the provisions of the Trust, as set forth herein.
ARTICLE VI
Distributions
SECTION 6.01. Distributions. Holders shall receive periodic
distributions, redemption payments and liquidation distributions in accordance
with the applicable terms of the relevant Holder's Trust Securities
('Distributions'). Distributions shall be made to the Holders of Preferred
Securities and Common Securities in accordance with the terms of the Trust
Securities as set forth in Exhibits B and C hereto. If and to the extent that
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Time Warner makes a payment of interest or Maturity Payment Amount or
Redemption Payment Amount on the Subordinated Notes held by the Property
Trustee (the amount of any such payment being a 'Payment Amount'), the Property
Trustee shall and is directed to promptly make a Distribution of the Payment
Amount to Holders in accordance with the terms of the Trust Securities as set
forth in Exhibits B and C hereto.
ARTICLE VII
Issuance of Trust Securities
SECTION 7.01. General Provisions Regarding Trust Securities.
(a) The Regular Trustees shall issue on behalf of the Trust securities in fully
registered form representing undivided beneficial interests in the assets of the
Trust in accordance with Section 7.01(b).
(b) The Regular Trustees shall issue on behalf of the Trust
one class of preferred securities representing undivided beneficial interests in
the assets of the Trust having such terms as are set forth in Exhibit B (the
'Preferred Securities'), which terms are incorporated by reference in, and made
a part of, this Declaration as if specifically set forth herein, and one class
of common securities representing undivided beneficial interests in the assets
of the Trust having such terms as are set forth in Exhibit C (the 'Common
Securities'), which terms are incorporated by reference in, and made a part of,
this Declaration as if specifically set forth herein. The Trust shall have no
securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities.
(c) The Certificates shall be signed on behalf of the Trust
by the Regular Trustees (or, if there are more than two Regular Trustees, by any
two of the Regular Trustees). Such signatures may be the manual or facsimile
signatures of the present or any future Regular Trustee. Typographical and other
minor errors or defects in any such reproduction of any such signature shall not
affect the validity of any Certificate. In case any Regular Trustee of the Trust
who shall have signed any of the Certificates shall cease to be such Regular
Trustee before the Certificate so signed shall be delivered by the Trust, such
Certificate nevertheless may be delivered as though the
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person who signed such Certificate had not ceased to be such Regular Trustee;
and any Certificate may be signed on behalf of the Trust by such persons as, at
the actual date of the execution of such Certificate, shall be the Regular
Trustees of the Trust, although at the date of the execution and delivery of the
Declaration any such person was not such a Regular Trustee. Certificates shall
be printed, lithographed or engraved or may be produced in any other manner as
is reasonably acceptable to the Regular Trustees, as evidenced by their
execution thereof, and may have such letters, numbers or other marks of
identification or designation and such legends or endorsements as the Regular
Trustees may deem appropriate, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Trust Securities may be listed or of any
Clearing Agency in which the Trust Securities have been accepted for trading, or
to conform to usage.
(d) The consideration received by the Trust for the issuance
of the Trust Securities shall constitute a contribution to the capital of the
Trust and shall not constitute a loan to the Trust.
(e) Upon issuance of the Trust Securities as provided in this
Declaration, the Trust Securities so issued shall be deemed to be validly
issued, fully paid and nonassessable.
(f) Every Person, by virtue of having become a Holder or a
Preferred Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the terms
of and shall be bound by this Declaration.
(g) Upon issuance of the Trust Securities as provided in this
Declaration, the Regular Trustees on behalf of the Trust shall return to Time
Warner the $10 constituting initial trust assets as set forth in the Original
Declaration.
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ARTICLE VIII
Termination of Trust
SECTION 8.01. Termination of Trust. This Declaration and the
Trust shall terminate and be of no further force or effect upon the earliest of:
(a) when all the Trust Securities shall have been called for
redemption and the amounts necessary for redemption thereof (whether
cash or Exchange Property (as defined in the Guarantee)), including
any accrued and unpaid Distributions thereon to the applicable date of
redemption, shall have been paid to the Holders of the Trust
Securities in accordance with the terms of the Trust Securities;
(b) when all the Subordinated Notes shall have been
distributed to the Holders of Trust Securities in exchange for all the
Trust Securities in accordance with the terms of the Trust Securities;
(c) upon the expiration of the term of the Trust as set
forth in Section 3.15; or
(d) if Time Warner shall direct the Trustees to terminate the
Trust, provided that Time Warner shall be the holder at such time of
all the outstanding Preferred Securities as a result of the exercise of
the Time Warner Exchange Right (as defined in the Guarantee) or
otherwise;
and a certificate of cancellation is filed by the Trustees with the Secretary of
State of the State of Delaware. The Trustees shall so file such a certificate as
soon as practicable after the occurrence of an event referred to in this Article
VIII.
The provisions of Sections 3.10 and Article X shall survive
the termination of the Trust.
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ARTICLE IX
Transfer of Interests
SECTION 9.01. Transfer of Trust Securities. (a) Trust
Securities may only be transferred, in whole or in part, in accordance with the
terms and conditions set forth in this Declaration. Any transfer or purported
transfer of any Trust Security not made in accordance with this Declaration
shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be
freely transferable.
(c) Subject to this Article IX, Time Warner and any Related
Party may only transfer Common Securities to Time Warner or a Related Party;
provided that any such transfer shall be subject to the condition that the
transferor shall have obtained (i) either a ruling from the Internal Revenue
Service or an unqualified written opinion addressed to the Trust and delivered
to the Trustees of nationally recognized independent tax counsel experienced in
such matters to the effect that such transfer will not (A) cause the Trust to be
treated as issuing a class of interests in the Trust differing from the class of
interests represented by the Common Securities originally issued to Time Warner,
(B) result in the Trust acquiring or disposing of, or being deemed to have
acquired or disposed of, an asset or (C) result in or cause the Trust to be
treated as an association taxable as a corporation or partnership for United
States Federal income tax purposes or as anything other than a grantor trust for
United States Federal income tax purposes and (ii) an unqualified written
opinion addressed to the Trust and delivered to the Trustees of a nationally
recognized independent counsel experienced in such matters that such transfer
will not cause the Trust to be an Investment Company or controlled by an
Investment Company.
SECTION 9.02. Transfer of Certificates. The Regular Trustees
shall provide for the registration of Certificates and of transfers of
Certificates, which will be effected without charge but only upon payment (with
such indemnity as the Regular Trustees may require) in respect of any tax or
other government charges which may be imposed in relation to such transfers.
Upon surrender for registration of transfer of any Certificate, the Regular
Trustees shall cause one or more new Certificates to be
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issued in the name of the designated transferee or transferees. Every
Certificate surrendered for registration of transfer shall be accompanied by a
written instrument of transfer in form satisfactory to the Regular Trustees duly
executed by the Holder or such Holder's attorney duly authorized in writing.
Each Certificate surrendered for registration of transfer shall be canceled by
the Regular Trustees. A transferee of a Certificate shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon the receipt by
such transferee of a Certificate. By acceptance of a Certificate, each
transferee shall be deemed to have agreed to be bound by this Declaration.
SECTION 9.03. Deemed Security Holders. The Trustees may treat
the Person in whose name any Certificate shall be registered on the books and
records of the Trust as the sole holder of such Certificate and of the Trust
Securities represented by such Certificate for purposes of receiving
Distributions and for all other purposes whatsoever and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
Certificate or in the Trust Securities represented by such Certificate on the
part of any Person, whether or not the Trustees shall have actual or other
notice thereof.
SECTION 9.04. Book-Entry Interests. The Preferred Securities
Certificates, on original issuance, will be issued in fully registered form.
With respect to any Certificates registered on the books and records of the
Trust in the name of a Clearing Agency or the nominee of a Clearing Agency:
(a) the Trust and the Trustees shall be entitled to deal
with the Clearing Agency for all purposes of this Declaration
(including the payment of Distributions on such Certificates and
receiving approvals, votes or consents hereunder) as the Preferred
Security Holder and the sole holder of such Certificates and, except
as set forth herein, shall have no obligation to the Preferred
Security Beneficial Owners;
(b) to the extent that the provisions of this Section 9.04
conflict with any other provisions of this Declaration, the provisions
of this Section 9.04 shall control; and
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(c) the rights of the Preferred Security Beneficial Owners
shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such
Preferred Security Beneficial Owners and the Clearing Agency and/or
the Clearing Agency Participants. The Clearing Agency will make
book-entry transfers among Clearing Agency Participants and receive
and transmit payments of Distributions on such Certificates to such
Clearing Agency Participants.
SECTION 9.05. Notices to Holders of Certificates. Whenever a
notice or other communication to the Holders is required to be given under this
Declaration, the relevant Trustees shall give such notices and communications to
the Holders and, with respect to any Preferred Security Certificate registered
in the name of a Clearing Agency or the nominee of a Clearing Agency, the
Trustees shall, except as set forth herein with respect to the Property Trustee,
have no obligations to the Preferred Security Beneficial Owners.
SECTION 9.06. Appointment of Successor Clearing Agency. If
any Clearing Agency elects to discontinue its services as securities depositary
with respect to the Preferred Securities, the Regular Trustees may, in their
sole discretion, appoint a successor Clearing Agency with respect to the
Preferred Securities.
SECTION 9.07. Definitive Preferred Securities Certificates.
If (a) a Clearing Agency elects to discontinue its services as securities
depositary with respect to the Preferred Securities and a successor Clearing
Agency is not appointed within 90 days after such discontinuance pursuant to
Section 9.06 or (b) the Regular Trustees elect after consultation with the
Sponsor to terminate the book-entry system through the Clearing Agency with
respect to the Preferred Securities, then upon surrender of the Certificates
representing the Book Entry Interests with respect to the Preferred Securities
by the Clearing Agency, accompanied by registration instructions, the Regular
Trustees shall cause definitive Preferred Security Certificates to be delivered
to Preferred Security Beneficial Owners in accordance with the instructions of
the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any
delay in delivery of such instructions and each of them may conclusively rely
on, and shall be protected in relying on, such instructions.
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SECTION 9.08. Mutilated, Destroyed, Lost or Stolen
Certificates. If (a) any mutilated Certificates should be surrendered to the
Regular Trustees or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate and (b) there
shall be delivered to the Regular Trustees such security or indemnity as may be
required by them to keep each of them harmless, then in the absence of notice
that such Certificate shall have been acquired by a bona fide purchaser, any two
Regular Trustees on behalf of the Trust shall execute and deliver, in exchange
for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a
new Certificate of like denomination. In connection with the issuance of any new
Certificate under this Section 9.08, the Regular Trustees may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection therewith. Any duplicate Certificate issued
pursuant to this Section shall constitute conclusive evidence of an ownership
interest in the relevant securities, as if originally issued, whether or not the
lost, stolen or destroyed Certificate shall be found at any time.
ARTICLE X
Limitation of Liability; Indemnification
SECTION 10.01. Liability. (a) Except as expressly set forth
in this Declaration, the Guarantee and the terms of the Trust Securities the
Sponsor:
(i) shall not be personally liable for the return of any
portion of the capital contributions of the Holders of the Trust
Securities, which shall be made solely from assets of the Trust; and
(ii) shall not be required to pay to the Trust or to any
Holder of Trust Securities any deficit upon dissolution of the Trust
or otherwise.
(b) Pursuant to Section 3803(a) of the Business Trust Act,
the Holders of the Trust Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
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organized under the General Corporation Law of the State of Delaware.
SECTION 10.02. Exculpation. (a) No Indemnified Person shall
be liable, responsible or accountable in damages or otherwise to the Trust or
any Covered Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good faith on
behalf of the Trust and in a manner such Indemnified Person reasonably believed
to be within the scope of the authority conferred on such Indemnified Person by
this Declaration or by law, except that an Indemnified Person shall be liable
for any such loss, damage or claim incurred by reason of such Indemnified
Person's gross negligence (or, in the case of the Property Trustee, except as
otherwise set forth in Section 3.10 hereof) or wilful misconduct with respect to
such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Trust Securities might properly be paid.
SECTION 10.03. Indemnification. (a) To the fullest extent
permitted by applicable law, the Sponsor shall indemnify and hold harmless each
Indemnified Person from and against any loss, damage or claim incurred by such
Indemnified Person by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of authority
conferred on such Indemnified Person by this Declaration, except that no
Indemnified Person shall be entitled to be indemnified in respect of any loss,
damage or claim incurred by such Indemnified Person by reason of gross
negligence (or, in the case of the Property Trustee,
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except as otherwise set forth in Section 3.10 hereof) or wilful misconduct with
respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law,
expenses (including reasonable legal fees) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Sponsor prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Sponsor of an undertaking
by or on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 10.03(a).
SECTION 10.04. Outside Businesses. Any Covered Person, the
Sponsor, the Delaware Trustee and the Property Trustee may engage in or possess
an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Trust, and the Trust and the Holders of Trust Securities shall have no rights by
virtue of this Declaration in and to such independent ventures or the income or
profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, the Sponsor, the Delaware Trustee or the Property
Trustee shall be obligated to present any particular investment or other
opportunity to the Trust even if such opportunity is of a character that, if
presented to the Trust, could be taken by the Trust, and any Covered Person, the
Sponsor, the Delaware Trustee and the Property Trustee shall have the right to
take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment or other opportunity. Any
Covered Person, the Delaware Trustee and the Property Trustee may engage or be
interested in any financial or other transaction with the Sponsor or any
Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or
act on any committee or body of holders of securities or other obligations of
the Sponsor or its Affiliates.
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ARTICLE XI
Accounting
SECTION 11.01. Fiscal Year. The fiscal year ('Fiscal Year')
of the Trust shall be the calendar year or such other year as is required by the
Code.
SECTION 11.02. Certain Accounting Matters. (a) At all times
during the existence of the Trust, the Regular Trustees shall keep, or cause to
be kept, full books of account, records and supporting documents, which shall
reflect in reasonable detail each transaction of the Trust. The books of account
shall be maintained on the accrual method of accounting, in accordance with
generally accepted accounting principles, consistently applied. The Trust shall
use the accrual method of accounting for United States Federal income tax
purposes. The books and records of the Trust, together with a copy of this
Declaration and a certified copy of the Certificate of Trust, or any amendment
thereto, shall at all times be maintained at the principal office of the Trust
and shall be open for inspection for any examination by any Holder or its duly
authorized representative for any purpose reasonably related to its interest in
the Trust during normal business hours.
(b) The Regular Trustees shall, as soon as available after
the end of each Fiscal Year of the Trust, cause to be prepared and mailed to
each Holder of Trust Securities unaudited financial statements of the Trust for
such Fiscal Year, prepared in accordance with generally accepted accounting
principles; provided that, if the Trust is required to comply with the periodic
reporting requirements of Section 13(a) or 15(d) of the Exchange Act, such
financial statements for such Fiscal Year shall be examined and reported on by a
firm of independent certified public accountants selected by the Regular
Trustees (which firm may be the firm used by the Sponsor).
(c) The Regular Trustees shall cause to be prepared and mailed
to each Holder of Trust Securities an annual United States federal income tax
information statement, on such form as is required by the Code, containing such
information with regard to the Trust Securities held by each Holder as is
required by the Code and the Treasury Regulations. Notwithstanding any right
under the Code to deliver any such statement at a later date, the Regular
Trustees shall endeavor to deliver all
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such statements within 30 days after the end of each Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be prepared and filed
with the appropriate taxing authority an annual United States federal income tax
return, on such form as is required by the Code, and any other annual income tax
returns required to be filed by the Regular Trustees on behalf of the Trust with
any state or local taxing authority, such returns to be filed as soon as
practicable after the end of each Fiscal Year of the Trust.
SECTION 11.03. Banking. The Trust may maintain one or more
bank accounts in the name and for the sole benefit of the Trust; provided,
however, that all payments of funds in respect of the Subordinated Notes held by
the Property Trustee shall be made directly to the Property Account and no other
funds from the Trust shall be deposited in the Property Account. The sole
signatories for such accounts shall be designated by the Regular Trustees;
provided, however, that the Property Trustee shall designate the sole
signatories for the Property Account.
SECTION 11.04. Withholding. The Trust and the Trustees shall
comply with all withholding requirements under United States Federal, state and
local law. The Trust shall request, and the Holders shall provide to the Trust,
such forms or certificates as are necessary to establish an exemption from
withholding with respect to each Holder and any representations and forms as
shall reasonably be requested by the Trust to assist it in determining the
extent of, and in fulfilling, its withholding obligations. The Trust shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to the applicable jurisdiction. To the extent that
the Trust is required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder, the amount withheld shall
be deemed to be a distribution in the amount of the withholding to the Holder.
In the event of any claimed overwithholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount to be withheld was not
withheld from a Distribution, the Trust may reduce subsequent Distributions by
the amount of such withholding.
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ARTICLE XII
Amendments and Meetings
SECTION 12.01. Amendments. (a) Except as otherwise provided
in this Declaration or by any applicable terms of the Trust Securities, this
Declaration may be amended by, and only by, a written instrument executed by a
majority of the Regular Trustees; provided, however, that (i) no amendment to
this Declaration shall be made unless the Regular Trustees shall have obtained
(A) either a ruling from the Internal Revenue Service or a written unqualified
opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that such amendment will not result in the Trust being
treated as an association taxable as a corporation or a partnership for United
States Federal income tax purposes and that, following such action, each holder
of Trust Securities will be treated as owning an undivided beneficial interest
in the Subordinated Notes and (B) a written unqualified opinion of nationally
recognized independent counsel experienced in such matters to the effect that
such amendment will not cause the Trust to be an Investment Company that is
required to be registered under the Investment Company Act, (ii) at such time
after the Trust has issued any Trust Securities which remain outstanding, any
amendment which would adversely affect the rights, privileges or preferences of
any Holder of Trust Securities may be effected only with such additional
requirements as may be set forth in the terms of such Trust Securities, (iii)
Section 4.02, Section 9.01(c) and this Section 12.01 shall not be amended
without the consent of all the Holders of the Trust Securities, (iv) no
amendment which adversely affects the rights, powers and privileges of the
Property Trustee shall be made without the consent of the Property Trustee, (v)
Article IV shall not be amended without the consent of the Sponsor, (vi) the
rights of Holders of Common Securities under Article V to increase or decrease
the number of, and to appoint, replace or remove, Trustees (other than a Special
Regular Trustee) shall not be amended without the consent of each Holder of
Common Securities and (vii) the rights of Holders of Preferred Securities to
appoint or remove a Special Regular Trustee shall not be amended without the
consent of each Holder of Preferred Securities.
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(b) Subject to Section 12.01(a)(i) and notwithstanding
Section 12.01(a)(ii), this Declaration may be amended without the consent of the
Holders of the Trust Securities to (i) cure any ambiguity, (ii) correct or
supplement any provision in this Declaration that may be defective or
inconsistent with any other provision of this Declaration, (iii) add to the
covenants, restrictions or obligations of the Sponsor and (iv) conform to any
changes in Rule 3a-5 or any change in interpretation or application of Rule 3a-5
by the Commission, which amendment does not adversely affect the rights,
preferences or privileges of the Holders.
SECTION 12.02. Meetings of the Holders of Trust Securities;
Action by Written Consent. (a) Meetings of the Holders of Preferred Securities
and/or Common Securities may be called at any time by the Regular Trustees (or
as provided in the terms of the Trust Securities) to consider and act on any
matter on which Holders of such class of Trust Securities are entitled to act
under the terms of this Declaration, the terms of the Trust Securities or the
rules of any stock exchange or other self-regulatory organization (including the
NASDAQ National Market System) on which the Preferred Securities are listed or
admitted for trading. The Regular Trustees shall call a meeting of Holders of
Preferred Securities or Common Securities, if directed to do so by Holders of at
least 10% in Stated Amount of such class of Trust Securities. Such direction
shall be given by delivering to the Regular Trustees one or more written
notifications stating that the signing Holders of Trust Securities wish to call
a meeting and indicating the general or specific purpose for which the meeting
is to be called. Any Holders of Trust Securities calling a meeting shall specify
in writing the Certificates held by the Holders of Trust Securities exercising
the right to call a meeting and only those specified Certificates shall be
counted for purposes of determining whether the required percentage set forth in
the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of
the Trust Securities, the following provision shall apply to meetings of Holders
of Trust Securities:
(i) notice of any such meeting shall be given by mail to all
the Holders of Trust Securities having a right to vote thereat not
less than seven days nor more than 60 days prior to the date of such
meeting. Whenever a vote, consent or approval of the Holders of
<PAGE>
49
securities is permitted or required under this Declaration or the
rules of any stock exchange or other self-regulatory organization
(including the NASDAQ National Market System) on which the Preferred
Securities are listed or admitted for trading, such vote, consent or
approval may be given at a meeting of the Holders of Trust Securities.
Any action that may be taken at a meeting of the Holders of Trust
Securities may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by Holders of Trust
Securities owning not less than the minimum aggregate Stated Amount of
Trust Securities that would be necessary to authorize or take such
action at a meeting at which all Holders of Trust Securities having a
right to vote thereon were present and voting. Prompt notice of the
taking of action without a meeting shall be given to the Holders of
Trust Securities entitled to vote who have not consented in writing.
The Regular Trustees may specify that any written ballot submitted to
the Holders of Trust Securities for the purpose of taking any action
without a meeting shall be returned to the Trust within the time
specified by the Regular Trustees;
(ii) each Holder of a Trust Security may authorize any
Person to act for it by proxy on all matters in which a Holder of a
Trust Security is entitled to participate, including waiving notice of
any meeting or voting or participating at a meeting. No proxy shall be
valid after the expiration of 11 months from the date thereof unless
otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the Holder of the Trust Security executing it. Except as
otherwise provided herein or in the terms of the Trust Securities, all
matters relating to the giving, voting or validity of proxies shall be
governed by the General Corporation Law of the State of Delaware
relating to proxies, and judicial interpretations thereunder, as if
the Trust were a Delaware corporation and the Holders of the Trust
Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Trust Securities
shall be conducted by the Regular Trustees or by such other Person
that the Regular Trustees may designate; and
<PAGE>
50
(iv) unless otherwise provided in the Business Trust Act,
this Declaration or the rules of any stock exchange or other
self-regulatory organization (including the NASDAQ National Market
System) on which the Preferred Securities are then listed or admitted
for trading, the Regular Trustees, in their sole discretion, shall
establish all other provisions relating to meetings of Holders of
Trust Securities, including notice of the time, place or purpose of
any meeting at which any matter is to be voted on by any Holders of
Trust Securities, waiver of any such notice, action by consent without
a meeting, the establishment of a record date, quorum requirements,
voting in person or by proxy or any other matter with respect to the
exercise of any such right to vote.
ARTICLE XIII
Representations and Warranties of Property Trustee
and Delaware Trustee
SECTION 13.01. Representations and Warranties of Property
Trustee and Delaware Trustee. (a) The Trustee that acts as initial Property
Trustee represents and warrants to the Trust and to the Sponsor at the date of
this Declaration, and each Successor Property Trustee represents and warrants to
the Trust and the Sponsor at the time of the Successor Property Trustee's
acceptance of its appointment as Property Trustee that:
(i) The Property Trustee is a banking association with trust
powers, duly organized, validly existing and in good standing under
the laws of the United States, or any State therein, with trust power
and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration.
(ii) The execution, delivery and performance by the Property
Trustee of this Declaration has been duly authorized by all necessary
corporate action on the part of the Property Trustee. The Declaration
has been duly executed and delivered by the Property Trustee and
constitutes a legal, valid and binding obligation of the Property
Trustee, enforceable against it in accordance with its terms, subject
to applicable bankruptcy, reorganization, moratorium, insolvency and
<PAGE>
51
other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered
in a proceeding in equity or at law).
(iii) The execution, delivery and performance of this
Declaration by the Property Trustee does not conflict with or
constitute a breach of any of the terms or provisions of or constitute
a default under (i) the Articles of Association or By-laws of the
Property Trustee or any other agreement or instrument to which the
Property Trustee is a party or by which it may be bound, (ii) any
existing applicable law, rule or regulation or (iii) any judgment,
order or decree of any government, governmental instrumentality or
court having jurisdiction over the Property Trustee.
(iv) No consent, approval or authorization of, or
registration with or notice to, any banking authority which supervises
or regulates the Property Trustee is required for the execution,
delivery or performance by the Property Trustee of this Declaration.
(v) The Property Trustee satisfies the qualifications set
forth in Section 5.01(c).
(b) The Trustee which acts as initial Delaware Trustee
represents and warrants to the Trust and the Sponsor at the date of this
Declaration, and each Successor Delaware Trustee represents and warrants to the
Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance
of its appointment as Delaware Trustee, that:
(i) it satisfies the qualifications set forth in Section
5.01(a)(C);
(ii) it has been authorized to perform its obligations under
the Certificate of Trust and the Declaration; and
(iii) the Declaration under Delaware law constitutes a
legal, valid and binding obligation of the Delaware Trustee,
enforceable against it in accordance with its terms, subject to
applicable bankruptcy, reorganization, moratorium, insolvency, and
other similar laws affecting creditors' rights generally and to
general principles of equity and the
<PAGE>
52
discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
ARTICLE XIV
Miscellaneous
SECTION 14.01. Notices. All notices provided for in this
Declaration shall be in writing, duly signed by the party giving such notice,
and shall be delivered, telecopied or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees
at the Trust's mailing address set forth below (or such other address
as the Regular Trustees on behalf of the Trust may give notice of to
the Holders of the Trust Securities):
Time Warner Financing Trust
In care of Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Attention of Peter R. Haje,
Richard J. Bressler and
Thomas W. McEnerney,
Trustees
Facsimile No.: (212) {333-3987}
(b) if given to the Property Trustee, at the mailing address
of the Property Trustee set forth below (or such other address as the
Property Trustee may give notice of to the Holders of the Trust
Securities):
The First National Bank of Chicago
Corporate Trust Services Division
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Attention of: Trust #19-[ ]
Facsimile No.: (312) 407-1708}
<PAGE>
53
(c) if given to the Delaware Trustee, at the mailing address
of the Delaware Trustee set forth below (or such other address as the
Delaware Trustee may give notice of to the Holders of the Trust
Securities):
Michael J. Majchrzak
300 King Street
Wilmington, Delaware 19801
Facsimile No.: (302) 594-8622
(d) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other address
as the Holder of the Common Securities may give notice of to the
Trust):
Time Warner Inc.
75 Rockefeller Center
New York, NY 10019
Attention of General Counsel
Facsimile No.: (212) 956-7281
(e) if given to any other Holder, at the address set forth
on the books and records of the Trust.
A copy of any notice to the Property Trustee or the Delaware
Trustee shall also be sent to the Trust. Except as otherwise provided in the
terms of the Trust Securities, all notices shall be deemed to have been given
when received in person, telecopied with receipt confirmed or three Business
Days after mailed by first class mail, postage prepaid, except that, if a notice
or other document is refused delivery or cannot be delivered because of a
changed address of which no notice was given, such notice or other document
shall be deemed to have been delivered on the date of such refusal or inability
to deliver.
SECTION 14.02. Undertaking for Costs. All parties to this
Declaration agree, and each Holder of any Trust Securities by his or her
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Declaration or in any suit against the Property Trustee for any action
taken or omitted by it as Property Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit and
<PAGE>
54
that such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such party
litigant; but the provisions of this Section 14.02 shall not apply to any suit
instituted by the Property Trustee, to any suit instituted by any Holder or
group of Holders of Preferred Securities holding more than 10% in aggregate
Stated Amount of the outstanding Preferred Securities, or to any suit instituted
by any Holder of Preferred Securities for the enforcement of the payment of the
Maturity Payment Amount or Redemption Payment Amount or interest on the
Subordinated Notes, on or after the respective due dates expressed in such
Subordinated Notes.
SECTION 14.03. Governing Law. This Declaration and the rights
of the parties hereunder shall be governed by and interpreted in accordance with
the laws of the State of Delaware and all rights and remedies shall be governed
by such laws without regard to principles of conflict of laws.
SECTION 14.04. Headings. Headings contained in this
Declaration are inserted for convenience of reference only and do not affect the
interpretation of this Declaration or any provision hereof.
SECTION 14.05. Partial Enforceability. If any provision of
this Declaration, or the application of such provision to any Person or
circumstance, shall be held invalid, the remainder of this Declaration, or the
application of such provision to persons or circumstances other than those to
which it is held invalid, shall not be affected thereby.
SECTION 14.06. Counterparts. This Declaration may contain
more than one counterpart of the signature pages and this Declaration may be
executed by the affixing of the signature of the Sponsor and each of the
Trustees to one of such counterpart signature pages. All such counterpart
signature pages shall be read as though one, and they shall have the same force
and effect as though all the signers had signed a single signature page.
SECTION 14.07. Intention of the Parties. (a) It is the
intention of the parties hereto that the Trust not be classified for United
States federal income tax purposes as an association taxable as a corporation or
partnership but that the Trust be treated as a grantor trust for United
<PAGE>
55
States federal income tax purposes. The provisions of this Declaration shall be
interpreted to further this intention of the parties.
(b) The Trust, the Trustees, Time Warner and each Holder of a
Trust Security, by his or her acceptance thereof, agree to treat the
Subordinated Notes as debt instruments for United States Federal, state and
local income and franchise tax purposes and shall not take any contrary position
before any taxing authority or on any tax return.
SECTION 14.08. Successors and Assigns. Whenever in this
Declaration any of the parties hereto is named or referred to, the successors
and assigns of such party shall be deemed to be included, and all covenants and
agreements
<PAGE>
56
in this Declaration by the Sponsor and the Trustees shall bind and
inure to the benefit of their respective successors and assigns, whether so
expressed.
IN WITNESS WHEREOF, the undersigned has caused these presents
to be executed as of the day and year first above written.
TIME WARNER INC.,
as Sponsor,
by
--------------------------
Name:
Title:
by
--------------------------
Peter R. Haje,
as Trustee
by
--------------------------
Richard J. Bressler,
as Trustee
by
--------------------------
Thomas W. McEnerney,
as Trustee
<PAGE>
57
THE FIRST NATIONAL BANK OF
CHICAGO, as Trustee,
by
--------------------------
Name: Melissa G. Weisman
Title: Assistant Vice
President
by
--------------------------
Michael J. Majchrzak,
as Trustee
EXHIBIT A
CERTIFICATE OF TRUST
OF
TIME WARNER FINANCING TRUST
This Certificate of Trust of Time Warner Financing Trust (the
'Trust'), dated June 7, 1995, is being duly executed and filed by the
undersigned, as trustees, to form a business trust under the Delaware Business
Trust Act (12 Del. C. Section 3801 et seq.).
1. Name. The name of the business trust formed hereby is Time
Warner Financing Trust.
2. Delaware Trustee. The name and business address of the
trustee of the Trust with a principal place of business in the State of Delaware
is First Chicago Delaware Inc., 1201 Market Street, Suite 1401, Wilmington,
Delaware 19801.
3. Effective Date. This Certificate of Trust shall be
effective as of its filing.
IN WITNESS WHEREOF, the undersigned, being the sole trustees
of the Trust, have executed this Certificate of Trust as of the date first above
written.
THE FIRST NATIONAL BANK OF
CHICAGO, as trustee,
by
---------------------
Name: Steven M. Wagner
Title: Vice President
FIRST CHICAGO DELAWARE INC.,
as Delaware Trustee,
by
---------------------
Name: Steven M. Wagner
Title: Vice President
<PAGE>
2
by
---------------------
Peter R. Haje,
as trustee
by
---------------------
Richard J. Bressler,
as trustee
by
---------------------
Thomas W. McEnerney,
as trustee
<PAGE>
EXHIBIT B
TERMS OF
PREFERRED SECURITIES
Pursuant to Section 7.01 of the Amended and Restated
Declaration of Trust of Time Warner Financing Trust (the 'Trust') dated as of
[ ], 1995 (as amended from time to time, the 'Declaration'), the
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities are set forth below (each capitalized
term used but not defined herein having the meaning set forth in the Declaration
or, to the extent not defined therein, the Guarantee Agreement dated as of
[ ], 1995 (as amended from time to time, the 'Guarantee') executed by Time
Warner on behalf of the holders of the Preferred Securities):
1. Designation and Number. Preferred Securities of the Trust
with an aggregate Stated Amount in the assets of the Trust of ($ ) and a
Stated Amount in the assets of the Trust of $[ ] per Preferred Security, are
hereby designated as '$[ ] Preferred Exchangeable Redemption Cumulative
Securities'. The Preferred Security Certificates evidencing the Preferred
Securities shall be substantially in the form attached hereto as Annex I, with
such changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice or to conform to the rules of any stock
exchange on which the Preferred Securities are listed or to the rules of any
Clearing Agency in which the Trust Securities have been accepted for trading.
The Trust will invest the gross proceeds from the issuance of the Preferred
Securities together with the gross proceeds from the sale to Time Warner Inc.
('Time Warner') of the Common Securities in Subordinated Notes of Time Warner
having an aggregate principal amount equal to $ , and bearing interest at an
annual percentage rate of [ ]%, which will result in the payment of interest
equal to the annual Distribution rate on the Preferred Securities and Common
Securities and having payment and redemption provisions that correspond to the
payment and redemption provisions of the Preferred Securities and Common
Securities.
2. Distributions. (a) Periodic distributions payable on each
Preferred Security will be fixed at an amount per annum of $[ ] (the 'Coupon
Rate') per Preferred Security. Distributions in arrears for more than
<PAGE>
2
one quarter will bear interest at the rate per annum of % (1) thereof
(to the extent permitted by law), compounded quarterly. The term 'Distributions'
as used in these terms means such periodic cash distributions and any such
interest payable unless otherwise stated. A Distribution will be made by the
Property Trustee only to the extent that interest payments are made in respect
of the Subordinated Notes held by the Property Trustee. The amount of
Distributions (or amounts equal to accrued and unpaid Distributions) payable for
any period will be computed (i) for any full quarterly Distribution period, on
the basis of a 360-day year of twelve 30-day months, and (ii) for any period
shorter than a full quarterly Distribution period, on the basis of a 360-day
year of twelve 30-day months and on the basis of the actual number of days
elapsed in any such 30-day month.
(b) Distributions on the Preferred Securities will be
cumulative, will accrue from and including , 1995 (2) and will
be payable quarterly in arrears, on March 30, June 30, September 30 and December
30 of each year, commencing on September 30, 1995, except as otherwise described
below, but only if and to the extent that interest payments are made in
respect of the Subordinated Notes held by the Property Trustee.
(c) Distributions on the Preferred Securities will be payable
promptly by the Property Trustee (or other Paying Agent) upon receipt of
immediately available funds to the Holders thereof as they appear on the books
and records of the Trust on the relevant record dates, which will be the March
15, June 15, September 15 and December 15 prior to the relevant Distribution
dates, which record and payment dates correspond to the record and interest
payment dates on the Subordinated Notes. Distributions payable on any Preferred
Securities that are not punctually paid on any Distribution payment date as a
result of Time Warner having failed to make the corresponding interest payment
on the Subordinated Notes will forthwith cease to be payable to the person in
whose name such Preferred Security is registered on the relevant record date,
and such defaulted Distribution will instead be payable to the person in whose
name such Preferred Security is registered on the special record date
- --------
(1) Same as interest rate on Subordinated Notes.
(2) Insert date of issue.
<PAGE>
3
established by the Regular Trustees, which record date shall correspond to the
special record date or other specified date determined in accordance with the
Indenture. Subject to any applicable laws and regulations and the provisions of
the Declaration, each payment in respect of the Preferred Securities will be
made as described in paragraph 9 hereof. If any date on which Distributions are
payable on the Preferred Securities is not a Business Day, then payment of the
Distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), except that if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
(d) All Distributions paid with respect to the Preferred
Securities and the Common Securities will be paid on a Pro Rata Basis (as
defined herein) to the Holders thereof entitled thereto.
(e) In the event that there is any money or other property
held by or for the Trust that is not accounted for under the Declaration or
these terms of the Preferred Securities or the terms of the Common Securities,
such money or property shall be distributed on a Pro Rata Basis among the
Holders of the Preferred Securities and Common Securities.
3. Liquidation Distribution Upon Dissolution. In the event of
any voluntary or involuntary liquidation, dissolution, winding-up or termination
of the Trust (each a 'Liquidation Event'), the Holders of the Trust Securities
on the date of such Liquidation Event will be entitled to be paid on a Pro Rata
Basis out of the assets of the Trust the Liquidation Distribution in connection
with such Liquidation Event, unless Subordinated Notes in an aggregate principal
amount equal to the aggregate Stated Amount of, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on, the
Trust Securities have been distributed on a Pro Rata Basis (determined without
regard to the proviso in the definition of such term) to the Holders of the
Trust Securities in exchange for such Trust Securities. The 'Liquidation
Distribution' will be equal to (a)(i) if such Liquidation Event occurs at the
stated maturity of the Subordinated Notes, the Mandatory Redemption Price, (ii)
if such Liquidation Event occurs in connection with the
<PAGE>
4
optional redemption of the Subordinated Notes, the Call Price, (iii) if such
Liquidation Event occurs in connection with the special redemption of the
Subordinated Notes, the Special Redemption Price and (iv) if such Liquidation
Event occurs in connection with an acceleration of the Subordinated Notes in any
other circumstance, the Acceleration Price (as defined in the Indenture), in
each case plus (b) the amount of accrued and unpaid Distributions on the Trust
Securities to but excluding the date of payment. In the event that the assets of
the Trust exceed the amount necessary to pay to all Holders of the Trust
Securities the full amount of the Liquidation Distribution, such excess will be
paid to the Holders of the Trust Securities on a Pro Rata Basis (determined
without regard to the proviso in the definition of such term).
4. Redemption and Distribution of Subordinated Notes. The
Trust Securities may be redeemed only if Subordinated Notes having an aggregate
principal amount equal to the aggregate Stated Amount and accrued and unpaid
interest equal to accrued and unpaid distributions on the Trust Securities are
repaid, redeemed or distributed as set forth below:
(a) Subject to the exercise by Time Warner of the Time Warner
Exchange Right (as defined in the Guarantee) with respect to the Preferred
Securities, on December 23, 1997 (the 'Mandatory Redemption Date'), each of the
Trust Securities then outstanding will be redeemed on a Pro Rata Basis by the
Trust, in cash, at a mandatory redemption price per Trust Security equal to (i)
the lesser of (A) $54.41 and (B) the Exchange Valuation Price on the Trading Day
immediately preceding December 17, 1997, of such amount of Exchange Property
(which as of the date of this Declaration consists of one share of Hasbro Common
Stock for each Preferred Security) as relates to one Preferred Security at such
time (determined by reference only to the Exchange Property and the Preferred
Securities) (the 'Mandatory Redemption Price') plus (ii) an amount equal to all
accrued and unpaid distributions on such Trust Security to but excluding the
Mandatory Redemption Date.
(b) At any time and from time to time prior to the Mandatory
Redemption Date, upon the call for redemption prior to maturity by Time Warner
of the Subordinated Notes, the proceeds of such redemption shall be promptly
applied to redeem , and the Trust shall call for redemption on a Pro Rata Basis,
outstanding Trust Securities having
<PAGE>
5
an aggregate Stated Amount equal to the aggregate principal amount of the
Subordinated Notes so redeemed, upon not less than 20 nor more than 45 Business
Days' notice, and deliver to the Holders thereof in exchange for each Trust
Security so called for redemption, subject to the exercise of the Time Warner
Exchange Right, cash in an amount equal to the Call Price in effect on the date
of redemption (the 'Optional Redemption Date'), plus cash in an amount equal to
all accrued and unpaid Distributions on such Trust Security, whether or not
declared, for the period to but excluding the Optional Redemption Date. The
'Call Price' is equal to (a) $54.41 per Trust Security plus (b) an amount
initially equal to $[ ] per Trust Security, declining by $[ ] for each day that
shall have elapsed in the period from the Issue Date to but excluding the
Optional Redemption Date (the number of days in such period being computed on
the basis of a 360-day year of twelve 30-day months) to $0 on October 23, 1997,
and thereafter. The date of any such redemption of Preferred Securities and
Common Securities shall be established to coincide with the redemption date of
the Subordinated Notes.
(c) If fewer than all the outstanding Trust Securities are to
be so redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and
the Preferred Securities to be redeemed will be redeemed as described in
para-graph 4(g)(ii) below. If a partial redemption would result in the delisting
of the Preferred Securities by any national securities exchange or other
self-regulatory organization (including the NASDAQ National Market System) on
which the Preferred Securities are then listed, Time Warner pursuant to the
Indenture will only redeem the Subordinated Notes in whole and, as a result, the
Trust may only redeem the Preferred Securities in whole.
(d) (i) If, at any time, a Tax Event or an Investment Company
Event (each as hereinafter defined, and each a 'Special Event') shall occur and
be continuing, the Regular Trustees shall notify Time Warner thereof and Time
Warner shall elect to either (A) direct the Regular Trustees to dissolve the
Trust and cause Subordinated Notes having an aggregate principal amount equal to
the aggregate Stated Amount of, and accrued and unpaid interest equal to accrued
and unpaid Distributions on, and having the same record date for payment as, the
Trust Securities outstanding Securities at such time, to be distributed to the
Holders of the Trust Securities on a Pro Rata
<PAGE>
6
Basis in liquidation of such Holders' interests in the Trust, within 90 days
following the occurrence of such Special Event, provided, however, that in the
case of the occurrence of a Tax Event, as a condition of any such dissolution
and distribution, the Regular Trustees shall have received an opinion of
nationally recognized independent tax counsel experienced in such matters (a 'No
Recognition Opinion'), which opinion may rely on any then applicable published
revenue ruling of the Internal Revenue Service, to the effect that the Holders
of the Preferred Securities will not recognize any gain or loss for United
States Federal income tax purposes as a result of the dissolution of the Trust
and distribution of Subordinated Notes; (B) to redeem the Subordinated Notes in
accordance with the Indenture and the Trust Securities as described under
paragraph (ii) below or (C) in the case of a Tax Event, allow the Subordinated
Notes and the Trust Securities to remain outstanding and indemnify the Trust for
all taxes payable by it as a result of such change in law or interpretation;
provided that, if and as long as at the time there is available to the Trust the
opportunity to eliminate, within 90 days following the occurrence of such
Special Event (the '90-Day Period'), the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure that has no adverse effect on the Trust,
Time Warner or the Holders of the Trust Securities (a 'Ministerial Action'), the
Trust will pursue such measure in lieu of dissolution or redemption; provided
further, that Time Warner shall have no right to redeem the Subordinated Notes
or to direct the Regular Trustees to dissolve the Trust while the Regular
Trustees are pursuing such Ministerial Action unless the Special Event shall not
have been so eliminated by the 85th day following the occurrence thereof, in
which case Time Warner shall be permitted to so direct the Regular Trustees or
to provide notice to the holders of the redemption of the Subordinated Notes;
provided further, that if dissolution of the Trust and distribution of the
Subordinated Notes to the holders of the Trust Securities would eliminate the
condition causing the Tax Event or the Investment Company Event and all other
conditions to such dissolution and distribution have been satisfied, Time Warner
will not be permitted to redeem the Subordinated Notes at the Special Redemption
Price; and provided further, that Time Warner shall not be
<PAGE>
7
permitted to direct the Regular Trustees to dissolve the Trust and distribute
the Subordinated Notes to the holders of the Trust Securities upon the
occurrence of the condition described in clause (2) in the definition of 'Tax
Event' if, after giving effect to such dissolution and distribution, Time Warner
would not be permitted to deduct a greater percentage of the interest payable on
the Subordinated Notes than it had been permitted to deduct for United States
Federal income tax purposes prior to the occurrence of such Tax Event.
(ii) Subject to the exercise of the Time Warner Exchange
Right, upon the occurrence and continuation of a Tax Event or an Investment
Company Event, Time Warner shall have the right to redeem the Subordinated Notes
in whole (but not in part), upon not less than 20 nor more than 45 Business
Days' notice, within the 90-Day Period (such date of redemption a 'Special
Redemption Date'), in which case the Trust shall (unless the Trust shall have
been dissolved) redeem in cash Trust Securities having an aggregate Stated
Amount equal to the aggregate principal amount of the Subordinated Notes so
redeemed, at a price per Trust Security equal to (A) the lesser of (1) $54.41
and (2) the Exchange Valuation Price on the Trading Day immediately preceding
such Special Redemption Date of the amount of Exchange Property that relates to
one Preferred Security at such time (determined by reference only to the
Exchange Property and the Preferred Securities and based on the Exchange Rate in
effect as of such Trading Day), plus (B) an amount initially equal to $[ ] per
Trust Security, declining by $[ ] on each day following the issue date (computed
on the basis of a 360-day year of twelve 30-day months) to $0 on October 23,
1997, and thereafter (such price the 'Special Redemption Price'), plus an
amount equal to all accrued and unpaid distributions on such Trust Security to
but excluding the Special Redemption Date. The Common Securities and the
Preferred Securities will be redeemed on a Pro Rata Basis.
(iii) 'Tax Event' means that the Regular Trustees shall have
obtained an opinion of nationally recognized independent tax counsel experienced
in such matters (a 'Dissolution Tax Opinion') to the effect that on or
<PAGE>
8
after [ ], 1995, (3) as a result of (A) any amendment to, or change (including
any announced prospective change) in, the laws (or any regulations thereunder)
of the United States or any political subdivision or taxing authority thereof or
therein, (B) any amendment to, or change in, an interpretation or application of
any such laws or regulations by any legislative body, court, governmental agency
or regulatory authority (including the enactment of any legislation and the
publication of any judicial decision or regulatory determination), (C) any
interpretation or pronouncement that provides for a position with respect to
such laws or regulations that differs from the theretofore generally accepted
position or (D) any action taken by any governmental agency or regulatory
authority, which amendment or change is enacted, promulgated, issued or
announced or which interpretation or pronouncement is issued or announced or
which action is taken, in each case on or after [ ], 1995, (4) there is more
than an insubstantial risk that at such time or within 90 days of the date
thereof (1) the Trust is, or would be, subject to United States Federal income
tax with respect to income accrued or received on the Subordinated Notes, (2)
less than 25% of the interest payable by Time Warner to the Trust on the
Subordinated Notes is, or would be, deductible by Time Warner for United States
Federal income tax purposes, (3) the Trust is, or would be, subject to more than
a de minimis amount of other taxes, duties or other governmental charges or (4)
as a result of the issuance of the Preferred Securities and/or the Subordinated
Notes Time Warner (or an affiliate of Time Warner) is or would be treated as
having disposed , for United States Federal income tax purposes, of the Hasbro
Common Stock owned by it.
(iv) 'Investment Company Event' means that the Regular
Trustees shall have received an opinion of nationally recognized independent
counsel experienced in such matters that, as a result of the occurrence of a
change in law or regulation or a written change in interpretation or application
of law or regulation by
- --------------
(3) Insert date of prospectus.
(4) Insert date of prospectus.
<PAGE>
9
any legislative body, court, governmental agency or regulatory authority (a
'Change in 1940 Act Law'), there is more than an insubstantial risk that the
Trust is or will be considered an Investment Company that is required to be
registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after [ ], 1995. (5)
(v) On the date fixed for any distribution of Subordinated
Notes, upon dissolution of the Trust, (i) the Preferred Securities will no
longer be deemed to be outstanding, (ii) neither the Trust nor Time Warner shall
have any further obligation to the Holders of the Preferred Securities with
respect to the Preferred Securities or under the Guarantee, (iii) the Depositary
or its nominee, as the record holder of the Preferred Securities, will receive a
registered global certificate or certificates representing the Subordinated
Notes to be delivered upon such distribution and (iv) any certificates
representing Preferred Securities not held by the Depositary or its nominee will
be deemed to represent beneficial interests in the Subordinated Notes having an
aggregate principal amount equal to the aggregate Stated Amount of, and bearing
accrued and unpaid interest equal to accrued and unpaid Distributions on, such
Preferred Securities until such certificates are presented to Time Warner or its
agent for transfer or reissuance.
(e) The Trust may not redeem fewer than all the outstanding
Preferred Securities on any Optional Redemption Date (it being understood that
at any other time the Preferred Securities may be redeemed only in whole) unless
all accrued and unpaid Distributions have been or are concurrently being paid on
all Preferred Securities for all quarterly Distribution periods terminating on
or prior to the applicable Optional Redemption Date.
(f) If Subordinated Notes are distributed to Holders of the
Preferred Securities, Time Warner, pursuant to the terms of the Indenture, will
use its best efforts to have the Subordinated Notes listed on the New York Stock
Exchange or on such other exchange or self-regulatory organization (including
the NASDAQ National Market System)
- --------------
(5) Insert date of prospectus.
<PAGE>
10
as the Preferred Securities were listed immediately prior to the distribution of
the Subordinated Notes.
(g) (i) Notice of any redemption (other than mandatory
redemption) of, or notice of distribution of Subordinated Notes in exchange for,
the Preferred Securities and Common Securities (a 'Redemption/Distribution
Notice') will be given by the Regular Trustees on behalf of the Trust by mail to
each Holder of Preferred Securities and Common Securities to be redeemed or
exchanged not less than 20 nor more than 45 Business Days prior to the date
fixed for redemption or distribution thereof. For purposes of the calculation of
the date of redemption or exchange and the dates on which notices are given
pursuant to this paragraph (g)(i), a Redemption/Distribution Notice shall be
deemed to be given on the day such notice is first mailed by first-class mail,
postage prepaid, to Holders of Preferred Securities and Common Securities. Each
Redemption/Distribution Notice shall be addressed to the Holders of Preferred
Securities and Common Securities at the address of each such Holder appearing in
the books and records of the Trust. Such Redemption/Distribution Notice shall
set forth the aggregate Stated Amount of Trust Securities to be redeemed, the
applicable Redemption Payment Date, the Call Price or Special Redemption Price,
as the case may be, and in the case of a Special Event, a brief description
thereof. No defect in the Redemption/Distribution Notice or in the mailing of
either thereof with respect to any Holder shall affect the validity of the
redemption or exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding
Preferred Securities are to be redeemed, the Preferred Securities to be redeemed
will be redeemed on a Pro Rata Basis from each Holder of Preferred Securities.
(iii) Payment of the Mandatory Redemption Price, Call Price or
Special Redemption Price (each a 'Redemption Payment Amount') in respect of each
Preferred Security, together with any accrued and unpaid distributions thereon,
is conditioned upon delivery or book-entry transfer of such Preferred Security
(together with necessary endorsements) to the Property Trustee at any time
(whether prior to, on or
<PAGE>
11
after the relevant Redemption Payment Date) after the Redemption/Distribution
Notice is given (to the extent such notice is required). Payment of the
Redemption Payment Amount, together with any accrued and unpaid distributions on
each Preferred Security, will be made by the delivery of cash no later than the
applicable Redemption Payment Date with respect to such Preferred Security or,
if later, the time of delivery or transfer of such Preferred Security.
(iv) If the Trust gives a Redemption/Distribution Notice in
respect of a redemption of Preferred Securities as provided in this paragraph 4
(which notice will be irrevocable), unless Time Warner shall have exercised the
Time Warner Exchange Right, then immediately prior to the close of business on
the redemption date, so long as Time Warner has paid to the Property Trustee in
immediately available funds a sufficient amount of cash in connection with the
related redemption or maturity of the Subordinated Notes, Distributions will
cease to accrue on the Preferred Securities called for redemption, such
Preferred Securities will no longer be deemed to be outstanding and all rights
of Holders of such Preferred Securities so called for redemption will cease,
except the right of the Holders of such Preferred Securities to receive the
Redemption Payment Amount, together with any accrued and unpaid Distributions on
the Preferred Securities being redeemed, but without interest on such amount.
Neither the Trustees nor the Trust shall be required to register or cause to be
registered the transfer of any Preferred Securities which have been so called
for redemption. If any date fixed for redemption of Preferred Securities is not
a Business Day, then payment of the Redemption Payment Amount payable on such
date, together with any accrued and unpaid Distributions to such date, will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If payment of the Redemption Payment Amount
in respect of Preferred Securities, together with any accrued and unpaid
Distributions on such Preferred Securities, is improperly withheld or refused
and not paid either by the Property Trustee or
<PAGE>
12
by Time Warner pursuant to the Guarantee, Distributions on such Preferred
Securities will continue to accrue, from the original redemption date to the
date of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the Redemption Payment
Amount and the amount of any such accrued and unpaid distributions.
(v) Redemption/Distribution Notices shall be sent by the
Regular Trustees on behalf of the Trust to the Holders of the Preferred
Securities.
(vi) Upon the date of dissolution of the Trust and
distribution of Subordinated Notes as a result of the occurrence of a Special
Event, Preferred Security Certificates shall be deemed to represent beneficial
interests in the Subordinated Notes so distributed, and the Preferred Securities
will no longer be deemed outstanding and may be canceled by the Regular
Trustees. The Subordinated Notes so distributed shall have an aggregate
principal amount equal to the aggregate Stated Amount of the Preferred
Securities so distributed.
(vii) Subject to the foregoing and applicable law (including,
without limitation, United States Federal securities laws), Time Warner or any
of its affiliates may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement. Any
such Preferred Securities purchased by Time Warner shall be surrendered to the
Trust for cancellation.
5. Voting Rights. (a) Except as provided under paragraph 5(b)
below and as otherwise required by law and the Declaration, the Holders of the
Preferred Securities will have no voting rights.
(b) (i) If (A) the Trust (1) fails to pay Distributions in
full on the Preferred Securities and such failure continues unremedied for 60
days or (2) fails to pay the Redemption Payment Amount of any Preferred
Securities to be redeemed on the applicable Redemption Payment Date; or (B) an
Event of Default occurs and is continuing (each an 'Appointment Event'), then
the Holders of the Preferred Securities, acting as a single class, will be
entitled by the vote of Holders
<PAGE>
13
of Preferred Securities representing a Majority in Stated Amount of the
Preferred Securities to appoint a Special Regular Trustee in accordance with
Section 5.02(a)(ii)(B) of the Declaration. Any Holder of Preferred Securities
(other than the Sponsor or any Affiliate of the Sponsor) will have the right to
nominate any Person to be appointed as Special Regular Trustee. Not later than
30 days after such right to appoint a Special Regular Trustee arises, the
Regular Trustees will convene a meeting of the Holders of the Preferred
Securities for the purpose of appointing a Special Regular Trustee. If the
Regular Trustees fail to convene such meeting within such 30-day period, the
Holders of Preferred Securities representing not less than 10% in Stated Amount
of the outstanding Preferred Securities will be entitled to convene such meeting
in accordance with Section 12.02 of the Declaration. The record date for such
meeting will be the close of business on the Business Day next preceding the day
on which notice of the meeting is sent to Holders of Preferred Securities. The
provisions of the Declaration relating to the convening and conduct of the
meetings of the Holders will apply with respect to any such meeting. If, at any
such meeting, Holders of less than a Majority in Stated Amount of Preferred
Securities entitled to vote for the appointment of a Special Regular Trustee
vote for such appointment, no Special Regular Trustee shall be appointed. Any
Special Regular Trustee may be removed without cause at any time by the Holders
of Preferred Securities representing a Majority in Stated Amount of the
Preferred Securities in accordance with Section 5.02(a)(ii)(B) of the
Declaration. The Holders of 10% in Stated Amount of the Preferred Securities
will be entitled to convene such a meeting to remove the Special Regular Trustee
in accordance with Section 12.02 of the Declaration. The record date for such
meeting will be the close of business on the Business Day next preceding the day
on which notice of the meeting is sent to Holders of Preferred Securities. Any
Special Regular Trustee appointed shall cease to be a Special Regular Trustee as
provided in Section 5.02(c) of the Declaration. Notwithstanding the appointment
of any such Special Regular Trustee, Time Warner shall retain all its rights
under the Indenture.
<PAGE>
14
(ii) If any proposed amendment to the Declaration provides
for, or the Regular Trustees otherwise propose to effect (A) any action that
would adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise, or (B)
the liquidation, dissolution, winding-up or termination of the Trust, other than
in connection with the distribution of Subordinated Notes held by the Property
Trustee, upon the occurrence of a Special Event or in connection with the
redemption of Preferred Securities as a consequence of a redemption of
Subordinated Notes, then the Holders of outstanding Trust Securities will be
entitled to vote on such amendment or proposal as a class and such amendment or
proposal shall not be effective except with the approval of the Holders of Trust
Securities representing a Majority in Stated Amount of Trust Securities affected
thereby; provided, however, (1) if any amendment or proposal referred to in
clause (A) above would adversely affect only the Preferred Securities or the
Common Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a Majority in Stated Amount of such class of Trust
Securities, (2) the rights of Holders of Preferred Securities under Article V of
the Declaration to appoint and remove a Special Regular Trustee shall not be
amended without the consent of each Holder of Preferred Securities, and (3)
amendments to the Declaration shall be subject to such further requirements as
are set forth in Sections 12.01 and 12.02 of the Declaration.
(iii) In the event the consent of the Property Trustee, as the
holder of the Subordinated Notes, is required under the Indenture with respect
to any amendment, modification or termination of the Indenture or the
Subordinated Notes, the Property Trustee shall request the written direction of
the Holders of the Trust Securities with respect to such amendment, modification
or termination. The Property Trustee shall vote with respect to such amendment,
modification or termination as directed by a Majority in Stated Amount of the
Trust Securities voting together as a single class; provided that where such
amendment, modification or termination of the Indenture or the Subordinated
Notes requires the consent or vote of
<PAGE>
15
(A) holders of Subordinated Notes representing a specified percentage
greater than a majority in principal amount of the Subordinated Notes or (B)
each holder of Subordinated Notes, the Property Trustee may only vote with
respect to that amendment, modification or termination as directed by, in the
case of clause (A) above, the vote of Holders of Trust Securities representing
such specified percentage of the aggregate Stated Amount of the Trust
Securities, or, in the case of clause (B) above, each Holder of Trust
Securities; and provided further that the Property Trustee shall not take any
action in accordance with the directions of the Holders of Trust Securities
unless the Property Trustee shall have received, at the expense of the Sponsor,
an opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that such action will not result in the Trust being
treated as an association taxable as a corporation or a partnership for United
States Federal income tax purposes and that, following such action, each Holder
of Trust Securities will be treated for United States Federal income tax
purposes as owning an undivided beneficial interest in the Subordinated Notes.
(iv) Subject to Section 2.06 of the Declaration, and the
provisions of this and the next succeeding paragraph, the Holders of a Majority
in Stated Amount of the Preferred Securities, voting separately as a class,
shall have the right to (A) on behalf of all Holders of Preferred Securities,
waive any past default that is waivable under the Declaration (subject to, and
in accordance with the Declaration) and (B) direct the time, method, and place
of conducting any proceeding for any remedy available to the Property Trustee,
or to direct the exercise of any trust or power conferred upon the Property
Trustee under the Declaration, including the right to direct the Property
Trustee, as the holder of the Subordinated Notes, to (1) direct the time, method
and place of conducting any proceeding for any remedy available to the Indenture
Trustee, or exercising any trust or power conferred on the Indenture Trustee
with respect to the Subordinated Notes, (2) waive any past default that is
waivable under Section 6.06 of the Indenture or (3) exercise any right to
rescind or annul a declaration that the principal of all the Subordinated Notes
shall be due and payable; provided that where the taking of any
<PAGE>
16
action under the Indenture requires the consent or vote of (x) holders of
Subordinated Notes representing a specified percentage greater than a majority
in principal amount of the Subordinated Notes or (y) each holder of Subordinated
Notes, the Property Trustee may only take such action if directed by, in the
case of clause (x) above, the vote of Holders of Preferred Securities
representing such specified percentage of the aggregate Stated Amount of the
Preferred Securities, or, in the case of clause (y) above, each Holder of
Preferred Securities. The Property Trustee shall not revoke any action
previously authorized or approved by a vote of the Holders of the Preferred
Securities. The Property Trustee shall not take any of the foregoing actions at
the direction of the Holders of Preferred Securities unless the Property Trustee
shall have received, at the expense of the Sponsor, an opinion of nationally
recognized independent tax counsel experienced in such matters to the effect
that such action will not result in the Trust being treated for United States
Federal income tax purposes as an association taxable as a corporation or a
partnership and that, following such action, each Holder of Trust Securities
will be treated for United States Federal income tax purposes as owning an
undivided beneficial interest in the Subordinated Notes. If the Property Trustee
fails to enforce its rights under the Declaration (including its rights, powers
and privileges as a holder of the Subordinated Notes under the Indenture), any
Holder of Preferred Securities may, after a period of 30 days has elapsed from
such Holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against Time Warner to enforce the
Property Trustee's rights under the Declaration, without first instituting a
legal proceeding against the Property Trustee or any other Person.
(v) A waiver of an Indenture Event of Default by the Property
Trustee at the direction of the Holders of the Preferred Securities will
constitute a waiver of the corresponding Event of Default under the Declaration
in respect of the Trust Securities.
(vi) Any required approval or direction of Holders of
Preferred Securities may be given at a separate meeting of Holders of Preferred
Securities convened for such purpose, at a meeting of all of the Holders of
Trust
<PAGE>
17
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which Holders of Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such Holders is
to be taken, to be mailed to each Holder of record of Preferred Securities. Each
such notice will include a statement setting forth (A) the date of such meeting
or the date by which such action is to be taken, (B) a description of any
resolution proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is sought and (C)
instructions for the delivery of proxies or consents.
(vii) No vote or consent of the Holders of Preferred
Securities will be required for (A) the Trust to redeem and cancel Preferred
Securities in accordance with the Declaration and (B) Time Warner to exercise
the Time Warner Exchange Right.
(viii) Notwithstanding that Holders of Preferred Securities
are entitled to vote or consent under any of the circumstances described above,
any of the Preferred Securities at such time that are owned by Time Warner or by
any entity directly or indirectly controlling or controlled by or under direct
or indirect common control with Time Warner shall not be entitled to vote or
consent and shall, for purposes of such vote or consent, be treated as if they
were not outstanding.
(ix) Except as provided in this paragraph 5, Holders of the
Preferred Securities will have no rights to increase or decrease the number of
Trustees or to appoint, remove or replace a Trustee, which voting rights are
vested solely in the Holders of the Common Securities.
6. Pro Rata Treatment. A reference in these terms of the
Preferred Securities to any payment, distribution or treatment as being made on
a 'Pro Rata Basis' shall mean, with respect to such payment, distribution or
treatment, pro rata to each Holder of Trust Securities according to the
aggregate Stated Amount of the Trust Securities held by such Holder in relation
to the aggregate Stated Amount of all Trust Securities outstanding; provided,
however, that if the assets of the Trust are insufficient to make such payment
in full as a result of a default with respect to the Subordinated Notes, any
funds available to make such payment shall be paid (i) first to each Holder of
the Preferred Securities pro
<PAGE>
18
rata according to the aggregate Stated Amount of Preferred Securities held by
such Holder in relation to the aggregate Stated Amount of all Preferred
Securities outstanding up to an aggregate amount equal to the amount then owed
to the Holders of the Preferred Securities, and (ii) only after satisfaction of
all amounts owed to the Holders of the Preferred Securities, to each Holder of
Common Securities pro rata according to the aggregate Stated Amount of Common
Securities held by such Holder in relation to the aggregate Stated Amount of all
Common Securities outstanding.
7. Ranking. The Preferred Securities rank pari passu , and
payments will be made thereon on a Pro Rata Basis, with the Common Securities,
except that if, as a result of an Event of Default with respect to the
Subordinated Notes, the assets of the Trust are insufficient to make payments of
Distributions or payments upon liquidation, redemption of the Trust Securities
or otherwise, the rights of Holders of the Common Securities to receive such
payments will be subordinated to the rights of the Holders of the Preferred
Securities.
8. Mergers, Consolidations or Amalgamations. The Trust may not
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets to, any corporation or other body.
9. Transfer, Exchange, Method of Payments. Payment of
Distributions and payments on redemption of the Preferred Securities or on
dissolution of the Trust will be payable, the transfer of the Preferred
Securities will be registrable, and Preferred Securities will be exchangeable
for Preferred Securities of other denominations of a like aggregate Stated
Amount, at the principal corporate trust office of the Property Trustee in The
City of New York; provided that payment of Distributions may be made at the
option of the Regular Trustees on behalf of the Trust by check mailed to the
address of the persons entitled thereto and that the payment on redemption of
any Preferred Security or on dissolution of the Trust will be made only upon
surrender of such Preferred Security to the Property Trustee.
10. Acceptance of Indenture and Guarantee and Certain Other
Matters. Each Holder of Preferred Securities, by the acceptance thereof, agrees
(a) to the provisions of (i) the Guarantee, including the
<PAGE>
19
subordination provisions therein and (ii) the Indenture and the Subordinated
Notes, including the subordination provisions of the Indenture and (b) to treat
the Subordinated Notes as debt instruments for United States Federal, state and
local income and franchise tax purposes and not to take any contrary position
before any taxing authority or on any tax return.
11. No Preemptive Rights. The Holders of Preferred Securities
shall have no preemptive rights to subscribe to any additional Preferred
Securities or Common Securities.
12. Miscellaneous. These terms shall constitute a part of the
Declaration. The Regular Trustees will provide a copy of the Declaration, the
Guarantee and the Indenture to a Holder without charge on written request to the
Trust at its principal place of business.
13. Time Warner Exchange Right. The Holders of Preferred
Securities acknowledge the rights of Time Warner in connection with the Time
Warner Exchange Right as set forth in the Guarantee.
Annex I
Certificate Number Number of Preferred Securities
B-1
CUSIP NO. [ ]
Certificate Evidencing Preferred Securities
of
Time Warner Financing Trust
$[ ] Preferred Exchangeable
Redemption Cumulative Securities
Time Warner Financing Trust, a statutory business trust formed
under the laws of the State of Delaware (the 'Trust'), hereby certifies that
(the 'Holder') is the registered owner of ( ) preferred securities of
the Trust representing undivided beneficial interests in the assets of the Trust
designated the $[ ] Preferred Exchangeable Redemption Cumulative Securities (the
'Preferred Securities'). The Preferred Securities are transferable on the books
and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer. The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities are set forth in, and this certificate
and the Preferred Securities represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the Amended and Restated
Declaration of Trust of the Trust dated as of , 1995, as the same may be
amended from time to time (the 'Declaration') including the designation of the
terms of Preferred Securities as set forth in Exhibit B thereto. The Preferred
Securities and the Common Securities issued by the Trust pursuant to the
Declaration represent undivided beneficial interests in the assets of the Trust,
including the Subordinated Notes (as defined in the Declaration) issued by
Time Warner Inc., a Delaware corporation ('Time Warner'), to the Trust pursuant
to the Indenture referred to in the Declaration. The Holder is entitled to the
benefits of the Guarantee Agreement of Time Warner dated as of , 1995 (the
'Guarantee') to the extent provided therein. The Regular Trustees will furnish
a copy of the Declaration, the Guarantee and the Indenture to the Holder without
charge upon written request to the Trust at its principal place of business
or registered office.
<PAGE>
2
The Holder of this Certificate, by accepting this Certificate,
is deemed to have (i) agreed to the terms of the Indenture and the Subordinated
Notes, including that the Subordinated Notes are (a) subordinate and junior in
right of payment to all Senior Indebtedness (as defined in the Indenture,
which term includes Time Warner's outstanding 8-3/4% Convertible Subordinated
Debentures due 2015) as and to the extent provided in the Indenture and
(ii) agreed to the terms of the Guarantee, including that the Guarantee is (a)
subordinate and junior in right of payment to all other liabilities of Time
Warner, including the Subordinated Notes, except those made pari passu or
subordinate by their terms, (b) pari passu with the most senior preferred stock
issued from time to time, by Time Warner and any guarantee now or hereafter
entered into by Time Warner in respect of any such preferred stock and (c)
senior to all common stock now or hereafter issued by Time Warner and to any
guarantee now or hereafter entered into by Time Warner in respect of any of its
common stock.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, Trustees of the Trust have executed this
certificate this day of , 1995.
TIME WARNER FINANCING TRUST,
by
________________________, as trustee
Name:
Title: Trustee
by
________________________, as trustee
Name:
Title: Trustee
<PAGE>
3
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
agent to transfer this Preferred Security Certificate on the
books of the Trust. The agent may substitute another to act
for him or her.
Date: ______________________
Signature: _________________
(Sign exactly as your name appears on the other side of this
Preferred Security Certificate)
EXHIBIT C
TERMS OF
COMMON SECURITIES
Pursuant to Section 7.01 of the Amended and Restated
Declaration of Trust of Time Warner Financing Trust (the 'Trust') dated as of
[ ], 1995 (as amended from time to time, the 'Declaration'), the designations
rights, privileges, restrictions, preferences and other terms and provisions of
the Common Securities are set forth below (each capitalized term used but not
defined herein having the meaning set forth in the Declaration):
SECTION 1. Designation and Number. Common Securities of the
Trust with an aggregate Stated Amount in the assets of the Trust of
($ ) and a Stated Amount in the assets of the Trust of $[ ] per Common Security,
are hereby designated as '$[ ] Common Securities'. The Common Security
Certificates evidencing the Common Securities shall be substantially in the form
attached hereto as Annex I, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice. The Common
Securities are to be issued and sold to Time Warner Inc. ('Time Warner') in
consideration of $[ ] in cash. The Trust will invest the gross proceeds from the
issuance of the Common Securities together with the gross proceeds from the
issuance of the Preferred Securities in Subordinated Notes of Time Warner having
an aggregate principal amount equal to $[ ], and bearing interest at an annual
percentage rate equal to the annual distribution rate on the Preferred
Securities and Common Securities and having payment and redemption provisions
that correspond to the payment and redemption provisions of the Preferred
Securities and Common Securities.
SECTION 2. Distributions. (a) Periodic distributions payable
on each Common Security will be fixed at a rate per annum of $[ ] (the 'Coupon
Rate') per Common Security. Distributions in arrears for more than one quarter
will bear interest at the rate per annum of % thereof (to the extent permitted
by applicable law), compounded quarterly. The term 'Distributions' as used in
these terms means such periodic cash distributions and any such interest payable
unless otherwise stated. A Distribution will be made by the Property Trustee
only to the extent that interest payments are made in respect of the
Subordinated Notes held by the Property Trustee. The amount of Distributions
(or amounts equal to accrued and unpaid
<PAGE>
2
Distributions) payable for any period will be computed (i) for any full
quarterly Distribution period, on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly Distribution period,
on the basis of a 360-day year of twelve 30-day months and on the basis of the
actual number of days elapsed in any such 30-day month.
(b) Distributions on the Common Securities will be cumulative,
will accrue from and including [ ], 1995,(1) and will be payable
quarterly in arrears, on March 30, June 30, September 30 and December 30 of each
year, commencing on September 30, 1995, except as otherwise described below, but
only if and to the extent that interest payments are made in respect of the
Subordinated Notes held by the Property Trustee.
(c) Distributions on the Common Securities will be payable
promptly by the Property Trustee (or other Paying Agent) upon receipt of
immediately available funds to the Holders thereof as they appear on the books
and records of the Trust on the relevant record dates which will be the March
15, June 15, September 15 and December 15 prior to the relevant Distribution
dates which record and payment dates correspond to the record and interest
payment dates on the Subordinated Notes. Distributions payable on any Common
Securities that are not punctually paid on any Distribution date as a result of
Time Warner having failed to make the corresponding interest payment on the
Subordinated Notes will forthwith cease to be payable to the person in whose
name such Common Security is registered on the relevant record date, and such
defaulted Distribution will instead be payable to the person in whose name such
Common Security is registered on the special record date established by the
Regular Trustees, which record date shall correspond to the special record date
or other specified date determined in accordance with the Indenture. Subject to
any applicable laws and regulations and the provisions of the Declaration, each
payment in respect of the Common Securities will be made as described in
paragraph 9 hereof. If any date on which Distributions are payable on the Common
Securities is not a Business Day, then payment of the Distribution payable on
such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except that
if such Business Day
- --------
(1) Insert date of issue.
<PAGE>
3
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
(d) All Distributions paid with respect to the Common
Securities and the Preferred Securities will be paid on a Pro Rata Basis to the
Holders thereof entitled thereto.
(e) In the event that there is any money or other property
held by or for the Trust that is not accounted for under the Declaration or the
terms of the Preferred Securities or these terms of the Common Securities, such
money or property shall be distributed on a Pro Rata Basis among the Holders of
the Preferred Securities and Common Securities.
3. Liquidation Distribution Upon Dissolution. In the event of
any voluntary or involuntary liquidation, dissolution, winding-up or termination
of the Trust (each a 'Liquidation Event'), the Holders of the Trust Securities
on the date of such Liquidation Event will be entitled to be paid on a Pro Rata
Basis out of the assets of the Trust the Liquidation Distribution in connection
with such Liquidation Event unless Subordinated Notes in an aggregate principal
amount equal to the aggregate Stated Amount of, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on, the
Trust Securities have been distributed on a Pro Rata Basis (determined without
regard to the proviso in the definition of such term) to the Holders of the
Trust Securities in exchange for such Trust Securities. The 'Liquidation
Distribution' will be equal to (a)(i) if such Liquidation Event occurs at the
stated maturity of the Subordinated Notes, the Mandatory Redemption Price, (ii)
if such Liquidation Event occurs in connection with the optional redemption of
the Subordinated Notes, the Call Price, (iii) if such Liquidation Event occurs
in connection with the special redemption of the Subordinated Notes, the Special
Redemption Price and (iv) if such Liquidation Event occurs in connection with an
acceleration of the Subordinated Notes in any other circumstance, the Note
Acceleration Price (as defined in the Indenture), in each case plus (b) the
amount of accrued and unpaid Distributions on the Trust Securities to but
excluding the date of payment. In addition, in the event that the assets of the
Trust exceed the amount necessary to pay to all holders of
<PAGE>
4
the Trust Securities the full amount of the Liquidation Distribution, such
excess will be paid to the holders of the Trust Securities on a Pro Rata Basis
(determined without regard to the proviso in the definition of such term).
SECTION 4. Redemption and Distribution of Subordinated Notes.
The Trust Securities may only be redeemed if Subordinated Notes having an
aggregate principal amount equal to the aggregate Stated Amount of the {Trust
Securities are repaid, redeemed or distributed as set forth below:
(a) Subject to the exercise by Time Warner of the Time Warner
Exchange Right with respect to the Preferred Securities, on December 23, 1997
(the 'Mandatory Redemption Date'), each of the Trust Securities then outstanding
will be redeemed (on a Pro Rata Basis) by the Trust, in cash, at a mandatory
redemption price per Trust Security equal to (i) the lesser of (A) $54.41 and
(B) the Exchange Valuation Price, on the Trading Day immediately preceding
December 17, 1997 of such amount of Exchange Property (which as of the date of
this Declaration consists of one share of Hasbro Common Stock for each Preferred
Security) as relates to one Preferred Security at such time (determined by
reference only to the Exchange Property and the Preferred Securities) (the
'Mandatory Redemption Price') plus (ii) an amount equal to all accrued and
unpaid Distributions on such Trust Security to but excluding the Mandatory
Redemption Date.
(b) At any time and from time to time prior to the Mandatory
Redemption Date, upon the call for redemption prior to maturity by Time Warner
of the Subordinated Notes, the proceeds of such redemption shall be promptly
applied to redeem , and the Trust shall call for redemption, on a Pro Rata
Basis, Trust Securities having an aggregate Stated Amount equal to the aggregate
principal amount of the Subordinated Notes so redeemed, upon not less than 20
nor more than 45 Business Days' notice, and deliver to the Holders thereof in
exchange for each Trust Security so called for redemption, subject to the
exercise of the Time Warner Exchange Right with respect to the Preferred
Securities, cash in an amount equal to the Call Price in effect on the date of
redemption (the 'Optional Redemption Date'), plus cash in an amount equal to all
accrued and unpaid Distributions on such Trust Security, whether or not
declared, for the period to but excluding the Optional Redemption Date. The
'Call Price' is equal to (a) $54.41 per Trust Security plus (b) an amount
initially equal to
<PAGE>
5
$[ ] per Trust Security, declining by $[ ] for each day that shall have elapsed
in the period from the Issue Date to but excluding the Optional Redemption Date
(the number of days in such period being computed on the basis of a 360-day year
of twelve 30-day months) to $0 on October 23, 1997, and thereafter. The date of
any such redemption of Common Securities and Preferred Securities shall be
established to coincide with the redemption date of the Subordinated Notes.
(c) If fewer than all the outstanding Trust Securities are to
be so redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and
the Common Securities to be redeemed will be redeemed as described in paragraph
4(f)(ii) below. If a partial redemption would result in the delisting of the
Preferred Securities by any national securities exchange or other
self-regulatory organization (including the NASDAQ National Market System) on
which the Preferred Securities are then listed, Time Warner pursuant to the
Indenture will only redeem the Subordinated Notes in whole and, as a result, the
Trust may only redeem the Common Securities in whole.
(d) (i) If, at any time, a Tax Event or an Investment Company
Event (each as hereinafter defined, and each a 'Special Event') shall occur and
be continuing, the Regular Trustees shall notify Time Warner thereof and Time
Warner shall elect to either (A) direct the Regular Trustees to dissolve the
Trust and cause Subordinated Notes having an aggregate principal amount equal to
the aggregate Stated Amount of, and accrued and unpaid interest equal to accrued
and unpaid Distributions on, and having the same record date for payment as, the
Trust Securities outstanding at such time, to be distributed to the Holders of
the Trust Securities on a Pro Rata Basis in liquidation of such Holders'
interests in the Trust, within 90 days following the occurrence of such Special
Event , provided, however, that in the case of the occurrence of a Tax Event, as
a condition of any such dissolution and distribution, the Regular Trustees shall
have received an opinion of nationally recognized independent tax counsel
experienced in such matters (a 'No Recognition Opinion'), which opinion may rely
on any then applicable published revenue ruling of the Internal Revenue Service,
to the effect that the Holders of the Preferred Securities will not recognize
any gain or loss for United States Federal income tax
<PAGE>
6
purposes as a result of the dissolution of the Trust and distribution of
Subordinated Notes; (B) to redeem the Subordinated Notes in accordance with the
Indenture and the Trust Securities as described under paragraph (ii) below or
(C) in the case of a Tax Event, allow the Subordinated Notes and the Trust
Securities to remain outstanding and indemnify the Trust for all taxes payable
by it as a result of such change in law or interpretation; provided that, if and
as long as at the time there is available to the Trust the opportunity to
eliminate, within 90 days following the occurrence of such Special Event (the
'90-Day Period'), the Special Event by taking some ministerial action, such as
filing a form or making an election, or pursuing some other similar reasonable
measure that has no adverse effect on the Trust, Time Warner or the Holders of
the Trust Securities (a 'Ministerial Action'), the Trust will pursue such
measure in lieu of dissolution or redemption; provided further , that Time
Warner shall have no right to redeem the Subordinated Notes or to direct the
Regular Trustees to dissolve the Trust while the Regular Trustees are pursuing
such Ministerial Action unless the Special Event shall not have been so
eliminated by the 85th day following the occurrence thereof, in which case Time
Warner shall be permitted to so direct the Regular Trustees or to provide notice
to the holders of the redemption of the Subordinated Notes{; provided further,
that if dissolution of the Trust and distribution of the Subordinated Notes to
the holders of the Trust Securities would eliminate the condition causing the
Tax Event or the Investment Company Event and all other conditions to such
dissolution and distribution have been satisfied, Time Warner will not be
permitted to redeem the Subordinated Notes at the Special Redemption Price; and
provided further, that Time Warner shall not be permitted to direct the Regular
Trustees to dissolve the Trust and distribute the Subordinated Notes to the
holders of the Trust Securities upon the occurrence of the condition described
in clause (2) in the definition of 'Tax Event' if, after giving effect to such
dissolution and distribution, Time Warner would not be permitted to deduct a
greater percentage of the interest payable on the Subordinated Notes than it had
been permitted to deduct for United States Federal income tax purposes prior to
the occurrence of such Tax Event.
<PAGE>
7
(ii) Subject to the exercise of the Time Warner Exchange Right
with respect to the Preferred Securities, upon the occurrence and continuation
of a Tax Event or an Investment Company Event, Time Warner shall have the right
to redeem the Subordinated Notes in whole (but not in part), upon not less than
20 nor more than 45 Business Days' notice, within the 90-Day Period (such date
of redemption a 'Special Redemption Date'), in which case the Trust shall
(unless the Trust shall have been dissolved) redeem in cash Trust Securities
having an aggregate Stated Amount equal to the aggregate principal amount of the
Subordinated Notes so redeemed, at a price per Trust Security equal to (A) the
lesser of (1) $54.41 and (2) the Exchange Valuation Price on the Trading Day
immediately preceding such Special Redemption Date of the amount of Exchange
Property that relates to one Preferred Security at such time (determined by
reference only to the Exchange Property and the Preferred Securities and based
on the Exchange Rate in effect as of such Trading Day), plus (B) an amount
initially equal to $[ ] per Trust Security, declining by $[ ] on each day
following the issue date (computed on the basis of a 360-day year of twelve
30-day months) to $0 on October 23, 1997, and thereafter (such price the
'Special Redemption Price'), plus an amount equal to all accrued and unpaid
distributions on such Trust Security to but excluding the Special Redemption
Date. The Common Securities and the Preferred Securities will be redeemed on a
Pro Rata Basis.
(iii) 'Tax Event' means that the Regular Trustees shall have
obtained an opinion of nationally recognized independent tax counsel experienced
in such matters (a 'Dissolution Tax Opinion') to the effect that on or after
July [ ], 1995,(2) as a result of (A) any amendment to, or change (including
any announced prospective change) in, the laws (or any regulations thereunder)
of the United States or any political subdivision or taxing authority thereof or
therein, (B) any amendment to, or change in, an interpretation or application of
any such laws or regulations by any legislative body, court, governmental agency
or regulatory authority (including the enactment of any legislation and the
publication of any judicial
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(2) Insert date of prospectus.
<PAGE>
8
decision or regulatory determination), (C) any interpretation or pronouncement
that provides for a position with respect to such laws or regulations that
differs from the theretofore generally accepted position or (D) any action taken
by any governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after [ ], 1995,(3) there is more than an insubstantial risk that at
such time or within 90 days of the date thereof (1) the Trust is, or would be,
subject to United States Federal income tax with respect to income accrued or
received on the Subordinated Notes, (2) less than 25% of the interest payable by
Time Warner to the Trust on the Subordinated Notes is , or would be, deductible
by Time Warner for United States Federal income tax purposes, (3) the Trust is,
or would be, subject to more than a de minimis amount of other taxes, duties or
other governmental charges or (4) as a result of the issuance of the Preferred
Securities and/or the Subordinated Notes Time Warner (or an affiliate of Time
Warner) is or would be treated as having disposed for United States Federal
income tax purposes of the Hasbro Common Stock owned by it .
(iv) 'Investment Company Event' means that the Regular
Trustees shall have received an opinion of nationally recognized independent
counsel experienced in such matters that, as a result of the occurrence of a
change in law or regulation or a written change in interpretation or application
of law or regulation by any legislative body, court, governmental agency or
regulatory authority (a 'Change in 1940 Act Law'), there is more than an
insubstantial risk that the Trust is or will be considered an Investment Company
that is required to be registered under the Investment Company Act, which Change
in 1940 Act Law becomes effective on or after July [ ], 1995.(4)
(v) On the date fixed for any distribution of Subordinated
Notes, upon dissolution of the Trust,
- --------
(3) Insert date of prospectus.
(4) Insert date of prospectus.
<PAGE>
9
(i) the Common Securities will no longer be deemed to be outstanding, (ii) the
Trust shall not have any further obligation to the holders of the Common
Securities with respect to the Common Securities and (iii) certificates
representing Common Securities will be deemed to represent beneficial interests
in the Subordinated Notes having an aggregate principal amount equal to the
aggregate Stated Amount of, and bearing accrued and unpaid interest equal to
accrued and unpaid Distributions on, such Common Securities until such
certificates are presented to Time Warner or its agent for transfer or
reissuance.
(e) The Trust may not redeem fewer than all the outstanding
Common Securities unless all accrued and unpaid Distributions have been or are
concurrently being paid on all Common Securities for all quarterly Distribution
periods terminating on or prior to the date of redemption.
(f) (i) Notice of any redemption (other than a mandatory
redemption) of, or notice of distribution of Subordinated Notes in exchange for,
the Preferred Securities and Common Securities (a 'Redemption/Distribution
Notice') will be given by the Regular Trustees on behalf of the Trust by mail to
each Holder of Preferred Securities and Common Securities to be redeemed or
exchanged not less than 20 nor more than 45 Business Days prior to the date
fixed for redemption or distribution thereof. For purposes of the calculation of
the date of redemption or exchange and the dates on which notices are given
pursuant to this paragraph (f)(i), a Redemption/Distribution Notice shall be
deemed to be given on the day such notice is first mailed by first-class mail,
postage prepaid, to Holders of Preferred Securities and Common Securities. Each
Redemption/Distribution Notice shall be addressed to the Holders of Preferred
Securities and Common Securities at the address of each such Holder appearing in
the books and records of the Trust. Such Redemption/Distribution Notice shall
set forth the aggregate Stated Amount of Trust Securities to be redeemed, the
applicable Redemption Payment Date, the Call Price or Special Redemption Price,
as the case may be, and, in the case of a Special Event, a brief description
thereof. No defect in the Redemption/ Distribution Notice or in the mailing of
either thereof with respect to any Holder shall affect the validity of
<PAGE>
10
the redemption or exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Common
Securities are to be redeemed, the Common Securities to be redeemed will be
redeemed on a Pro Rata Basis from each Holder of Common Securities .
(iii) Payment of the Mandatory Redemption Price, Call Price or
Special Redemption Price (each a 'Redemption Payment Amount') in respect of each
Common Security, together with any accrued and unpaid Distributions thereon, is
conditioned upon delivery or book-entry transfer of such Common Security
(together with necessary endorsements) to the Property Trustee at any time
(whether prior to, on or after the relevant Redemption Payment Date) after the
Redemption/Distribution Notice is given (to the extent such notice is required).
Payment of the Redemption Payment Amount, together with any accrued and unpaid
distributions on each Common Security, will be made by the delivery of cash no
later than the applicable Redemption Payment Date with respect to such Common
Security or, if later, the time of delivery or transfer of such Common Security.
(iv) If the Trust gives a Redemption/Distribution Notice in
respect of a redemption of Common Securities as provided in this paragraph 4
(which notice will be irrevocable) then immediately prior to the close of
business on the redemption date, provided that Time Warner has paid to the
Property Trustee in immediately available funds a sufficient amount of cash in
connection with the related redemption or maturity of the Subordinated Notes,
Distributions will cease to accrue on the Common Securities called for
redemption, such Common Securities will no longer be deemed to be outstanding
and all rights of Holders of such Common Securities so called for redemption
will cease, except the right of the Holders of such Common Securities to receive
the Redemption Payment Amount, together with any accrued and unpaid
Distributions on the Common Securities being redeemed, but without interest on
such amount. Neither the Trustees nor the Trust shall be required to register or
cause to be registered the transfer of any Common Securities which have been so
called for
<PAGE>
11
redemption. If any date fixed for redemption of Common Securities is not a
Business Day, then payment of the Redemption Payment Amount payable on such
date, together with any accrued and unpaid Distributions to such date, will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date fixed for redemption. If payment of the Redemption Payment Amount
in respect of Common Securities{, together with any accrued and unpaid
Distributions on such Common Securities, is improperly withheld or refused and
not paid by the Property Trustee, Distributions on such Common Securities will
continue to accrue, from the original redemption date to the date of payment, in
which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Payment Amount and the
amount of any such accrued and unpaid Distributions.
(v) Redemption/Distribution Notices shall be sent by the
Regular Trustees on behalf of the Trust to the Holders of the Common Securities.
(vi) Upon the date of dissolution of the Trust and
distribution of Subordinated Notes as a result of the occurrence of a Special
Event, Common Security Certificates shall be deemed to represent beneficial
interests in the Subordinated Notes so distributed, and the Common Securities
will no longer be deemed outstanding and may be canceled by the Regular
Trustees. The Subordinated Notes so distributed shall have an aggregate
principal amount equal to the aggregate Stated Amount of the Common Securities
so distributed.
SECTION 5. Voting Rights. (a) Except as provided under
paragraph 5(b) below and as otherwise required by law and the Declaration, the
Holders of the Common Securities will have no voting rights.
(b) (i) Except as provided in the Declaration with respect to
a Special Regular Trustee, Holders of Common Securities have the sole right
under the Declaration to increase or decrease the number of Trustees, and to
appoint,
<PAGE>
12
remove or replace a Trustee, any such increase, decrease, appointment, removal
or replacement to be approved by Holders of Common Securities representing a
Majority in Stated Amount of the Common Securities.
(ii) If any proposed amendment to the Declaration provides
for, or the Regular Trustees otherwise propose to effect (A) any action that
would adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise, or (B)
the liquidation, dissolution, winding-up or termination of the Trust, other than
in connection with the distribution of Subordinated Notes held by the Property
Trustee, upon the occurrence of a Special Event or in connection with the
redemption of Common Securities as a consequence of a redemption of Subordinated
Notes, then the Holders of outstanding Trust Securities will be entitled to vote
on such amendment or proposal as a class and such amendment or proposal shall
not be effective except with the approval of the Holders of Trust Securities
representing a Majority in Stated Amount of such securities affected thereby;
provided, however, (1) if any amendment or proposal referred to in clause (A)
above would adversely affect only the Preferred Securities or the Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a Majority in Stated Amount of such class of Trust
Securities, (2) the rights of Holders of Common Securities under Article V of
the Declaration to increase or decrease the number of, and to appoint, replace
or remove, Trustees (other than a Special Regular Trustee) shall not be amended
without the consent of each Holder of Common Securities and (3) amendments to
the Declaration shall be subject to such further requirements as are set forth
in Sections 12.01 and 12.02 of the Declaration.
(iii) In the event the consent of the Property Trustee as the
holder of the Subordinated Notes, is required under the Indenture with respect
to any amendment, modification or termination of the Indenture or the
Subordinated Notes, the Property Trustee shall request the written direction of
the Holders of the Trust Securities with respect to such amendment, modification
or termination. The Property Trustee shall vote with respect to such amendment,
modification or termination as directed by a Majority in Stated Amount of the
Trust Securities voting together as a single class; provided that where such
<PAGE>
13
amendment, modification or termination of the Indenture or the Subordinated
Notes requires the consent or vote of (1) holders of Subordinated Notes
representing a specified percentage greater than a majority in principal amount
of the Subordinated Notes or (2) each holder of Subordinated Notes, the Property
Trustee may only vote with respect to that amendment, modification or
termination as directed by, in the case of clause (1) above, the vote of Holders
of Trust Securities representing such specified percentage of the aggregate
Stated Amount of the Trust Securities, or, in the case of clause (2) above, each
Holder of Trust Securities; and provided further, that the Property Trustee
shall not take any action in accordance with the directions of the Holders of
the Trust Securities unless the Property Trustee shall have received, at the
expense of the Sponsor, an opinion of nationally recognized independent tax
counsel experienced in such matters to the effect that such action will not
result in the Trust being treated as an association taxable as a corporation or
a partnership for United States Federal income tax purposes and that, following
such action, each holder of Trust Securities will be treated for United States
Federal income tax purposes as owning an undivided beneficial interest in the
Subordinated Notes.
(iv) Subject to Section 2.06 of the Declaration, and the
provisions of this and the next succeeding paragraph, the Holders of a Majority
in Stated Amount of the Common Securities, voting separately as a class, shall
have the right to (A) on behalf of all Holders of Common Securities, waive any
past default that is waivable under the Declaration (subject to, and in
accordance with the Declaration) and (B) direct the time, method, and place of
conducting any proceeding for any remedy available to the Property Trustee, or
to direct the exercise of any trust or power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee, as
holder of the Subordinated Notes, to (1) direct the time, method and place of
conducting any proceeding for any remedy available to the Indenture Trustee, or
exercising any trust or power conferred on the Indenture Trustee with respect to
the Subordinated Notes, (2) waive any past default and its consequences that is
waivable under Section 6.06 of the Indenture, or (3) exercise any right to
rescind or annul a declaration that the principal of all the Subordinated Notes
shall be due and payable; provided that where the taking of any action under the
Indenture requires the consent or vote of (x) holders of Subordinated
<PAGE>
14
Notes representing a specified percentage greater than a majority in principal
amount of the Subordinated Notes or (y) each holder of Subordinated Notes, the
Property Trustee may only take such action if directed by, in the case of clause
(x) above, the vote of Holders of Common Securities representing such specified
percentage of the aggregate {Stated Amount of the Common Securities, or, in the
case of clause (y) above, each Holder of Common Securities. Pursuant to this
paragraph, the Property Trustee shall not revoke, or take any action
inconsistent with, any action previously authorized or approved by a vote of the
Holders of the Preferred Securities, and shall not take any action in accordance
with the direction of the Holders of the Common Securities under this paragraph
if the action is prejudicial to the Holders of Preferred Securities. The
Property Trustee shall not take any of the foregoing actions at the direction of
the Holders of Common Securities unless the Property Trustee shall have
received, at the expense of the Sponsor, an opinion of nationally recognized
independent tax counsel experienced in such matters to the effect that such
action will not result in the Trust being treated as an association taxable as a
corporation or a partnership for United States Federal income tax purposes and
that, following such action, each Holder of Trust Securities will be treated for
United States Federal income tax purposes as owning an undivided beneficial
interest in the Subordinated Notes.
(c) (i) Notwithstanding any other provision of these terms,
each Holder of Common Securities will be deemed to have waived any Event of
Default with respect to the Common Securities and its consequences until Events
of Default with respect to the Preferred Securities have been cured, waived by
the Holders of Preferred Securities as provided in the Declaration or otherwise
eliminated, and until all Events of Default with respect to the Preferred
Securities have been so cured, waived by the Holders of Preferred Securities or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of Preferred Securities and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of the Declaration or of the Trust Securities. In the
event that any Event of Default with respect to the Preferred Securities is
waived by the Holders of Preferred Securities as provided in the Declaration,
the Holders of Common Securities agree that such waiver shall also constitute
the waiver of such Event of Default with respect to the Common
<PAGE>
15
Securities for all purposes under the Declaration without any further act, vote
or consent of the Holders of the Common Securities.
(ii) A waiver of an Indenture Event of Default by the Property
Trustee at the direction of the Holders of the Preferred Securities will
constitute a waiver of the corresponding Event of Default under the Declaration
in respect of the Trust Securities.
(d) Any required approval of Holders of Common Securities may
be given at a separate meeting of Holders of Common Securities convened for such
purpose, at a meeting of all of the Holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which Holders of Common Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to be mailed to
each Holder of record of Common Securities. Each such notice will include a
statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
(e) No vote or consent of the Holders of Common Securities
will be required for the Trust to redeem and cancel Common Securities in
accordance with the Declaration.
6. Pro Rata Treatment. A reference in these terms of the
Common Securities to any payment, distribution or treatment as being made on a
'Pro Rata Basis' shall mean, with respect to such payment, distribution or
treatment, pro rata to each Holder of Trust Securities according to the
aggregate Stated Amount of the Trust Securities held by such Holder in relation
to the aggregate Stated Amount of all Trust Securities outstanding; provided,
however, that if the assets of the Trust are insufficient to make such payment
in full as a result of a default with respect to the Subordinated Notes, any
funds available to make such payment shall be paid (a) first to each Holder of
the Preferred Securities pro rata according to the aggregate Stated Amount of
Preferred Securities held by such Holder in relation to the aggregate Stated
Amount of all Preferred Securities outstanding up to an aggregate amount equal
to the amount
<PAGE>
16
then owed to the Holders of the Preferred Securities, and (b) only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate Stated
Amount of Common Securities held by such Holder in relation to the aggregate
Stated Amount of all Common Securities outstanding.
7. Ranking. The Common Securities rank pari passu , and
payments will be made thereon on a Pro Rata Basis with, the Preferred
Securities, except that if, as a result of an Event of Default with respect to
the Subordinated Notes, the assets of the Trust are insufficient to make
payments of Distributions or payments upon liquidation, redemption of the Trust
Securities or otherwise , the rights of Holders of the Common Securities to
receive such payments will be subordinated to the rights of the Holders of the
Preferred Securities.
8. Mergers, Consolidations or Amalgamations. The Trust may not
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets to, any corporation or other body.
9. Transfers, Exchanges, Method of Payments. Payment of
Distributions and payments on redemption of the Common Securities or on
dissolution of the Trust will be payable, the transfer of the Common Securities
will be registrable, and Common Securities will be exchangeable for Common
Securities of other denominations of a like aggregate Stated Amount, at the
principal corporate trust office of the Property Trustee in The City of New
York; provided that payment of Distributions may be made at the option of the
Regular Trustees on behalf of the Trust by check mailed to the address of the
persons entitled thereto and that the payment on redemption of any Common
Security or on dissolution of the Trust will be made only upon surrender of such
Common Security to the Property Trustee. Notwithstanding the foregoing,
transfers of Common Securities are subject to conditions set forth in Section
9.01(c) of the Declaration.
10. Acceptance of Indenture and Certain Other Matters. Each
Holder of Common Securities, by the acceptance thereof, agrees (a) to the
provisions of the Indenture and the Subordinated Notes, including the
subordination provisions thereof and (b) to treat the Subordinated Notes as debt
instruments for United States
<PAGE>
17
Federal, state and local income and franchise tax purposes and not to take any
contrary position before any taxing authority or on any tax return.
11. No Preemptive Rights. The Holders of Common Securities
shall have no preemptive rights to subscribe to any additional Common Securities
or Preferred Securities.
12. Miscellaneous. These terms shall constitute a part of the
Declaration. The Regular Trustees will provide a copy of the Declaration and the
Indenture to a Holder without charge on written request to the Trust at its
principal place of business.
Annex I
TRANSFER OF THIS CERTIFICATE
IS SUBJECT TO THE CONDITIONS
SET FORTH IN THE DECLARATION
REFERRED TO BELOW
Certificate Number Number of Common Securities
C-1
Certificate Evidencing Common Securities
of
Time Warner Financing Trust
$[ ] Common Securities
Time Warner Financing Trust, a statutory business trust formed
under the laws of the State of Delaware (the 'Trust'), hereby certifies that
[ ] (the 'Holder') is the registered owner of ( ) common securities of
the Trust representing undivided beneficial interests in the assets of the Trust
designated the $[ ] Common Securities (the 'Common Securities'). The Common
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer and satisfaction of the other conditions set
forth in the Declaration (as defined below) including, without limitation
Section 9.01(c) thereof. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are set
forth in, and this certificate and the Common Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of, the
Amended and Restated Declaration of Trust of the Trust dated as of , 1995,
as the same may be amended from time to time (the 'Declaration') including the
designation of the terms of Common Securities as set forth in Exhibit C thereto.
The Common Securities and the Preferred Securities issued by the Trust pursuant
to the Declaration represent undivided beneficial interests in the assets of the
Trust, including the Subordinated Notes (as defined in the Declaration) issued
by Time Warner Inc., a Delaware corporation, to the Trust pursuant to the
Indenture referred
<PAGE>
2
to in the Declaration. The Regular Trustees will furnish a copy of the
Declaration and the Indenture to the Holder without charge upon written request
to the Trust at its principal place of business or registered office.
The Holder of this Certificate, by accepting this Certificate,
is deemed to have agreed to the terms of the Indenture and the Subordinated
Notes, including that the Subordinated Notes are subordinate and junior in right
of payment to all Senior Indebtedness (as defined in the Indenture, which term
includes Time Warner's outstanding 8-3/4% Convertible Subordinated Debentures
due 2015) as and to the extent provided in the Indenture.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, Trustees of the Trust have executed this
certificate this day of , 1995.
TIME WARNER FINANCING TRUST
By ___________________, as trustee
Name:
Title: Trustee
By ____________________, as trustee
Name:
Title: Trustee
<PAGE>
3
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfer this Common Security
Certificate to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------- agent to
transfer this Common Security Certificate on the books of the Trust. The agent
may substitute another to act for him or her.
Date:
--------------------------
Signature:
---------------------------------------
(Sign exactly as your name appears on the other side of this Common
Security Certificate)
<PAGE>
Exhibit 4.4
Form of Subordinated Notes Indenture between
Time Warner, Inc. and Chemical Bank, as Trustee
INDENTURE dated as of [ ] , 1995,
between TIME WARNER INC., a Delaware corporation (the
'Corporation'), and Chemical Bank, a New York
banking corporation (the 'Trustee').
Each party agrees as follows for the benefit of the other
party and for the equal and ratable benefit of the Holders of the Corporation's
[ ]% Subordinated Notes due
December 23 , 1997 (the 'Notes'):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
'Affiliate' has the same meaning as given to that term in Rule
405 of the Securities Act of 1933, as amended, or any successor rule thereunder.
'AMEX' means the American Stock Exchange.
'Board of Directors' means (i) the board of directors of the
Corporation, (ii) any duly authorized committee of such board, (iii) any
committee of officers of Time Warner or (iv) any officer of Time Warner acting,
in the case of (ii) or (iii) , pursuant to authority granted by the board of
directors of Time Warner or any committee of such board.
'Business Day' means any day other than a Saturday or Sunday
or any other day on which banking institutions in New York, New York , are
authorized or required by law to close.
'Capital Stock' for any corporation means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interest in (however designated) stock issued by that
corporation.
'Common Securities' means the securities issued by the Trust
representing undivided beneficial interests in the assets of the Trust, having
the terms set forth in Exhibit C to the Declaration.
<PAGE>
2
'Common Stock' means the class of Common Stock, par value
$1.00 per share, of the Corporation authorized at the date of this Indenture as
originally signed, or any other class of stock resulting from successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, and in any such case including any
shares thereof authorized after the date of this Indenture.
'Corporation' means the party named as such in this Indenture
until a successor replaces it pursuant to the applicable provisions of this
Indenture, and thereafter means the successor.
'Declaration' means the Amended and Restated Declaration of
Trust, dated as of [ ] , 1995 , among the trustees of the Trust named therein,
the Corporation, as Sponsor, and the holders from time to time of the Preferred
Securities.
'Default' means any event which is, or after notice or passage
of time or both would be, an Event of Default.
'Exchange Act' means the Securities Exchange Act of 1934, as
amended.
'Hasbro' means Hasbro, Inc., a Rhode Island corporation.
'Hasbro Common Stock' means the shares of common stock, par
value $.50 per share, of Hasbro as exist on the date of this Indenture or any
other Capital Stock of Hasbro into which such shares shall be reclassified or
changed.
'Holder' or 'Noteholder' means the Person in whose name a
Note is registered on the Registrar's books. All references to Holders of a
particular Principal Amount of the Notes mean Holders of the relevant
Principal Amount of the Notes at the time outstanding.
'Indenture' means this Indenture as amended or supplemented
from time to time.
'Issuer' means any issuer, from time to time, of a security
constituting Exchange Property.
<PAGE>
3
'LYONs' means the Corporation's outstanding Liquid Yield
Option Notes due 2012.
'Nasdaq' means The Nasdaq Stock Market.
'Notes' means the Notes issued under this Indenture
substantially in the form of Exhibit A hereto as amended or supplemented from
time to time.
'NYSE' means the New York Stock Exchange, Inc.
'Officer' means the Chairman of the Board or any Co-Chairman
of the Board, the Vice Chairman of the Board, the Chief Executive Officer or any
Co-Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, any
Assistant Controller, the Secretary or any Assistant Secretary of the
Corporation.
'Officers' Certificate' means a certificate signed by the
Chairman of the Board or any Co-Chairman of the Board, the Vice Chairman of the
Board, the Chief Executive Officer or any Co-Chief Executive Officer, the
President or any Vice President, and by the Chief Financial Officer, the
Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the
Secretary or an Assistant Secretary of the Corporation and delivered to the
Trustee.
'Opinion of Counsel' means a written opinion from legal
counsel who is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Corporation.
'Person' means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
'Preferred Securities' means the $[ ] Preferred Exchangeable
Redemption Cumulative Securities issued by the Trust representing undivided
beneficial interest in the assets of the Trust and having the terms set forth in
Exhibit B to the Declaration.
'Principal Amount' means, with respect to each Note, $[ ].
'SEC' means the Securities and Exchange Commission.
<PAGE>
4
'Stated Amount' means, with respect to each Trust Security,
$[ ].
'Subsidiary' means with respect to any Person, any corporation
more than 50% of the voting stock of which is owned directly or indirectly by
such Person, and any partnership, association, joint venture or other entity in
which such Person owns more than 50% of the equity interests or has the power to
elect a majority of the board of directors or other governing body.
'TIA' means the Trust Indenture Act of 1939 (15 U.S.C.
'ss' 'ss' 77aaa-77bbbb) as in effect from time to time.
'Trustee' means the party named as such in this Indenture
until a successor replaces it and thereafter means the successor.
'Trust Officer' means any officer or assistant officer of the
Trustee with direct responsibility for the administration of this Indenture.
'Trust Securities' means the Common Securities and the
Preferred Securities.
'Uniform Commercial Code' means the Uniform Commercial Code
prepared under the joint sponsorship of The American Law Institute and the
National Conference of Commissioners on Uniform State Laws, and references to
sections thereof are deemed to be references to such sections as adopted by the
State named in Section 12.09.
SECTION 1.02. Other Definitions. The following terms have the
meanings given to them in the Declaration (including the Exhibits thereto) as in
effect on the date hereof: (i) Clearing Agency; (ii) Delaware Trustee; (iii)
Dissolution Tax Opinion; (iv) Distribution; (v) Investment Company Event; (vi)
No Recognition Opinion; (vii) Property Trustee; (viii) Preferred Security
Certificate; (ix) Regular Trustees; (x) Security Registrar; (xi) Special Event;
(xii) Tax Event; and (xiii) Trust.
<PAGE>
5
The following terms are defined in the relevant Section of
this Indenture as set forth below.
<TABLE>
<CAPTION>
Defined in
Term Section
---- ----------
<S> <C>
'Acceleration Price'............................................. 6.02
'Average Quoted Price'........................................... 10.08
'Bankruptcy Law' ................................................ 6.01
'Custodian'...................................................... 6.01
'Defaulted Interest'............................................. 2.11
'Depositary'..................................................... 10.07
'Discharge Date'................................................. 8.01
'Equivalent Notes'............................................... 11 .03
'Event of Default'............................................... 6.01
'Ex-Dividend Time'............................................... 10.08
'Exchange Adjustment Event'...................................... 10.08
'Exchange Property'.............................................. 10.04
'Exchange Rate'.................................................. 10.04
'Exchange Right'................................................. 10.01
'Exchange Valuation Price'....................................... 10.04
'Extraordinary Cash Dividends'................................... 10.08
'Global Note'.................................................... 2.12
'Initial Shares'................................................. 10.04
'Interest Payment Date'.......................................... 3.03
'Maturity Date'.................................................. 2.01
'Maturity Payment Amount'........................................ 2.01
'Minimum Denomination'........................................... 2.01
'Ministerial Action'............................................. 3.05
'Non-book-Entry Preferred
'Securities'..................................................... 2.12
'Non-Equity Security'............................................ 10.04
'Note Call Price'................................................ 3.01
'Note Redemption Notice'......................................... 3.04
'Note Redemption Price'.......................................... 3.03
'Notice of Default'.............................................. 6.01
'Optional Redemption Date'....................................... 3.01
'Paying Agent'................................................... 2.03
'Purchase Sale Price'............................................ 10.04
'Quoted Price'................................................... 10.08
'Redemption Date'................................................ 3.03
'Registrar'...................................................... 2.03
'Representative'................................................. 11.02
'Senior Indebtedness'............................................ 11.02
<PAGE>
6
'Special Redemption Date'........................................ 3.03
'Special Redemption Price'....................................... 3.03
'Tender Offer Consideration'..................................... 10.08
'Time of Determination'.......................................... 10.08
'Trading Day'.................................................... 10.04
'Underlying Exchange Property'................................... 10.08
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust Indenture
Act. Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
'Commission' means the SEC.
'indenture securities' means the Notes.
'indenture security holder' means a Noteholder.
'indenture to be qualified' means this Indenture.
'indenture trustee' or 'institutional trustee' means the
Trustee.
'obligor' on the indenture securities means the Corporation.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule have
the meanings assigned to them.
SECTION 1.04. Rules of Construction. Unless the context
otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with generally
accepted accounting principles;
(3) 'or' is not exclusive;
(4) words in the singular include the plural, and
in the plural include the singular; and
<PAGE>
7
(5) provisions apply to successive events and
transactions.
ARTICLE II
The Notes
SECTION 2.01. Form and General Terms. The Notes and the
Trustee's certificate of authentication shall be substantially in the form of
Note attached hereto as Exhibit A. Except as provided in Section 2.12, the
Notes shall be issued in fully registered form without interest coupons. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication, shall bear interest from and including the date set forth
therein and shall be payable on the dates specified on the face of the
above-mentioned form of Note.
The Notes shall be limited to an aggregate Principal Amount
for all Notes equal to $[ ], such amount being the sum of (i) the aggregate
Stated Amount of the Preferred Securities and (ii) the proceeds received by the
Trust upon issuance of the Common Securities to the Corporation. The aggregate
Principal Amount of Notes outstanding at any time may not exceed that amount
except as provided in Sections 2.07 and 2.08. The Notes will be issued in
denominations of $[ ] (the 'Minimum Denomination') and integral multiples
thereof. The Notes shall mature on December 23, 1997 (the 'Maturity Date').
Subject to the exercise by the Corporation pursuant to Article X hereof of the
Exchange Right, the amount payable upon maturity for each Minimum Denomination
of Notes shall be equal to (a) the lesser of (i) $54.41 and (ii) the Exchange
Valuation Price on the Trading Day immediately preceding December 17, 1997 of
such amount of Exchange Property as relates to each Minimum Denomination of
Notes at such time (such amount the 'Maturity Payment Amount'), plus (b) an
amount equal to all accrued and unpaid interest on such Minimum Denomination to
but excluding the Maturity Date. The Corporation shall deliver to the Trustee an
Officers' Certificate setting forth the amount of the Maturity Payment Amount at
least two Business Days prior to the Maturity Date.
SECTION 2.02. Execution and Authentication. Two Officers, one
of whom must be the Secretary or an Assistant
<PAGE>
8
Secretary of the Corporation, shall sign the Notes for the Corporation by manual
or facsimile signature. The Corporation's seal shall be impressed, affixed,
imprinted or reproduced on the Notes.
If an Officer whose signature is on a Note no longer holds
that office at the time the Trustee authenticates the Note, the Note shall be
valid nevertheless.
A Note shall not be valid until the Trustee manually signs
the certificate of authentication on the Note. The signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee shall authenticate Notes for original issue in
the aggregate Principal Amount, upon a written order of the Corporation signed
by two Officers or by an Officer and an Assistant Treasurer or an Assistant
Secretary of the Corporation, which written order shall set forth such aggregate
Principal Amount.
SECTION 2.03. Registrar and Paying Agent. The Corporation
shall maintain an office or agency where Notes may be presented for registration
of transfer or for exchange ('Registrar') and an office or agency where Notes
may be presented for payment or for exchange upon the exercise by the
Corporation of the Exchange Right ('Paying Agent'). The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Corporation may
have one or more co-registrars and one or more additional paying agents. The
term 'Paying Agent' includes any additional paying agent.
The Corporation shall enter into an appropriate agency
agreement with any Registrar, Paying Agent or co-registrar not a party to this
Indenture. Each such agreement shall implement the provisions of this Indenture
that relate to such agent. The Corporation shall notify the Trustee of the name
and address of any such agent. If the Corporation fails to maintain a Registrar
or Paying Agent, the Trustee shall act as such.
The Corporation initially appoints the Trustee as Registrar
and Paying Agent.
SECTION 2.04. Paying Agent To Hold Money in Trust. Each
Paying Agent shall hold in trust for the
<PAGE>
9
benefit of Noteholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Notes, and shall notify the
Trustee of any default by the Corporation in making any such payment. If the
Corporation or a Subsidiary of the Corporation acts as Paying Agent, it shall
segregate the money and hold it as a separate trust fund. The Corporation or the
Trustee at any time may require a Paying Agent to pay all money held by it to
the Trustee. Upon doing so, the Paying Agent shall have no further liability
for such money.
SECTION 2.05. Noteholder Lists. The Trustee shall preserve in
as current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Noteholders. If the Trustee is not the
Registrar, the Corporation shall furnish to the Trustee on or before each
Interest Payment Date and at such other times as the Trustee may request in
writing a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Noteholders.
SECTION 2.06. Transfer and Exchange. When a Note is presented
to the Registrar or a co-registrar with a request to register a transfer, the
Registrar shall register the transfer as requested if the requirements of the
Trustee (which shall include the requirements of Section 8-401(l) of the Uniform
Commercial Code) are met. When Notes are presented to the Registrar or a
co-registrar with a request to exchange them for an equal aggregate Principal
Amount of Notes of other authorized denominations, the Registrar shall make the
exchange as requested if the same requirements are met. To permit registration
of transfers and exchanges, the Trustee shall authenticate Notes at the
Registrar's request. The Corporation may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges and may charge a
reasonable fee for any registration of transfer or exchange but not for any
registration of transfer or exchange pursuant to Section 2.09, Section 3.03,
Section 9.05 or Article X. Neither the Corporation nor the Trustee shall be
required to register the transfer or exchange of Notes selected for redemption
as set forth in a Note Redemption Notice (except, in the case of Notes to be
redeemed in part, the portion thereof not to be redeemed), or for a period of 15
days before a selection of Notes to be redeemed or before a Redemption Date or
an Interest Payment Date.
<PAGE>
10
SECTION 2.07. Replacement Notes. If the Holder of a Note
claims that the Note has been lost, destroyed or wrongfully taken, the
Corporation may issue and the Trustee shall authenticate a replacement Note if
the requirements of the Trustee (which shall include the requirements of Section
8-405 of the Uniform Commercial Code) are met. Such Holder shall furnish an
indemnity bond sufficient in the judgment of the Corporation and the Trustee to
protect the Corporation, the Trustee, the Paying Agent, the Registrar or any
co-registrar from any loss which any of them may suffer if a Note is replaced.
The Corporation may charge the relevant Holder for its expenses in replacing a
Note. Any such replacement Note shall constitute an additional contractual
obligation of the Corporation in lieu of the Note in replacement of which it was
issued.
SECTION 2.08. Outstanding Notes. Notes outstanding at any
time are all Notes authenticated by the Trustee except for those canceled by it
and those described in this Section. Any Note held by the Corporation or an
Affiliate of the Corporation shall cease to be outstanding for all purposes
(whether or not the Corporation shall deliver such Note to the Trustee in
accordance with Section 2.10).
If a Note is replaced pursuant to Section 2.07, it ceases to
be outstanding unless the Trustee and the Corporation receive proof satisfactory
to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent holds on any Redemption Date or the
Maturity Date money (or Exchange Property, or both, as applicable, if the
Corporation shall have elected to exercise the Exchange Right) sufficient to
satisfy the Notes payable on such date, then on and after that date such Notes
shall cease to be outstanding and interest on them shall cease to accrue.
If a particular Note is called for redemption and if the
Corporation has satisfied its obligation to pay such Note, the Corporation and
the Trustee need not treat such Note as outstanding in determining whether
Holders of the required aggregate Principal Amount of Notes have concurred in
any direction, waiver or consent.
SECTION 2.09. Temporary Notes. Until definitive Notes are
ready for delivery, the Corporation may prepare and the Trustee shall upon
receipt of a written order as set
<PAGE>
11
forth in Section 2.02 authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Corporation considers appropriate for temporary Notes. Without unreasonable
delay, the Corporation shall prepare and the Trustee shall authenticate
definitive Notes in exchange for temporary Notes. Until exchanged for definitive
Notes, a holder of temporary Notes shall have all the rights of a holder of
definitive Notes.
SECTION 2.10. Cancellation. The Corporation at any time may
deliver Notes to the Trustee for cancellation. The Registrar and the Paying
Agent shall forward to the Trustee any Notes surrendered to them for
registration, transfer, payment or exchange in connection with an exercise by
the Corporation of the Exchange Right, or otherwise. The Trustee and no one else
shall cancel and destroy all Notes surrendered for such cancellation,
registration, transfer, payment, or exchange and shall deliver a certificate of
such destruction to the Corporation unless the Corporation directs the Trustee
to deliver canceled Notes to the Corporation. The Corporation may not issue new
Notes to replace Notes it has paid or delivered to the Trustee for cancellation
or that have been exchanged pursuant to Article X.
SECTION 2.11. Defaulted Interest. (a) Any interest on any
Note which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called 'Defaulted Interest') shall forthwith cease
to be payable to the registered holder on the relevant regular record date by
virtue of having been such holder; and such Defaulted Interest shall be paid by
the Corporation, at its election, as provided in clause (i) or clause (ii)
below:
(i) The Corporation may make payment of any Defaulted
Interest to the persons in whose names such Notes are registered at the close of
business on a special record date for the payment of such Defaulted Interest,
which shall be fixed in the following manner: the Corporation shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid on
each such Note and the date of the proposed payment, and at the same time the
Corporation shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit
<PAGE>
12
prior to the date of the proposed payment, such money when deposited to be held
in trust for the benefit of the persons entitled to such Defaulted Interest as
in this clause provided. Thereupon the Trustee shall fix a special record date
for the payment of such Defaulted Interest which shall be not more than 15 nor
less than 10 days prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of the proposed payment.
The Trustee shall promptly notify the Corporation of such special record date
and, in the name and at the expense of the Corporation, shall cause notice of
the proposed payment of such Defaulted Interest and the special record date
thereof to be mailed, first class postage prepaid, to each Noteholder at his or
her address as it appears in the books of the Registrar, not less than 10 days
prior to such special record date. Notice of the proposed payment of such
Defaulted Interest and the special record date therefor having been mailed as
aforesaid, such Defaulted Interest shall be paid to the persons in whose names
such Notes are registered on such special record date and shall be no longer
payable pursuant to the following clause (ii).
(ii) The Corporation may make payment of any Defaulted
Interest on any Notes in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Notes may be listed, and
upon such notice as may be required by such exchange, if, after notice given by
the Corporation to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
(b) The term 'regular record date' as used in this Section
with respect to any Interest Payment Date shall mean the fifteenth day of each
March, June, September or December preceding each Interest Payment Date.
(c) Subject to the foregoing provisions of this Section, each
Note delivered under this Indenture upon registration of, transfer of or in
exchange for or in lieu of any other Note shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Note.
<PAGE>
13
SECTION 2.12. Global Note. (a) In the event the Corporation
causes, pursuant to Section 3.03 or otherwise, the Notes held by the Property
Trustee to be distributed to holders of the Trust Securities;
(i) except as provided in paragraph (ii) of this Section
2.12, the Notes in certificated form shall be
presented to the Trustee by the Property Trustee in
exchange for one or more global Notes in an aggregate
Principal Amount equal to the aggregate Principal
Amount of the outstanding Notes (each, a 'Global
Note'), to be registered in the name of the
Depositary, or its nominee, and delivered by the
Trustee to the Depositary for crediting to the
accounts of its participants pursuant to the
instructions of the Regular Trustees. The Corporation
upon any such presentation shall execute a Global
Note in such aggregate Principal Amount and deliver
the same to the Trustee for authentication and
delivery in accordance with this Indenture. Payments
on the Notes issued as a Global Note will be made to
the Depositary; and
(ii) to the extent any Preferred Securities are held in
non-book-entry certificated form, any Preferred
Security Certificate which represents Preferred
Securities other than Preferred Securities held by
the Clearing Agency or its nominee ('Non-Book-Entry
Preferred Securities') will be deemed to represent
beneficial interests in Notes presented to the
Trustee by the Property Trustee having an aggregate
Principal Amount equal to the aggregate Stated Amount
of the Non-Book-Entry Preferred Securities until such
Preferred Security Certificate is presented to the
Regular Trustees for transfer or reissuance at which
time such Preferred Security Certificate will
be canceled and a Note registered in the name of the
holder (or the transferee thereof) of such Preferred
Security Certificate with an aggregate Principal
Amount equal to the aggregate Stated Amount of the
Preferred Security Certificate canceled will be
<PAGE>
14
executed by the Corporation and delivered to the
Trustee for authentication and delivery in accordance
with this Indenture. On issue of such Notes, Notes
with an equivalent aggregate Principal Amount that
were presented by the Property Trustee to the Trustee
will be deemed to have been canceled.
(b) A Global Note shall be exchangeable for Notes registered
in the names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies the Corporation that it is unwilling or unable to continue
as a depositary for such Global Note and no successor depositary shall have been
appointed, (ii) the Depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such Depositary and no successor depositary shall have
been appointed, or (iii) the Corporation in its sole discretion determines that
such Global Note shall be so exchangeable. Any Global Note that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Notes registered in
such names as the Depositary shall direct.
ARTICLE III
Redemption; Distribution
SECTION 3.01. Optional Redemption. The Corporation, subject
to the provisions of Section 11.04 hereof, shall have the right to redeem the
Notes, in whole or in part, from time to time, upon not less than 20 nor more
than 45 Business Days' written notice to the Holders, at the Note Call Price in
effect on the date of redemption (the 'Optional Redemption Date'), plus cash in
an amount equal to all accrued and unpaid interest on each Minimum Denomination
of the Notes so called to but excluding the Optional Redemption Date. The 'Note
Call Price' is initially equal to (a) $54.41 per Trust Security plus (b) an
amount initially equal to $ per Trust Security, declining by $ for each day that
shall have elapsed in the period from the date of issue of the Notes to but
excluding the Optional Redemption Date (the number of days in such period being
computed on the basis of a 360-day year of twelve 30-day months) to $0 on
October 23, 1997, and thereafter.
<PAGE>
15
If a partial redemption of the Notes would result in the
delisting of the Preferred Securities from any national securities exchange or
other self-regulatory organization (including Nasdaq) on which the Preferred
Securities are then listed, the Corporation shall not effect such partial
redemption and may only redeem the Notes in whole.
SECTION 3.02. Selection of Notes To Be Redeemed. If less than
all the Notes are to be redeemed in any optional redemption, the Trustee shall
select the Notes to be redeemed by a method the Trustee deems fair and
appropriate. The Trustee shall make the selection from outstanding Notes not
previously called for redemption. Notes and portions of them it selects shall be
in amounts equal to the Minimum Denomination or a whole multiple of the Minimum
Denomination. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
SECTION 3.03. Special Event Redemption or Distribution. (a)
(i) If, at any time, a Special Event shall occur and be continuing, the
Corporation shall elect to either:
(A) direct the Regular Trustees to dissolve the Trust and
cause Notes having an aggregate Principal Amount equal to the aggregate
Stated Amount of, and accrued and unpaid interest equal to accrued and
unpaid Distributions on, and having the same record date for payment
as, the Trust Securities outstanding at such time, to be distributed by
the Regular Trustee to the Holders of the Trust Securities on a Pro
Rata Basis (determined without regard to the proviso in the definition
of such term) in liquidation of such holders' interests in the Trust,
within 90 days following the occurrence of such Special Event,
provided, however, that in the case of the occurrence of a Tax Event,
as a condition of any such dissolution and distribution, the Regular
Trustees shall have received an opinion of nationally recognized
independent tax counsel experienced in such matters (a 'No Recognition
Opinion'), which opinion may rely on any then applicable published
revenue ruling of the Internal Revenue Service, to the effect that the
holders of the Preferred Securities will not recognize any gain or loss
for United States Federal income tax
<PAGE>
16
purposes as a result of the dissolution of the Trust and
distribution of Notes;
(B) to redeem the Notes in accordance with this Indenture or
(C) in the case of a Tax Event, allow the Notes and the Trust
Securities to remain outstanding and indemnify the Trust for all taxes
payable by it as a result of such change in law or interpretation;
provided that, if and as long as at the time there is available to the Trust the
opportunity to eliminate, within 90 days following the occurrence of such
Special Event (the '90-Day Period'), the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure that has no adverse effect on the Trust,
the Corporation or the holders of the Trust Securities (a 'Ministerial Action'),
the Corporation shall not be permitted to redeem the Notes; provided further,
that the Corporation shall have no right to redeem the Notes or direct the
Regular Trustees to dissolve the Trust while the Regular Trustees are pursuing
such Ministerial Action unless the Special Event shall not have been so
eliminated by the 85th day following the occurrence thereof, in which case the
Corporation shall be permitted to direct the Regular Trustees or to provide
notice to the holders of the redemption of the Notes; provided further, that if
dissolution of the Trust and distribution of the Notes to the holders of the
Trust Securities would eliminate the condition causing the Special Event and all
other conditions to such dissolution and distribution have been satisfied, the
Corporation will not be permitted to redeem the Notes at the Special Redemption
Price; and provided further, that the Corporation shall not be permitted to
direct the Regular Trustees to dissolve the Trust and distribute the Notes to
the holders of the Trust Securities upon the occurrence of the condition
described in clause (2) in the definition of 'Tax Event' if, after giving effect
to such dissolution and distribution, the Corporation would not be permitted to
deduct a greater percentage of the interest payable on the Notes than it had
been permitted to deduct for United States Federal income tax purposes prior to
the occurrence of such Tax Event.
(ii) In the event the Corporation shall elect to redeem the
Notes in accordance with (and subject to)
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17
paragraph (i) above upon the occurrence and continuation of a Special Event,
the Corporation shall be entitled to so redeem the Notes in whole (but not in
part), upon not less than 20 nor more than 45 Business Days' written notice to
the Holders, within the 90-Day Period (such date of redemption a 'Special
Redemption Date') at the Special Redemption Price in effect on the date fixed
for such redemption, plus cash in an amount equal to all accrued and unpaid
interest on the Notes to but excluding the Special Redemption Date. The
'Special Redemption Price' is an amount per Minimum Denomination of Notes equal
to (1) the lesser of (A) $54.41 and B) the Exchange Valuation Price on the
Trading Day immediately preceding the Special Redemption Date of such amount of
Exchange Property as relates to one Preferred Security at such time, plus (2) an
amount initially equal to $[ ], declining by $[ ] for each day following the
issue date of the Notes (computed on the basis of a 360- day year of twelve
30-day months) to $0 on October 23, 1997 and thereafter. References herein to
'Redemption Date' shall refer to the Optional Redemption Date or the Special
Redemption Date, as the case may be, and references to 'Note Redemption Price'
shall refer to the Note Call Price or the Special Redemption Price, as
applicable.
(b) Upon the distribution of Notes to holders of Preferred
Securities as a result of the occurrence of a Special Event, subject to
applicable law (including, without limitation, United States Federal securities
laws), the Corporation or any of its Affiliates may at any time and from time to
time purchase outstanding Notes by tender, in the open market or by private
agreement.
SECTION 3.04. Notice of Redemption. (a) At least 20 but not
more than 45 Business Days before any Redemption Date, the Corporation shall
mail a notice of redemption (a 'Note Redemption Notice') by first-class mail to
the Trustee and each Holder of Notes to be redeemed.
The Note Redemption Notice shall identify the Notes to be
redeemed and shall state:
(1) the Redemption Date;
(2) the total aggregate Principal Amount of Notes to be
redeemed and, if less than all of the total aggregate Principal Amount
of Notes held by any
<PAGE>
18
Holder are to be redeemed, the amount of such Notes to be redeemed
from such Holder;
(3) the Note Redemption Price;
(4) the place or places where certificates for such Notes are
to be surrendered for payment of the applicable Note Redemption Price;
(5) that interest on Notes called for redemption will cease to
accrue on such Redemption Date.
At the Corporation's request, the Trustee shall give the Note
Redemption Notice in the Corporation's name and at the Corporation's expense. In
such event the Corporation will provide the Trustee with the information
required by clauses (1) through (5).
Each Note Redemption Notice shall be irrevocable, and a Note
Redemption Notice shall be deemed to be given on the day such notice is first
mailed by first-class mail, postage prepaid, to Holders of Notes. Each Note
Redemption Notice shall be addressed to the Holders of Notes at the address of
each such Holder appearing in the books and records of the Registrar. No defect
in the Note Redemption Notice or in the mailing thereof with respect to any
Holder shall affect the validity of the redemption or exchange proceedings with
respect to any other Holder.
(b) Payment of the Note Redemption Price in respect of Notes
selected for redemption, together with any accrued and unpaid interest thereon,
is conditioned upon delivery or book-entry transfer of such Notes (together with
necessary endorsements) to the Trustee at any time (whether prior to, on or
after the relevant Redemption Date) after the Note Redemption Notice is given.
Payment of the Note Redemption Price, together with any accrued and unpaid
interest on Notes selected for redemption, will be made to the Holders thereof
by the delivery of cash (or, if the Exchange Right has been exercised, Exchange
Property) on a date that is the later of (i) the applicable Redemption Date with
respect to such Notes or (ii) the time of delivery or transfer of such Notes.
SECTION 3.05. Effect of Note Redemption Notice. (a) If a Note
Redemption Notice shall have been given as provided in Section 3.04, (i) the
Notes or portions of
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19
Notes specified in such Note Redemption Notice shall become due and payable on
the Redemption Date and at the place stated therein at the applicable Note
Redemption Price plus cash in an amount equal to all accrued and unpaid interest
on the Notes to but excluding such Redemption Date, (ii) interest on the Notes
so called for redemption shall cease to accrue from and after the Redemption
Date, (iii) such Notes shall no longer be deemed to be outstanding from and
after the Redemption Date and (iv) all rights of the Holders thereof (except the
right to receive from the Corporation the Note Redemption Price plus accrued
and unpaid interest on the Notes to be redeemed) shall cease (including any
right to receive interest otherwise payable on any Interest Payment Date that
would have occurred after the Redemption Date) from and after the Redemption
Date (unless in all cases the Corporation shall default in the payment of the
Note Redemption Price plus accrued and unpaid interest on the Notes to be
redeemed). Upon surrender (in accordance with the Note Redemption Notice) of the
certificate or certificates for, or book-entry transfer to the Trustee in
accordance with the rules of the Depositary of, any Notes to be so redeemed
(properly endorsed or assigned for transfer, if the Corporation shall so require
and the Note Redemption Notice shall so state), such Notes shall be redeemed by
the Corporation at the Note Redemption Price set forth in the Note Redemption
Notice together with accrued and unpaid interest to the Redemption Date.
Neither the Corporation nor the Trustee shall be required to register or cause
to be registered the transfer of any Notes which have been so called for
redemption. If any Redemption Date is not a Business Day, then payment of the
Note Redemption Price payable on such Redemption Date, together with accrued
and unpaid interest on the Notes to be redeemed to the Redemption Date, will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such Redemption Date.
If payment of the Note Redemption Price in respect of Notes
called for redemption, together with accrued and unpaid interest on the Notes to
be redeemed, is improperly withheld or refused and not paid either by the
Trustee or by the Corporation, interest on such Notes shall continue to accrue
from the original Redemption Date to the date of
<PAGE>
20
payment, in which case the actual payment date will be considered the date fixed
for redemption for purposes of calculating the Note Redemption Price and the
amount of any accrued and unpaid interest. In case fewer than all the Notes
represented by any such certificate are to be redeemed, a new certificate shall
be issued representing the unredeemed Notes, without cost to the Holder thereof.
Subject to applicable escheat laws, any moneys set aside by the Corporation and
unclaimed at the end of one year from the Redemption Date shall revert to the
general funds of the Corporation, after which reversion the Holders of such
Notes so called for redemption shall look only to the general funds of the
Corporation for the payment of the Note Redemption Price and any accrued and
unpaid interest on the Notes to be redeemed without any interest payable by
reason of such delay; provided, however, that the Trustee or the Paying Agent,
before being required to make any such repayment, may at the expense of the
Corporation cause to be published once in a newspaper of general circulation in
The City of New York and mail to each such Holder notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication or mailing, any unclaimed balance of
such money then remaining will be repaid to the Corporation.
ARTICLE IV
Covenants
SECTION 4.01. Payment of Notes. The Corporation shall
promptly pay or cause to be paid the Maturity Payment Amount of , and interest
on, the Notes on the dates and in the manner provided herein and in the Notes.
Pursuant thereto, the Holders of the Notes shall be entitled to receive
quarterly payments of interest on the Principal Amount of the Notes at the rate
per annum indicated therein. The Maturity Payment Amount, any Note Redemption
Price and interest shall be considered paid on the date due if the Paying Agent
holds on that date money sufficient to pay the Maturity Payment Amount, any Note
Redemption Price and any interest then due.
The Corporation shall pay interest on any overdue payment of
the Maturity Payment Amount at the rate borne by the Notes, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
<PAGE>
21
SECTION 4.02. Maintenance of Office or Agency. (a) The
Corporation will maintain an office or agency in each place of payment where the
Notes may be presented or surrendered for payment, where the Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Corporation in respect to the Notes or this Indenture may
be served. The Corporation will give prompt written notice to the Trustee of the
location, and of any change in the location, of such office or agency. If at any
time the Corporation shall fail to maintain such office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the office of the Trustee, and the
Corporation hereby appoints the Trustee its agent to receive all such
presentations, surrenders, notices and demands.
(b) Unless otherwise set forth in, or pursuant to, a
resolution of the Board of Directors (a copy of which, certified by the
Secretary or Assistant Secretary of the Corporation has been delivered to the
Trustee) or Indenture supplemental hereto, the Corporation hereby designates as
the place of payment for each Note, the Borough of Manhattan, the City and State
of New York, and initially appoints the Trustee as the Corporation's office or
agency for each such purpose in such city.
SECTION 4.03. Money for Security Payments To Be Held in
Trust. (a) If the Corporation shall at any time act as its own Paying Agent for
the Notes, it will, on or before each due date of the Maturity Payment Amount,
Note Redemption Price or interest on, any of the Notes, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the Maturity Payment Amount, Note Redemption Price or interest so becoming due
until such sums shall be paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of its action or failure to act.
(b) Whenever the Corporation shall have one or more Paying
Agents for the Notes, it will, on or prior to each due date of the Maturity
Payment Amount, Note Redemption Price or interest on, any Note, deposit with a
Paying Agent a sum sufficient to pay the Maturity Payment Amount, Note
Redemption Price or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such Maturity Payment Amount, Note
Redemption Price or interest, and (unless such Paying Agent is the
<PAGE>
22
Trustee) the Corporation will promptly notify the Trustee of its action or
failure so to act.
(c) The Corporation will cause each Paying Agent other than
the Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the Maturity
Payment Amount, Note Redemption Price or interest on the Notes in trust
for the benefit of the Persons entitled thereto until such sums shall
be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Corporation
(or any other obligor upon the Notes) in the making of any such payment
of Maturity Payment Amount, Note Redemption Price or interest on the
Notes; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
SECTION 4.04. SEC Reports. The Corporation shall fie with
the Trustee within 15 days after it is required to file the same with the SEC
copies of the annual report and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Corporation is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. The Corporation also shall
comply with the other provisions of TIA ss. 314(a).
SECTION 4.05. Compliance Certificate. The Corporation shall
deliver to the Trustee, within 120 days after the end of each fiscal year of the
Corporation (which, as of the date hereof, ends on December 31), an Officers'
Certificate stating whether or not the signers know of any Default that occurred
during the fiscal year. If they do, the certificate shall describe the Default
and its status. The Officers' Certificate need not comply with Section 12.05.
<PAGE>
23
SECTION 4.06. Listing of Notes. The Corporation shall, if the
Notes are distributed to Holders of the Preferred Securities pursuant to Section
3.03 or otherwise, use its reasonable best efforts to have the Notes listed on
the New York Stock Exchange or on such other national securities exchange (or
other self-regulatory organization, (including Nasdaq)) as the Preferred
Securities were listed immediately prior to such distribution of the Notes.
SECTION 4.07. Exchanges of LYONs and Redemptions. So long as
it is subject to Section 16 of the Exchange Act with respect to Hasbro, the
Corporation shall take such steps as may be necessary in connection with any
exchange of LYONs by the holders thereof or any redemption of Preferred
Securities or Notes so that it is not in a net short position with respect to
its obligations to deliver Hasbro Common Stock (treating the outstanding LYONs
and Preferred Securities (or, if distributed to the holders of the Preferred
Securities, Notes) as derivative securities and treating the Hasbro Common Stock
subject to such securities as subject to only one put equivalent position)
including, without limitation, through the redemption or purchase of Preferred
Securities (or, if distributed to the holders of the Preferred Securities,
Notes), the purchase of LYONs, the settlement of exchanges or redemptions in
cash (rather than Hasbro Common Stock) and the purchase of additional shares of
Hasbro Common Stock.
ARTICLE V
Successor Corporation
SECTION 5.01. When Corporation May Merge, etc. The
Corporation shall not consolidate with or merge into, or transfer the property
of the Corporation as an entirety or substantially as an entirety to, another
Person unless (i) if the resulting, surviving or transferee Person is not the
Corporation, such Person shall be a Person that assumes by supplemental
indenture all the obligations of the Corporation under the Notes and this
Indenture and is an entity organized and existing under the laws of the United
States or any political subdivision thereof, (ii) immediately after giving
effect to such transaction no Event of Default shall have occurred and be
continuing and (iii) the Corporation shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such
<PAGE>
24
supplemental indenture comply with this Indenture. Upon any such consolidation,
merger or transfer, if the resulting, surviving or transferee Person is not the
Corporation, and the above conditions are met, all obligations of the
Corporation under this Indenture shall terminate and the Corporation shall be
released from all obligations hereunder.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default. An 'Event of Default' occurs
if:
(1) the Corporation defaults in the payment of interest on
any Note when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Corporation defaults in the payment of the Maturity
Payment Amount or Note Redemption Price of any Note (together with
accrued and unpaid interest to but excluding, the Maturity Date or
Redemption Date, as the case may be) when the same becomes due and
payable;
(3) the Corporation fails to comply with any of its other
covenants or agreements in the Notes or this Indenture and the default
continues for the period and after the notice specified below in this
Section 6.01;
(4) the Corporation pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it or
for any substantial part of its property, or
(D) makes a general assignment for the benefit of its
creditors; or
<PAGE>
25
(5) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Corporation in an
involuntary case,
(B) appoints a Custodian of the Corporation or for any
substantial part of its property, or
(C) orders the winding up or liquidation of the
Corporation,
and the order or decree remains unstayed and in effect for 60 days.
The term 'Bankruptcy Law' means Title 11, United States Code,
or any similar Federal or state law for the relief of debtors. The term
'Custodian' means any receiver, trustee, assignee, liquidator, custodian or
similar official under any Bankruptcy Law.
A default under clause (3) is not an Event of Default until
the Trustee notifies the Corporation or the Holders of at least 25% in aggregate
Principal Amount of the Notes then outstanding notify the Corporation and the
Trustee of the Default and the Corporation does not cure the Default within 90
days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a 'Notice of Default'. Subject
to the provisions of Sections 7.01 and 7.02, the Trustee shall not be charged
with knowledge of any Default unless written notice thereof shall have been
given to the Trustee by the Corporation, the Paying Agent, the Holder of a Note
or an agent (duly authorized in writing) of such Holder.
SECTION 6.02. Acceleration. Subject to Section 11.06, if an
Event of Default described in paragraph (1), (2) or (3) of Section 6.01 occurs
and is continuing, the Trustee by notice to the Corporation, or the Holders of
at least 25% in aggregate Principal Amount of the Notes then outstanding by
notice to the Corporation and the Trustee, may declare the Notes to be due and
payable and, upon any such declaration, the Notes shall become due and payable
immediately in an amount per Minimum Denomination equal to: (a) the lesser of
(i) $54.41 and (ii) the Exchange Valuation Price on the Trading Day immediately
preceding such Event of Default of such amount
<PAGE>
26
of Exchange Property as relates to each Minimum Denomination of Notes on such
Trading Day; provided, however, if such Event of Default is in payment of the
Note Call Price or the Special Redemption Price, the amount due and payable
shall equal the Note Call Price or the Special Redemption Price, as the case may
be (in either case, the 'Acceleration Price'), plus (b) accrued interest on all
the Notes to be due and payable. Upon such a declaration, the Acceleration Price
and such interest shall be due and payable immediately. If an Event of Default
described in paragraph (4) or (5) of Section 6.01 occurs and is continuing, the
Acceleration Price of and any accrued interest on the Notes then outstanding
shall become immediately due and payable.
At any time after the Notes have been accelerated, and before
a judgment or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article provided, the Holders of a majority in
aggregate Principal Amount of the Notes by written notice to the Corporation
and the Trustee, may rescind and annul such declaration and its consequences if
(1) the Corporation has paid or deposited with the Trustee
a sum sufficient to pay
(A) all overdue installments of interest on
the Notes,
(B) any Maturity Payment Amount or Note
Redemption Price due on the Notes,
(C) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel and all other amounts due the Trustee under this
Indenture; and
(2) all Events of Default with respect to such Notes have
been cured or waived as provided in Section 6.04.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs
and is continuing, the Trustee may pursue any available remedy to collect the
payment of the
<PAGE>
27
Acceleration Price of or interest on he Notes or to enforce the erformance of
any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding and
any such action or proceeding instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment, subject
to the payment of the expenses, disbursements and compensation of the Trustee,
each predecessor Trustee and their respective agents and attorneys, and all
other amounts due to the Trustee under this Indenture, shall be for the ratable
benefit of the Holders of the Notes.
In any proceedings brought by the Trustee (and also any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party), the Trustee shall be held to represent all
the Holders of the Notes, and it shall not be necessary to make any Holders of
the Notes parties to any such proceedings. A delay or omission by the Trustee
or any Noteholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults. Subject to Section
9.02, the Holders of a majority in aggregate Principal Amount of the Notes then
outstanding by notice to the Trustee may waive an existing Default and its
consequences other than a default in the payment of interest or any Maturity
Payment Amount or Note Redemption Price, which default may not be waived unless
such default has been cured and a sum sufficient to pay all past due amounts of
interest or any Maturity Payment Amount or Note Redemption Price has been
deposited with the Trustee. When a Default is waived, it is cured and stops
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any consequent right.
SECTION 6.05. Control of Majority. The Holders of a majority
in aggregate Principal Amount of the Notes then outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on it.
<PAGE>
28
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Noteholders or would subject the
Trustee to personal liability.
SECTION 6.06. Limitation on Suits. A Noteholder may not
pursue any remedy with respect to this Indenture or the Notes unless:
(1) the Holder gives to the Trustee written notice stating
that an Event of Default is continuing;
(2) the Holders of at least 25% in aggregate Principal Amount
of the Notes then outstanding make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee security or
indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
aggregate Principal Amount of the Notes then outstanding do not give
the Trustee a direction inconsistent with the request.
A Noteholder may not use this Indenture to prejudice the
rights of another Noteholder or to obtain a preference or priority over another
Noteholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any Holder
to receive payment of the Maturity Payment Amount, any Note Redemption Price or,
if applicable, the Acceleration Price (including the payment of all accrued and
unpaid interest), on or after the respective due dates expressed in the Notes,
or to bring suit for the enforcement of any such payment on or after such
respective dates shall not be impaired or affected without the consent of such
Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default in payment of interest or the Maturity Payment Amount or any Note
Redemption Price (including the
<PAGE>
29
payment of all accrued and unpaid interest, specified in Section 6.01(l) or (2)
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Corporation for the whole amount of
the Maturity Payment Amount, any Note Redemption Price or, if applicable, the
Acceleration Price (including the payment of all accrued and unpaid interest)
and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee
may file such proofs of claim and other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee and the Noteholders
allowed in any judicial proceedings relative to the Corporation, its creditors
or its property and, unless prohibited by law or applicable regulations, may
vote on behalf of the Holders in any election of a trustee in bankruptcy or
other person performing similar functions.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such
proceedings.
SECTION 6.10. Priorities. If the Trustee collects any money
pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to holders of Senior Indebtedness to the extent
required by Article XI;
Third: to Noteholders for amounts due and unpaid on the Notes
for the Maturity Payment Amount, Note Redemption Price or, if
applicable, the Acceleration Price, and interest, ratably, without
preference or priority of any kind, according to the amounts due and
payable on the Notes for such Maturity Payment Amount or Note
Redemption Price and interest, respectively; and
Fourth: to the Corporation.
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30
The Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section.
SECTION 6.11. Undertaking for Costs. In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section does not apply to a
suit by the Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by
Holders of more than 10% in aggregate Principal Amount of the Notes then
outstanding.
SECTION 6.12. Restoration of Rights on Abandonment of
Proceedings. In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
for any reason, or shall have been determined adversely to the Trustee, then and
in every such case the Corporation and the Trustee shall be restored
respectively to their former positions and rights hereunder, and all rights,
remedies and powers of the Corporation, the Trustee and the Holders shall
continue as though no such proceedings had been taken.
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default
has occurred and is continuing, the Trustee shall exercise its rights and powers
and use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others; and
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31
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall examine the certificates
and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of
paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with the
direction of Noteholders received by it pursuant to this Indenture.
(d) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Corporation. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
(f) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity or security reasonably satisfactory
to it against any loss, liability or expense.
(g) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any of its
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32
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
SECTION 7.02. Rights of Trustee. (a) Subject to Section 7.01,
the Trustee may rely on any document believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not investigate
any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
and in accordance with the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed by it in
good faith and with due care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute wilful misconduct, negligence or bad faith.
SECTION 7.03. Individual Rights of Trustee, etc. The Trustee
in its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Corporation or its Affiliates with the same
rights it would have if it were not Trustee. Any Paying Agent, Registrar or
co-registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Corporation's use of the proceeds from the
Notes and it shall not be responsible for any statement herein or in the Notes
other than its certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to a Trust Officer, the Trustee shall mail to each
Noteholder notice of the Default within 90 days after it occurs. Except in the
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case of a default in payment on any Note, the Trustee may withhold the notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Noteholders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days
after each May 15 beginning with the May 15 following the date of this
Indenture, the Trustee shall mail to each Noteholder to the extent required by
the TIA a brief report dated as of May 15 that complies with TIA ss. 313(a) or
any successor provision thereto. The Trustee also shall comply to the extent
required by the TIA with TIA 'ss' 313(b)(2) or any successor provision thereto.
A copy of each report at the time of its mailing to
Noteholders shall be filed with the SEC and each stock exchange or other
self-regulatory organization on which the Notes are listed. The Corporation
agrees to notify the Trustee whenever the Notes become listed on any stock
exchange or other self-regulatory organization and if any partial redemption of
the Note would result in a delisting of the Notes (or the Preferred Securities)
on any such stock exchange or self-regulatory organization.
SECTION 7.07. Compensation and Indemnity. The Corporation
shall pay to the Trustee from time to time reasonable compensation for its
services. The Corporation shall reimburse the Trustee upon request for all
reasonable out-of-pocket expenses incurred by it. Such expenses shall include
the reasonable compensation and expenses of the Trustee's agents and counsel.
The Corporation shall indemnify the Trustee against any loss or liability
incurred by it arising out of or in connection with the acceptance or
administration of this trust and its duties hereunder. The Trustee shall notify
the Corporation promptly of any claim for which it may seek indemnity. The
Corporation need not reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through wilful misconduct, negligence or bad
faith.
To secure the Corporation's payment obligations in this
Section 7.07, the Trustee shall have a senior claim to which the Notes are
hereby made subordinate on all money or property held or collected by the
Trustee, except such money or property held in trust to pay the Maturity Payment
Amount, Note Redemption Price or, if applicable, the Acceleration Price of and
interest on particular Notes.
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34
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(4) or (5) occurs, the expenses and
the compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Notwithstanding any other provision in this Indenture,
amounts payable under this Section 7.07 are not subject to the subordination
provisions of Article XI.
The Corporation's obligations under this Section 7.07 and any
lien arising hereunder shall survive the resignation or removal of the Trustee,
the discharge of the Corporation's obligations hereunder and the termination of
this Indenture.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
by so notifying the Corporation. The Holders of a majority in aggregate
Principal Amount of the Notes then outstanding may remove the Trustee by so
notifying the removed Trustee and may appoint a successor Trustee with the
Corporation's consent. The Corporation shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, then, unless the Noteholders shall
appoint a successor Trustee as provided above, the Corporation shall promptly
appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Corporation. Immediately after
that, upon payment to the retiring Trustee of all amounts due it under this
Indenture, the retiring Trustee shall transfer all property held by it as
Trustee to the successor Trustee, the resignation or removal of the retiring
Trustee shall then
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35
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Corporation or the Holders of a majority in aggregate Principal Amount of the
Notes then outstanding may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
SECTION 7.09. Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
SECTION 7.10. Eligibility; Disqualification. To the extent
required by the TIA, this Indenture shall always have a Trustee who satisfies
the requirements of TIA 'ss' 310(a)(1) or any successor provision thereto. The
Trustee shall have a combined capital and surplus of at least $5,000,000 as set
forth in its most recent published annual report of condition. To the extent
required by the TIA, the Trustee shall comply with TIA 'ss' 310(b) or any
successor provision thereto, including the optional provision permitted by the
second sentence of TIA 'ss' 310(b)(9) or any successor provision thereto. In
determining whether the Trustee has conflicting interests as defined in TIA 'ss'
310(b)(1) or any successor provision thereto, the provisions contained in the
proviso to TIA 'ss' 310(b)(1) or any successor proviso shall be deemed
incorporated herein.
SECTION 7.11. Preferential Collection of Claims Against
Corporation. The Trustee shall comply with TIA 'ss' 311(a), excluding any
creditor relationship listed in TIA 'ss' 311(b). A Trustee who has resigned or
been removed shall be subject to TIA 'ss' 311(a) to the extent indicated.
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36
ARTICLE VIII
Satisfaction and Discharge of Indenture
SECTION 8.01. Satisfaction and Discharge of Indenture. If at
any time (a) the Corporation shall have delivered to the Trustee for
cancellation all Notes theretofore authenticated (other than any Notes
destroyed, lost or stolen and replaced as provided in Section 2.07) or (b) all
such Notes not theretofore delivered to the Trustee for cancellation (i) shall
have become due and payable, (ii) are by their terms to become due and payable
within one year or (iii) are to be called for redemption within one year (such
proposed date of redemption the 'Discharge Date') under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Corporation shall irrevocably deposit during the one-year period with the
Trustee as trust funds an amount (other than moneys paid to the Corporation in
accordance with Section 8.03) sufficient to pay at maturity the Maturity Payment
Amount assuming the Exchange Valuation Price for the five Trading Days
immediately preceding December 17, 1997 is $54.41 or upon redemption the Note
Call Price at the Discharge Date on all such Notes not theretofore delivered to
the Trustee for cancellation, and Article XI permits such deposit, and if, in
either case, the Corporation shall also pay all other sums payable hereunder by
the Corporation, then this Indenture shall cease to be of further effect, and
the Trustee, on demand of and at the cost and expense of the Corporation, shall
execute proper instruments acknowledging satisfaction of and discharging this
Indenture; provided, however, that the provisions of Sections 7.07 and 8.03
shall survive and the provisions of Sections 2.03, 2.04, 2.05, 2.06, 2.07, 7.08,
7.09 and 8.03 and Article X shall survive until no Notes are outstanding. Any
amount deposited with the Trustee under this Section for the payment of Notes
shall at the written direction of the Corporation be invested by the Trustee in
securities backed by the full faith and credit of the United States the
principal amount and maturity of which will ensure the availability of funds
sufficient to pay such Notes at maturity or upon redemption. Excess investment
income derived from such Securities shall be paid over to the Corporation upon
request. The Corporation will reimburse the Trustee for any costs or expenses
thereafter reasonably and properly incurred by the Trustee in connection with
this Indenture or the Notes.
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SECTION 8.02. Application of Trust Money. The Trustee shall
hold in trust money deposited with it pursuant to Section 8.01. It shall apply
the deposited money in accordance with this Indenture, first, to the payment of
amounts owed pursuant to Section 7.07 and, second, through the Paying Agent to
the payment of the Maturity Payment Amount or the Note Call Price (in each case
calculated as described in Section 8.01) and interest on the Notes to the extent
the actual Maturity Payment Amount is less than the amount provided for at
maturity pursuant to Section 8.01, the Holders shall be entitled to receive only
such lesser amount, and any excess shall be refunded to the Corporation. Money
so held in trust is not subject to Article XI.
SECTION 8.03. Repayment to Corporation. The Trustee and the
Paying Agent shall promptly pay or deliver to the Corporation upon request any
excess money or securities held by them at any time. The Trustee and the Paying
Agent shall pay to the Corporation upon request any money held by them for the
payment of principal or interest that remains unclaimed for one year; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Corporation cause to be published
once in a newspaper of general circulation in The City of New York and mail to
each such Holder notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Corporation. After payment to the Corporation, Noteholders
entitled to the money must look to the Corporation for payment as general
creditors unless an applicable abandoned property law designates another
Person.
ARTICLE IX
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders. The Corporation may
amend or supplement this Indenture or the Notes without notice to or consent of
any Noteholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article V;
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(3) to provide for uncertificated Notes in addition to or in
place of certificated Notes; or
(4) to make any change that does not adversely affect the
rights of any Noteholder.
The Trustee may waive compliance by the Corporation with any
provision of this Indenture or the Notes without notice to or consent of any
Noteholder if the waiver does not adversely affect the rights of any Noteholder.
SECTION 9.02. With Consent of Holders. The Corporation may
amend or supplement this Indenture or the Notes without notice to any Noteholder
but with the written consent of the Holders of a majority in aggregate Principal
Amount of the Notes then outstanding. The Holders of a majority in aggregate
Principal Amount of the Notes then outstanding may waive any past default or
compliance by the Corporation with any provision of this Indenture or the Notes
without notice to any Noteholder except a default in payment of the Maturity
Payment Amount or the Note Redemption Price of or interest on any of the Notes
or as provided below. The Trustee may set a record date for determining which
Holders are entitled to consent to any such amendment, supplement or waiver. The
consent of Holders of a majority in aggregate Principal Amount of the Notes then
outstanding as of such record date shall be sufficient to effect any such
amendment, supplement or waiver. However, without the consent of each Noteholder
affected, an amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, may not:
(1) reduce the amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of
interest on any Note;
(3) alter the method of calculation of, or reduce, the
Maturity Payment Amount or extend the fixed maturity of any Note;
(4) reduce the premium payable, or alter the method of
calculation of the Note Redemption Price, upon any redemption of any
Note;
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(5) make any Note payable in money or property other than
that stated in the Note;
(6) make any change in Article XI that adversely affects the
rights of any Noteholder; or
(7) make any change in Section 6.04 or 6.07 or this Section
9.02.
SECTION 9.03. Compliance with Trust Indenture Act. Every
amendment to or supplement of this Indenture or the Notes shall be set forth in
a supplemental indenture which complies with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents. A consent to
an amendment, supplement or waiver by a Holder of a Note shall bind the Holder
and every subsequent Holder of that Note or portion of the Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on the Note. However, any such Holder or subsequent Holder may
revoke the consent as to such Holder's Note or portion of the Note. The Trustee
must receive the notice of revocation before the date the amendment, supplement
or waiver becomes effective.
After an amendment, supplement or waiver becomes effective,
it shall bind every Noteholder unless it makes a change described in clause (2),
(3), (4), (5) or (6) of Section 9.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a security that evidences the same
debt as the consenting Holder's Note.
SECTION 9.05. Notation on or Exchange of Notes. If an
amendment, supplement or waiver changes the terms of a Note, the Trustee may
require the Holder of the Note to deliver it to the Trustee. The Trustee may
place an appropriate notation on the Note about the changed terms and return it
to the Holder. Alternatively, if the Corporation or the Trustee so determines,
the Corporation in exchange for the Note shall issue and the Trustee shall
authenticate a new Note that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, etc. The Trustee
shall sign any amendment, supplement or waiver authorized pursuant to this
Article if the amendment, supplement or waiver does not adversely affect the
rights,
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duties, liabilities or immunities of the Trustee. If it does, the Trustee may
but need not sign it. In signing such amendment, supplement or waiver the
Trustee shall be entitled to receive, and (subject to Section 7.01) shall be
fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that such amendment, supplement or waiver is authorized or
permitted by this ndenture and all conditions precedent to such amendment,
supplement or waiver have been satisfied.
ARTICLE X
Exchange Right
SECTION 10.01. Exchange Right. In the event that, pursuant to
Section 3.03 hereof or otherwise, the Notes held by the Property Trustee are
distributed to Holders of the Preferred Securities, the Corporation shall have
the right (the 'Exchange Right'), exercisable upon notice to such Holders of the
Notes as provided below, to require such Holders to exchange their Notes or
Exchange Property and, at the option of the Corporation, cash.
SECTION 10.02. Exchange Rights Upon Maturity. (a) Subject to
Section 10.01, upon maturity of the Notes, the Corporation may exercise the
Exchange Right by giving notice of such exercise to the Trustee no later than
11:59 p.m., New York time, on the second Business Day following December 17,
1997.
(b) If the Corporation shall have exercised the Exchange
Right in respect of the Maturity Date, on the Maturity Date, each Minimum
Denomination of Notes shall be exchanged for (i) Exchange Property in respect
of the portion of such Notes to be exchanged for Exchange Property based on the
Exchange Rate in effect on the Trading Day immediately preceding December
17, 1997, (ii) cash in respect of the portion, if any, of such Notes that are
not to be exchanged for Exchange Property, calculated by subtracting from the
Maturity Payment Amount the value of the Exchange Property to be delivered
(based on the Exchange Valuation Price of such Exchange Property as of the
Trading Day immediately preceding December 17, 1997), and (iii) cash in an
amount equal to all accrued and unpaid interest on such Notes to but excluding
the Maturity Date; provided that if the Exchange Valuation Price, as of
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the Trading Day immediately preceding December 17, 1997, of the Exchange
Property that relates to the Minimum Denomination of Notes is greater than
$54.41, the Corporation shall deliver in exchange for each Minimum Denomination
of Notes in respect of which it exercised the Exchange Right (1) Exchange
Property (valued on the basis of its Exchange Valuation Price as of such Trading
Day) and (2) at the option of the Corporation, cash, having an aggregate value
equal to $54.41 per Minimum Denomination and (b) cash in an amount equal to all
accrued and unpaid interest on such Notes, to but excluding the Maturity Date.
SECTION 10.03. Optional Redemption and Special Redemption.
(a) Subject to Section 10.01, the Corporation may exercise the Exchange Right by
giving notice of such exercise to the Trustee no later than 11:59 p.m., New York
time, on the Business Day immediately preceding any Optional Redemption Date or
Special Redemption Date, in respect of the Notes to be redeemed on any Optional
Redemption Date or Special Redemption Date, as the case may be.
(b) If the Corporation shall have exercised the Exchange
Right in respect of any Redemption Date, each Minimum Denomination of Notes
shall be exchanged for (i)(A) Exchange Property (valued on the basis of its
Exchange Valuation Price as of the Trading Day immediately preceding the
applicable Redemption Date) and (B) at the option of the Corporation, cash,
having an aggregate value equal to the applicable Note Redemption Price in
effect for such Minimum Denomination of Notes on such Redemption Date, and (ii)
cash in an amount equal to all accrued and unpaid interest on such Notes to but
excluding the applicable Redemption Date.
(c) In accordance with Section 10.02 and the foregoing
provisions of Section 10.03, in the event that the Corporation shall exercise
the Exchange Right and elect to deliver Exchange Property with respect to only a
portion of the Notes, Holders of the Notes to be redeemed shall be entitled to
receive from the Corporation for each Note held by such Holder, the same types,
amounts and relative proportions of Exchange Property and cash as every other
Holder of the Notes to be redeemed.
SECTION 10.04. Definitions. (a) The 'Exchange Property' per
Minimum Denomination on any date shall
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consist of (i) as of [ ], 1995,(1) one share of Hasbro Common Stock (in the
aggregate, the 'Initial Shares'), (ii) any cash or other property (other than
cash dividends and other cash distributions, if any, paid by the Issuer that do
not constitute Extraordinary Cash Dividends and other than interest, if any,
paid in respect thereof) issued or distributed on or after [ ], 1995, in respect
of the Initial Shares or other Exchange Property, (iii) any cash or other
property issued or distributed on or after [ ], 1995, upon the exchange or
conversion of such shares of Hasbro Common Stock or other Exchange Property,
including upon any reorganization, consolidation or merger or any sale or
transfer or lease of all or substantially all the assets of the Issuer of such
Exchange Property and (iv) any cash or other property paid by an offeror in
connection with a tender or exchange offer for Exchange Property of a particular
type as set forth below; provided that Exchange Property shall not include any
property distributed in respect of Exchange Property for which an antidilution
adjustment has been made pursuant to the Declaration.
In the case of a tender or exchange offer for all Exchange
Property of a particular type, the Exchange Property shall be deemed to include
all cash or other property paid by the offeror in the tender or exchange offer
(in an amount determined on the basis of the rate of exchange in such tender or
exchange offer), whether or not the Corporation tenders or exchanges such
Exchange Property. In the event of a partial tender or exchange offer, with
respect to Exchange Property of a particular type, Exchange Property shall be
deemed to include cash or other property paid by the offeror in the tender or
exchange offer in an amount determined as if the offeror had purchased or
exchanged Exchange Property from the Corporation in the proportion in which all
property of such type was purchased or exchanged from the holders thereof;
provided that if the Corporation tenders all its Exchange Property of such type,
the amount of cash or other property received that will constitute Exchange
Property will be determined on the basis of the amount of such cash or other
property actually received by the Corporation. Except as provided above, in the
event of a tender or exchange offer with respect to the Exchange Property in
which an offeree may elect to receive cash or other property, Exchange Property
shall be deemed to
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(1) Insert date of Prospectus.
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include the kind and amount of cash and other property received by offerees who
elect to receive cash.
(b) The 'Exchange Rate' means initially one share of Hasbro
Common Stock per Minimum Denomination, subject to certain antidilution
adjustments as set forth in Section 10.08. The Exchange Rate for any other
Exchange Property will be determined on the basis of the portion of Exchange
Property in respect of which such Exchange Property is issued, distributed or
exchanged.
(c) The 'Exchange Valuation Price' of each item of property
comprising the Exchange Property on, or as of, any date means the average of the
Purchase Sale Prices (as defined below) of the applicable Exchange Property for
the five Trading Day period ending on and including such date, appropriately
adjusted to take into account the occurrence, during such period, of any
Exchange Adjustment Event (as defined in Section 10.08(a)) with respect to such
Exchange Property. The 'Purchase Sale Price' on any date means the closing per
share sale price for the applicable Exchange Property (or, if no closing sale
price is reported, the average of the bid and ask prices or, if more than one in
either case, the average of the average bid and average ask prices) on such date
as reported in the composite transactions for the principal United States
securities exchange on which such Exchange Property is traded or, if such
Exchange Property is not listed on a United States national or regional
securities exchange, as reported by NASDAQ, or, if such Exchange Property is not
reported by NASDAQ, the high per share bid price for such Exchange Property in
the over-the-counter market as reported by the National Quotation Bureau or
similar organization, or, if such bid price is not available, the per unit
market value of such Exchange Property on such date as determined by a
nationally recognized investment banking firm retained for such purpose by the
Corporation.
(d) The term 'Trading Day' means a day on which the AMEX (or
any successor thereto) or, to the extent that neither the Hasbro Common Stock
nor any other Exchange Property is listed on the AMEX, such other national
securities exchanges on which the Exchange Property is listed or, if none, the
NYSE, is open for the transaction of business.
(e) 'Non-Equity Security' means any security or property
which is not (i) common stock; (ii) a security
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convertible or exchangeable into common stock or participating without
limitation in earnings and dividends in parity with common stock; (iii) a
warrant or option to purchase common stock; or (iv) listed or admitted to
trading on a United States national or regional securities exchange or reported
by the NASDAQ National Market System.
SECTION 10.05. Notice of Exercise. (a) Upon any election by
the Corporation to exercise the Exchange Right, the Corporation shall provide
written notice to the Trustee as set forth in Section 10.02 or 10.03 of (i) the
Corporation's election to exercise the Exchange Right, (ii) a description of the
type and amount of Exchange Property to be delivered in respect of each Minimum
Denomination, (iii) if applicable, the respective portions of Exchange Property
and cash to be delivered and (iv) in connection with an exercise pursuant to
Section 10.03, the applicable Redemption Date.
(b) The Corporation shall cause notice of such exercise of
the Exchange Right to be published by means of the Dow Jones Business Newswires
Service promptly after providing notice of such exercise to the Trustee.
SECTION 10.06. Delivery of Exchange Property; Effect on
Holders. (a) Delivery of the Exchange Property to the Holders of any Notes in
connection with the maturity or redemption thereof will be conditioned upon
delivery or book-entry transfer of such Notes (together with necessary
endorsements) to the Trustee at any time (whether prior to, on or after the
applicable Redemption Date) after notice of the exercise of the Exchange Right
is given to the Trustee. In such event, such Exchange Property with respect to
such Notes shall be delivered to each Holder of Notes to be redeemed no later
than the later of (i) the applicable Redemption Date or (ii) the time of
delivery or transfer of such Notes. If, following any exercise of the Exchange
Right, the Trustee holds, (A) Exchange Property in respect of the portion of the
Notes that are to be exchanged for Exchange Property, (B) cash in respect of the
portion, if any, of the Notes not to be exchanged for Exchange Property, and (C)
cash in an amount equal to all accrued and unpaid interest on all such Notes to
be redeemed to the applicable Redemption Date, then at the close of business on
such Redemption Date, whether or not such Notes are delivered to the Trustee,
(1) the Corporation will become
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the owner and record Holder of such Notes and (2) the Holders of such Notes
shall have no further rights with respect to the Notes other than the right to
receive the Exchange Property, together with cash as described above, upon
delivery of the Notes.
SECTION 10.07. Fractional Shares. (a) No fractional shares or
other units of Exchange Property will be issued upon the exercise by the
Corporation of the Exchange Right. In lieu of any fractional share or other unit
of Exchange Property otherwise issuable in respect of all Notes of any Holder,
including any Clearing Agency, that are redeemed or exchanged on any Redemption
Date, or upon maturity, the Corporation shall make a cash payment in respect of
such fractional interest in an amount equal to the same fraction of the Exchange
Valuation Price of the Exchange Property deliverable upon such redemption or
maturity, determined as of the Trading Day immediately preceding such Redemption
Date or the Maturity Date, as the case may be.
(b) To the extent that the Notes are exchanged for Exchange
Property and all such Exchange Property cannot be distributed by the Depository
Trust Company or such other Person who may be acting in the capacity of
depositary (the 'Depositary') to its participants that are beneficial holders
of the Notes without creating fractional interests in the shares or units making
up such Exchange Property, the Depositary may, with the Corporation's consent,
adopt such method as it deems equitable and practicable for the purpose of
effecting such distribution, including the sale (at public or private sale) of
such Exchange Property representing in the aggregate such fractional interests
at such place or places and upon such terms as it may deem proper, and the net
proceeds of any such sale shall be distributed or made available for
distribution to such record Holders that would otherwise have received such
fractional interests. The amount distributed in the foregoing cases will be
reduced by any amount required to be withheld by the Depositary on account of
withholding taxes or otherwise required pursuant to law, regulation or court
process.
SECTION 10.08. Adjustment of Exchange Rate. The Exchange Rate
shall be subject to adjustment and the Exchange Property shall be subject to
change as follows:
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(a) The Exchange Rate shall be adjusted (and, if applicable,
the Exchange Property shall be changed) upon the (i) distribution of a dividend
on Exchange Property in the same type of Exchange Property, (ii) combination of
Exchange Property into a smaller number of shares or other units, (iii)
subdivision of outstanding shares or other units of Exchange Property, (iv)
conversion or reclassification of Exchange Property by issuance or exchange of
other securities or (v) a consolidation, merger or binding share exchange or a
transfer of all or substantially all of the assets of the Issuer of such
Exchange Property (each of the foregoing an 'Exchange Adjustment Event'). In
such an event, the Exchange Rate in effect immediately before such action shall
be adjusted (and if applicable the Exchange Property shall be changed) to
reflect the amount of cash or the kind and amount of property that a Holder of
Exchange Property would have owned or been entitled to receive upon or by reason
of such event if the Notes had been exchanged for such Exchange Property
immediately before such event. Such adjustment shall become effective
retroactively immediately after the record date, in the case of a dividend or
distribution and shall become effective retroactively immediately after the
effective date in the case of a subdivision, combination, conversion,
reclassification, consolidation, merger, share exchange or transfer specified in
this Section 10.08(a). For the purposes of this Section 10.08(a), each Holder
shall be deemed to have failed to exercise any right to elect the kind or amount
of Exchange Property receivable upon the payment of any such dividend,
subdivision, combination, conversion, reclassification, consolidation, merger,
share exchange or transfer specified in this Section 10.08(a), provided that if
the kind or amount of Exchange Property receivable upon such dividend,
subdivision, combination, conversion, reclassification, consolidation, merger,
share exchange or transfer specified in this Section 10.08(a) is not the same
for each nonelecting share or other unit, then the kind and amount of property
receivable upon such dividend, subdivision, combination, conversion,
reclassification, consolidation, merger, share exchange or transfer specified in
this Section 10.08(a) for each nonelecting share shall be deemed to be the kind
and amount so receivable per share or other unit by a plurality of the
nonelecting shares or other units.
(b) Upon a distribution of cash or other property (including
rights, warrants or other securities) on Exchange Property of a particular type
(excluding (i) ordinary
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periodic cash dividends and distributions, if any, paid from time to time by an
Issuer that do not constitute Extraordinary Cash Dividends, (ii) interest
(whether in cash, securities or other property), if any, paid in respect thereof
and (iii) dividends payable in Exchange Property for which adjustment is made in
Section 10.08(a), if any), the Exchange Rate shall be adjusted, subject to the
provisions of paragraph (C) of this Section 10.08(b), in accordance with the
following formula:
R' = R x M
-
M-F
where:
R' = the adjusted Exchange Rate.
R = the then current Exchange Rate.
M = the Average Quoted Price, minus, in the case of
a distribution of Capital Stock on Exchange
Property for which (i) the record date shall occur
on or before the record date for the distribution
to which this Section 10.08(b) applies and (ii)
the Ex-Dividend Time (as defined below) shall
occur on or after the date of the Time of
Determination (as defined below) for the
distribution to which this Section 10.08(b)
applies, the fair market value (on the record date
for the distribution to which this Section
10.08(b) applies) of such Capital Stock
distributed in respect of Exchange Property.
F = the fair market value (on the record date for the
distribution to which this Section 10.08(b)
applies) of cash or other property (including
rights, warrants or other securities) to be
distributed in respect of each share or unit of
Exchange Property of a particular type in the
distribution to which this Section 10.08(b) is
being applied (including, in the case of cash
dividends or other cash distributions giving rise
to an adjustment, all such cash distributed
concurrently).
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48
The Board of Directors of the Corporation shall
determine fair market values for the purposes of
this Section 10.08(b).
The adjustment shall become effective immediately after the
record date for the determination of those shareholders entitled to receive the
distribution to which this Section 10.08(b) applies.
For purposes of this Section 10.08(b), the term
'Extraordinary Cash Dividend' shall mean any cash dividend with respect to
Exchange Property the amount of which, together with the aggregate amount of
such cash dividends on the Exchange Property to be aggregated with such cash
dividend in accordance with the provisions of this paragraph, equals or exceeds
the threshold percentages set forth in paragraph (A) or (B) below:
(A) If, upon the date prior to the Ex-Dividend Time with
respect to a cash dividend on Exchange Property, the aggregate amount
of such cash dividend together with the amounts of all cash dividends
on Exchange Property with Ex-Dividend Times occurring in the 85
consecutive day period ending on the date prior to the Ex-Dividend Time
with respect to the cash dividend to which this provision is being
applied equals or exceeds on a per share basis 12.5% of the average of
the Quoted Prices during the period beginning on the date after the
first such Ex-Dividend Time in such period and ending on the date prior
to the Ex-Dividend Time with respect to the cash dividend to which this
provision is being applied (except that if no other cash dividend has
had an Ex-Dividend Time occurring in such period, the period for
calculating the average of the Quoted Prices shall be the period
commencing 85 days prior to the date prior to the Ex-Dividend Time with
respect to the cash dividend to which this provision is being applied),
such cash dividend together with each other cash dividend with an
Ex-Dividend time occurring in such 85 day period shall be deemed to be
an Extraordinary Cash Dividend and for purposes of applying the formula
set forth above in this Section 10.08(b), the value of 'F' shall be
equal to (w) the aggregate amount of such cash dividend together with
the amounts of the other cash dividends with Ex-Dividend Times
occurring in such period minus (x) the aggregate amount of such other
cash dividends with Ex-Dividend Times occurring in such period for
<PAGE>
49
which a prior adjustment in the Exchange Rate was previosly made under
this Section 10.08(b).
(B) If, upon the date prior to the Ex-Dividend Time with
respect to a cash dividend on the Exchange Property, the aggregate
amount of such cash dividend together with the amounts of all cash
dividends on Exchange Property with Ex-Dividend Times occurring in the
365 consecutive day period ending on the date prior to the Ex-Dividend
Time with respect to the cash dividend to which this provision is being
applied equals or exceeds on a per share basis 25% of the average of
the Quoted Prices (as defined below) during the period beginning on the
date after the first such Ex-Dividend Time in such period and ending on
the date prior to the Ex-Dividend Time with respect to the cash
dividend to which this provision is being applied (except that if no
other cash dividend has had an Ex-Dividend Time occurring in such
period, the period for calculating the average of the Quoted Prices
shall be the period commencing 365 days prior to the date prior to the
Ex-Dividend Time with respect to the cash dividend to which this
provision is being applied), such cash dividend together with each
other cash dividend with an Ex-Dividend Time occurring in such 365 day
period shall be deemed to be an Extraordinary Cash Dividend and for
purposes of applying the formula set forth above in this Section
10.08(b), the value of 'F' shall be equal to (y) the aggregate amount
of such cash dividend together with the amounts of the other cash
dividends with Ex-Dividend Times occurring in such period minus (z) the
aggregate amount of such other cash dividends with Ex-Dividend Times
occurring in such period for which a prior adjustment in the Exchange
Rate was previously made under this Section 10.08(b).
In making the determinations required by paragraphs (A) and
(B) above, the amount of cash dividends paid on a per share basis and
the average of the Quoted Prices, in each case during the period
specified in paragraphs (A) and (B) above, as applicable, shall be
appropriately adjusted to reflect the occurrence during such period of
any event described in Section 10.08(a).
(C) In the event that, with respect to any distribution to
which this Section 10.08(b) would otherwise apply, 'F' is equal to or
greater than 'M',
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50
then the adjustment provided by this Section 10.08(b) shall not be made
and the property received upon the distribution in respect of Exchange
Property shall constitute Exchange Property.
'Quoted Price' means, for any given day, the last reported
per share sale price (or, if no sale price is reported, the average of the bid
and ask prices or, if more than one in either case, the average of the average
bid and average ask prices) on such day of Exchange Property in the composite
transactions for the principal United States national or regional securities
exchange on which such shares are traded, or, if such Exchange Property is not
listed on a United States national or regional securities exchange, as reported
by NASDAQ, or, if such shares are not reported by NASDAQ, the high per share bid
price for such share in the over-the-counter market on such date as reported by
the National Quotation Bureau or similar organization satisfactory to the Paying
Agent. If such bid price is not available, the Quoted Price shall not be
determinable.
'Average Quoted Price' means the average of the Quoted Prices
of Exchange Property for the shortest of:
(i) 30 consecutive Trading Days ending on the last full
trading day prior to the Time of Determination with respect to the
distribution in respect of which the Average Quoted Price is being
calculated;
(ii) the period (x) commencing on the date next succeeding
the first public announcement of the distribution in respect of which
the Average Quoted Price is being calculated and (y) proceeding through
the last full trading day prior to the Time of Determination with
respect to the distribution in respect of which the Average Quoted
Price is being calculated (excluding days within such period, if any,
which are not trading days); and
(iii) the period, if any, (x) commencing on the date next
succeeding the Ex-Dividend Time with respect to the next preceding
distribution for which an adjustment is required by the provisions of
Section 10.08(b) and (y) proceeding through the last full trading day
prior to the Time of Determination with respect to the distribution in
respect of which the Average Quoted
<PAGE>
51
Price is being calculated (excluding days within such period, if any,
which are not trading days).
In the event that the Ex-Dividend Time (or in the case of a
subdivision, combination or reclassification, the effective date with respect
thereto) with respect to a dividend, subdivision, combination or
reclassification to which Section 10.08(a) applies occurs during the period
applicable for calculating 'Average Quoted Price' pursuant to the definition in
the preceding sentence, 'Average Quoted Price' shall be calculated for such
period in a manner determined by the Board of Directors of the Corporation to
reflect the impact of such dividend, subdivision, combination or
reclassification on the Quoted Price of such Exchange Property during such
period.
Notwithstanding the foregoing, if a Quoted Price shall not be
determinable pursuant to the definition thereof, then the Average Quoted Price
shall mean the per share market value of the Exchange Property as of the last
full trading day prior to the Time of Determination as determined by a
nationally recognized investment banking firm retained by the Corporation for
such purpose.
'Time of Determination' means the time and date of (i) the
determination of shareholders entitled to receive cash or other property
(including rights, warrants or other securities) on Exchange Property of a
particular type in each case to which this Section 10.08(b) applies and (ii) the
time ('Ex-Dividend Time') immediately prior to the commencement of 'ex-dividend'
trading for such property or distribution on the principal United States
national or regional exchange or market on which the Exchange Property is then
listed or quoted.
Notwithstanding the foregoing, the Corporation shall be
entitled, by notice to the Trustee not later than the close of business on the
fifth Business Day following the date of any distribution referred to in this
Section 10.08(b) (or if the Corporation is not aware of such distribution, as
soon as practicable after becoming so aware), to elect not to have the
antidilution adjustments of this Section 10.08(b) apply, in which case the
property received upon the distribution in respect of Exchange Property shall
constitute Exchange Property; provided that if rights, warrants, options or
similar securities are distributed on Exchange Property and such rights,
warrants, options or similar securities expire before the Maturity
<PAGE>
52
Date, then the Corporation shall adjust the Exchange Rate under this Section
10.08(b).
(c) If any Issuer controlled by the Corporation or its
Affiliates, at any time any Notes are then outstanding, issues shares or units
of any Exchange Property for a consideration per share or unit less than the
Average Quoted Price per share or unit on the date such Issuer fixes the issue
price of such additional shares or units, the Exchange Rate for such Exchange
Property shall be adjusted in accordance with the following formula:
A
----
E' = E x P
---
O + M
where:
E' = the adjusted Exchange Rate
E = the then current Exchange Rate
O = the number of shares or units of such security which includes
Exchange Property outstanding immediately prior to the
issuance of such additional shares or units.
P = the aggregate consideration received for the issuance of such
additional shares or units.
M = the Average Quoted Price per share or unit on the date of
issuance of such additional shares or units.
A = the number of shares or units of such class of such security
which includes Exchange Property outstanding immediately
after the issuance of such additional shares or units.
Any Holder of Notes in respect of which the Exchange Right
shall be exercised after the date of such issuance shall be entitled to receive
Exchange Property at the Exchange Rate as so adjusted pursuant to this Section
10.08(c). The adjustment shall be made successively
<PAGE>
53
whenever any such issuance is made, and shall become effective immediately after
such issuance.
This Section 10.08(c) does not apply to (i) the exchange of
Notes or the issuance of any security upon the conversion, exchange or exercise
of other securities convertible into or exchangeable or exercisable for Exchange
Property, (ii) securities issued to any Issuer's employees under bona fide
employee benefit plans approved by an Issuer's board of directors (but only to
the extent that the aggregate number of shares or units excluded hereby and
issued after the date of this Indenture shall not exceed 10% of such securities
outstanding at the time of the adoption of each such plan, exclusive of
antidilution adjustments thereunder), (iii) securities issued upon the exercise
of rights or warrants issued pro rata to all of the holders of such securities,
(iv) securities issued in a bona fide public offering pursuant to a firm
commitment underwriting, or (v) securities issued in connection with a bona fide
acquisition to any Person or to the shareholders of any Person in exchange for
the stock or assets of such Person, which Person is not controlling, controlled
by, or under common control with the Corporation or any Affiliate of the
Corporation. For the purposes of this Section 10.08(c), in determining whether
securities issued to an Issuer's employees under bona fide employee benefit
plans approved by such Issuer's board of directors were issued for a
consideration (per share or unit) that is less than the Average Quoted Price
(per share or unit) of such securities, the Average Quoted Price of such
securities on the date such securities are awarded or granted to the Issuer's
employees under such plans.
(d) If any Issuer controlled by the Corporation or its
Affiliates, at any time any Notes are then outstanding, issues any securities
convertible into or exchangeable or exercisable for shares or units of any
Exchange Property (the 'Underlying Exchange Property') for a total consideration
per share or unit issuable upon conversion, exchange or exercise of such
convertible, exchangeable or exercisable securities less than the current
Average Quoted Price per share or unit of the Underlying Exchange Property on
the date of issuance of such convertible, exchangeable or exercisable
securities, the
<PAGE>
54
Exchange Rate shall be adjusted in accordance with the following formula:
O + D
-----
E' = E x P
---
O + M
where:
E' = the adjusted Exchange Rate.
E = the then current Exchange Rate.
O = the number of shares or units of the Underlying Exchange
Property outstanding immediately prior to the issuance of such
convertible, exchangeable or exercisable securities.
P = the aggregate consideration received in respect of such
convertible, exchangeable or exercisable securities (including
consideration receivable upon such conversion, exchange or
exercise, if any).
M = the current Average Quoted Price per share or unit of the
Underlying Exchange Property on the date of issuance of such
convertible, exchangeable or exercisable securities.
D = the maximum number of shares or units of the Underlying
Exchange Property issuable upon conversion, exchange or
exercise of such convertible, exchangeable or exercisable
securities at the initial conversion or exchange rate or
exercise price.
Any Holder exchanging any Notes after the date of such
issuance shall be entitled to receive Exchange Property at the Exchange Rate as
so adjusted pursuant to this Section 10.08(d), but subject to the provisions for
readjustment set forth in this Section 10.08(d). The adjustment shall be made
successively whenever any such issuance is made, and shall become effective
immediately after such issuance. If all of the Exchange Property deliverable
upon conversion, exchange or exercise of such convertible, exchangeable or
exercisable securities have not been issued when such securities are no longer
outstanding,
<PAGE>
55
then the Exchange Rate shall promptly be readjusted to the Exchange Rate which
would then be in effect had the adjustment upon the issuance of such
convertible, exchangeable or exercisable securities been made on the basis of
the actual number of shares or units of such Exchange Property issued upon
conversion, exchange or exercise of such securities.
This Section 10.08(d) does not apply to (i) securities
convertible into or exchangeable or exercisable for Exchange Property issued to
any Issuer's employees under bona fide employee benefit plans approved by an
Issuer's board of directors (but only to the extent that the aggregate number of
shares excluded hereby and issued after the date of this Indenture shall not be
convertible into or exchangeable or exercisable for more than 10%, at the time
of adoption of each such plan, of the outstanding shares or other units of such
Exchange Property, exclusive of antidilution adjustments thereunder), (ii)
securities issued upon the exercise of rights or warrants issued pro rata to all
of the holders of shares or units of a class of securities, (iii) securities
issued in a bona fide public offering pursuant to a firm commitment underwriting
or (iv) securities issued in connection with a bona fide acquisition to any
Person or to the shareholders of any Person in exchange for the stock or assets
of such Person, which Person is not controlling, controlled by or under common
control with the Corporation or any Affiliate of the Corporation. For purposes
of this Section 10.08(d), in determining whether securities convertible into or
exchangeable or exercisable for Underlying Exchange Property that are issued to
an Issuer's employees under bona fide employee benefit plans approved by such
Issuer's board of directors were issued for a total consideration (per share or
unit) initially issuable upon conversion, exchange or exercise of such
convertible, exchangeable or exercisable securities that is less than the
Average Quoted Price (per share or unit) of the Underlying Exchange Property,
the Average Quoted Price shall be deemed to be equal to the Quoted Price of such
Underlying Exchange Property on the date such convertible, exchangeable or
exercisable securities are awarded or granted to the Issuer's employees under
such plans.
(e) Notwithstanding the provisions of paragraphs (a), (b),
(c) and (d) of this Section 10.08, no adjustment in the Exchange Rate shall be
required unless such adjustment would require an increase or decrease in the
<PAGE>
56
then current Exchange Rate of more than 1%; provided, however, that any
adjustments which by reason of this Section 10.08(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
(f) All calculations under this Section 10.08 shall be made
to the nearest .0001 of a share, the nearest whole dollar, or the nearest
integral unit, as applicable.
(g) The Corporation shall, within five Business Days
following the occurrence of an event that permits or requires an adjustment to
the Exchange Rate or a change to the Exchange Property pursuant to this Section
10.08 (or if the Corporation is not aware of such occurrence, as soon as
practicable after becoming so aware), provide written notice to the Trustee of
(i) the occurrence of such event, (ii) if applicable, whether the Corporation
has elected to cause such adjustment to occur, (iii) in the case where the
Exchange Rate has been adjusted, the Exchange Valuation Price of each item of
property related to such adjustment and a statement in reasonable detail setting
forth the method by which the Exchange Valuation Price and the adjustment to the
Exchange Rate were determined and (iv) in the case where the Exchange Property
has been changed, a statement in reasonable detail identifying each item of
property comprising the Exchange Property and setting forth the Exchange Rate
per Preferred Security for each such item of Exchange Property.
(h) Upon a distribution of cash or other property (including
rights, warrants or other securities) on Exchange Property of a particular type
where the Corporation has exercised its right set forth in the last paragraph of
Section 10.08(b) to have the antidilution adjustments of Section 10.08(b) not
apply, or in the event of a tender or exchange offer which, pursuant to the
definition of 'Exchange Property' results in the creation of new or additional
Exchange Property (the 'Tender Offer Consideration'), then, from and after the
record date for determining the holders of Exchange Property entitled to receive
the distribution, a Holder of Notes in respect of which the Exchange Right shall
have been exercised shall upon such exchange be entitled to receive, in addition
to the Exchange Property into which the Notes are exchangeable, the kind and
amount of securities, cash or other assets comprising the distribution that such
Holder would have received if such Holder had exchanged the Notes immediately
<PAGE>
57
prior to the record date for determining the Holders of Exchange Property
entitled to receive the distribution or the Tender Offer Consideration described
in the definition of Exchange Property, as the case may be.
ARTICLE XI
Subordination
SECTION 11.01. Agreement To Subordinate. The Corporation
agrees, and each Noteholder by accepting a Note agrees, that the indebtedness
evidenced by the Notes and the payment of the Maturity Payment Amount, any Note
Redemption Price or, if applicable, the Acceleration Price and interest on each
and all of the Notes is hereby expressly subordinated in right of payment, to
the extent and in the manner provided in this Article XI, to the prior payment
in full in cash or cash equivalents of all Senior Indebtedness, and that the
subordination is for the benefit of the holders of Senior Indebtedness.
SECTION 11.02. Certain Definitions. 'Representative' means
any Person whom the Corporation has, by written notice to the Trustee,
identified as the indenture trustee or other trustee, agent or representative
for an issue of Senior Indebtedness. Any such notice shall identify the name and
address for notices of each Representative. The Trustee shall notify the Holders
of any Representatives of the Senior Indebtedness promptly upon receiving notice
of any such Representatives.
'Senior Indebtedness' means all indebtedness or obligations,
whether outstanding at the date of execution of this Indenture or thereafter
incurred, assumed, guaranteed or otherwise created, unless the terms of the
instrument or instruments by which the Corporation incurred, assumed, guaranteed
or otherwise created any such indebtedness or obligation expressly provide that
such indebtedness or obligation is subordinate to all other indebtedness of the
Corporation or that such indebtedness or obligation is not superior in right of
payment to the Notes with respect to any of the following (including, without
limitation, interest accruing on or after a bankruptcy or other similar event,
whether or not an allowed claim therein): (i) any indebtedness incurred by the
Corporation or assumed or
<PAGE>
58
guaranteed, directly or indirectly, by the Corporation (a) for money borrowed,
including the Corporation's outstanding 8-3/4% Convertible Subordinated
Debentures due 2015, (b) in connection with the acquisition of any business,
property or other assets (other than trade payables incurred in the ordinary
course of business) or (c) for advances or progress payments in connection with
the construction or acquisition of any building, motion picture, television
production or other entertainment of any kind; (ii) any obligation of the
Corporation (or of a Subsidiary which is guaranteed by the Corporation) as
lessee under a lease of real or personal property; (iii) any obligation of the
Corporation to purchase property at a future date in connection with a financing
by the Corporation or a Subsidiary; (iv) letters of credit; (v) currency swaps
and interest rate hedges; and (vi) any deferral, renewal, extension or refunding
of any of the foregoing.
SECTION 11.03. Liquidation, Dissolution, Bankruptcy. Upon any
payment or distribution of all or substantially all the assets of the
Corporation, whether voluntary or involuntary, or upon any reorganization,
readjustment, arrangement or similar proceeding relating to the Corporation or
its property, whether or not the Corporation is a party thereto, and whether in
bankruptcy, insolvency, receivership or similar proceedings, or upon any
assignment by the Corporation for the benefit of creditors, or upon any other
marshalling of the assets and liabilities of the Corporation:
(1) all Senior Indebtedness shall first be paid in full in
cash or cash equivalents, or provision made for such payment by deposit
thereof in trust with a bank or banks (either theretofore acting as
trustees under indentures pursuant to which Senior Indebtedness shall
have been issued, or duly appointed paying agents for the purpose),
before any payment or distribution whether in cash, property or
securities (other than securities of the Corporation as reorganized or
readjusted, or securities of the Corporation or any other corporation
provided for by a plan of reorganization or readjustment, the payment
of which is subordinate, at least to the extent provided in this
Article XI with respect to the Notes, to the payment of all
indebtedness of the nature of Senior Indebtedness, so long as the
rights of the holders of the Senior Indebtedness are not altered
adversely by such reorganization or readjustment ('Equivalent
<PAGE>
59
Notes')), is made on account of the principal of or interest on the
indebtedness evidenced by the Notes;
(2) any payment or distribution of any kind or character in
respect of the Maturity Payment Amount, any Note Redemption Price or,
if applicable, the Acceleration Price of or interest on the Notes,
whether in cash, property or securities (other than Equivalent Notes),
to which the Holders of the Notes would be entitled except for the
provisions of this Article XI shall be paid or delivered by the
Corporation or the liquidating trustee or agent or other person making
such payment or distribution, whether a trustee in bankruptcy, a
receiver or liquidating trustee or other trustee or agent, directly
and ratably to the holders of Senior Indebtedness or their
Representatives (subject to any subordination of any class of Senior
Indebtedness, by the provisions thereof, to any other class or classes
of Senior Indebtedness) ratably according to the aggregate amounts
remaining unpaid on account of the principal of, and the premium, if
any, and interest on, the Senior Indebtedness held or represented by
each, to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to the holders of such
Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing, any
payment or distribution of any kind or character in respect of the
Maturity Payment Amount, any Note Redemption Price or, if applicable,
the Acceleration Price of or interest on the Notes, whether in cash,
property or securities (other than Equivalent Notes) shall be received
by the Trustee or the Holders of the Notes before all Senior
Indebtedness is paid in full, or provision made as aforesaid for its
payment, such payment or distribution shall be held in trust for the
ratable benefit of and shall be ratably paid over or delivered to the
holders of Senior Indebtedness remaining unpaid or unprovided for or
their Representatives, as provided in the foregoing subparagraph (b),
for application to the payment of all principal of, and premium, if
any, and interest on, such Senior Indebtedness remaining unpaid until
all such Senior Indebtedness shall have been paid in full, after giving
effect to any concurrent payment or
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60
distribution, or provision therefor, to the holders of such Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness or
provisions being made as aforesaid for its payment, the Holders of the Notes
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of the
Corporation payable or distributable to the holders of the Senior Indebtedness,
until the Maturity Payment Amount, any Note Redemption Price or, if applicable,
the Acceleration Price of and interest on the Notes shall be paid in full. No
payment or distribution to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders of the Notes would be entitled
except for the provisions of this Article XI, and no payment over or delivery
pursuant to the provisions of this Article XI to the holders of the Senior
Indebtedness or their Representatives by the Trustee or the Holders of the
Notes, shall, as between the Corporation, its creditors other than the holders
of Senior Indebtedness, and the Holders of the Notes, be deemed to be a payment
by the Corporation to or on account of the Senior Indebtedness, and no payments
or distributions to the Trustee or the Holders of the Notes of cash, property or
securities payable or distributable to the holders of the Senior Indebtedness,
to which the Trustee or the Holders of the Notes shall become entitled pursuant
to the provisions of the preceding sentence, shall, as between the Corporation,
its creditors other than the holders of Senior Indebtedness, and the Holders of
the Notes, be deemed to be a payment by the Corporation to the Holders of or on
account of the Notes. Upon any distribution of assets or securities of the
Corporation referred to in this Article XI, the Trustee, subject to the
provision of Article VII, and the Holders of the Notes shall be entitled to rely
upon any order or decree made by any court of competent jurisdiction in which
such dissolution, winding up, liquidation or reorganization proceedings are
pending or a certificate of the liquidating trustee or agent or other Person
making any payment or distribution to the Trustee or to the Holders of the Notes
for the purpose of ascertaining the persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Corporation, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Article XI.
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61
SECTION 11.04. Default on Senior Indebtedness. Subject to the
provisions of Section 11.05 hereof, in the event and during the continuation of
any default in the payment of principal of, or premium, if any, or interest on
or other monetary obligation with respect to, any Senior Indebtedness beyond any
applicable period of grace, or in the event that any event of default with
respect to any Senior Indebtedness shall have occurred and be continuing, then,
unless and until such event of default or default shall have been cured or
waived or shall have ceased to exist, no payment of Maturity Payment Amount,
any Note Redemption Price or, if applicable, the Acceleration Price or interest
shall be made by the Corporation with respect to the Notes. Nothing contained in
this Article XI or elsewhere in this Indenture, or in any of the Notes, shall,
however, (a) prevent the Corporation from setting aside in trust as provided in
Section 2.04 or depositing with the Trustee or any paying agent, at any time,
except during the pendency of any of the proceedings or upon the happening of
any of the events referred to in the first paragraph of Section 11.03, or during
the continuation of any such default or event of default (not cured or waived),
moneys for the payment of the Maturity Payment Amount, any Note Redemption Price
or, if applicable, the Acceleration Price of or interest on the Notes, or (b)
prevent the application by the Trustee or any paying agent of any moneys
deposited with it hereunder by the Corporation to the payment of or on account
of the Maturity Payment Amount, any Note Redemption Price or, if applicable, the
Acceleration Price of or interest on the Notes, if, at the time of such deposit,
the Trustee or such paying agent, as the case may be, did not have written
notice of any event prohibiting the making of such deposit by the Corporation.
The Corporation shall give prompt written notice to the
Trustee of any facts which would prohibit the making of any payment of moneys to
or by the Trustee, including any dissolution, winding up, liquidation or
reorganization of the Corporation within the meaning of this Article XI.
Anything in this Article XI or elsewhere in this Indenture contained to the
contrary notwithstanding, the Trustee shall not be charged with knowledge of the
existence of any Senior Indebtedness or of any default or event of default with
respect to any Senior Indebtedness or of any other facts which would prohibit
the making of any payment of moneys to or by the Trustee, unless and until the
Trustee shall have received notice in writing to that effect signed by an
officer of the Corporation or by a holder of Senior
<PAGE>
62
Indebtedness who shall have been certified by the Corporation or otherwise
established to the reasonable satisfaction of the Trustee to be such holder, or
by a Representative of Senior Indebtedness.
SECTION 11.05. Disputes with Holders of Certain Senior
Indebtedness. Any failure by the Corporation to make any payment on or perform
any other obligation under Senior Indebtedness, other than any indebtedness
incurred by the Corporation or assumed or guaranteed, directly or indirectly, by
the Corporation for money borrowed (or any deferral, renewal, extension or
refunding thereof) or any indebtedness or obligation in which the provisions of
this Section 11.05 shall have been waived by the Corporation in the instrument
or instruments by which the Corporation incurred, assumed, guaranteed or
otherwise created such indebtedness or obligation, shall not be deemed a default
or event of default under Section 11.04 hereof for so long as (i) the
Corporation shall be disputing its obligation to make such payment or perform
such obligation and (ii) either (A) such dispute shall not have resulted in a
judgment against the Corporation or the applicable Subsidiary that shall have
remained undischarged or unbonded and have remained in force for more than the
applicable appeal period or (B) in the event of such a judgment, the Corporation
or the applicable Subsidiary shall in good faith be prosecuting an appeal or
other proceeding for review and upon which a stay of execution shall have been
obtained pending such appeal or review.
SECTION 11.06. Acceleration of Notes. If an Event of Default,
other than an Event of Default under paragraph (4) or (5) of Section 6.01, shall
have occurred and be continuing, the Trustee or the Holder of the Notes electing
to accelerate the Notes pursuant to Section 6.02 shall give the Representatives
of the Senior Indebtedness five days' prior written notice before accelerating
the Notes, which notice shall state that it is a 'Notice of Intent to
Accelerate'; provided, however, that the Trustee or such Holders may so
accelerate the Notes immediately without such notice if at such time payment of
any Senior Indebtedness shall have been accelerated. If payment of the Notes is
accelerated because of an Event of Default, the Corporation shall promptly
notify holders of Senior Indebtedness (or their Representatives) of the
acceleration.
SECTION 11.07. When Distribution Must Be Paid Over. If a
distribution is made to Noteholders that because
<PAGE>
63
of this Article XI should not have been made to them, the Noteholders who
receive the distribution shall hold it in trust for holders of Senior
Indebtedness and pay it over to them as their interests may appear.
SECTION 11.08. Relative Rights. This Article XI defines the
relative rights of Noteholders and holders of Senior Indebtedness. Nothing in
this Indenture shall:
(1) impair, as between the Corporation and Noteholders the
obligation of the Corporation, which is absolute and unconditional, to
pay the Maturity Payment Amount, any Note Redemption Price or, if
applicable, the Acceleration Price of and interest on the Notes in
accordance with their terms;
(2) affect the relative rights of Noteholders and creditors
of the Corporation other than holders of Senior Indebtedness; or
(3) subject to Section 11.06, prevent the Trustee or any
Noteholder from exercising its available remedies upon a Default,
subject to the rights of holders of Senior Indebtedness to receive
distributions otherwise payable to Noteholders.
If the Corporation fails because of this Article XI to pay
the Maturity Payment Amount or any Note Redemption Price of or interest on a
Note on the due date, the failure is still a Default.
SECTION 11.09. Subordination May Not Be Impaired by
Corporation. No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Corporation or by its failure to comply with
this Indenture.
SECTION 11.10. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Indebtedness, the distribution may be made and the notice given to their
Representative.
SECTION 11.11. Rights of Trustee and Paying Agent. The
Trustee or Paying Agent may continue to make payments on the Notes until it
receives notice satisfactory to it that payments may not be made under this
Article. The
<PAGE>
64
Corporation, the Registrar or co-registrar, the Paying Agent, a Representative
or a holder of Senior Indebtedness may give the notice; provided, however, that
if an issue of Senior Indebtedness has a Representative, only the Representative
may give the notice on behalf of the holders of Senior Indebtedness.
The Trustee in its individual or any other capacity may hold
Senior Indebtedness with the same rights it would have if it were not Trustee.
The Registrar and co-registrar, the Paying Agent may do the same with like
rights.
SECTION 11.12. Notice to Trustee. The Corporation shall give
prompt written notice to a Trust Officer at the address of the Trustee
determined pursuant to Section 12.02 of any fact known to the Corporation which
would prohibit the making of any payment to or by the Trustee in respect of the
Notes.
SECTION 11.13. Trustee Not a Fiduciary. The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and
shall not be liable to any such holder if it shall mistakenly pay over or
distribute to Noteholders or the Corporation or any other Person money or assets
to which any holders of Senior Indebtedness shall be entitled by virtue of this
Article XI or otherwise.
SECTION 11.14. Effectuation of Subordination by Trustee. Each
holder of the Notes, by his acceptance thereof, authorizes and directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effectuate the subordination provided in this Article and appoints the Trustee
his attorney-in-fact for any and all such purposes.
SECTION 11.15. Article Applicable to Paying Agents. In case at
any time any Paying Agent other than the Trustee and the Corporation shall have
been appointed by the Corporation and be then acting hereunder, the term
'Trustee' as used in this Article shall in such case (unless the context shall
require otherwise) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee.
<PAGE>
65
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls. If any provision
of this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 12.02. Notices. Except as otherwise provided for
herein, any notice or communication shall be sufficiently given if in writing
and delivered in person or three business days after mailed by first-class mail
addressed as follows:
(i) if to the Corporation:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention of General Counsel
(ii) if to the Trustee:
Chemical Bank
450 West 33rd Street (15th Floor)
New York, New York 10001
Attention of Corporate Trust Administration
The Corporation or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Noteholder shall be
mailed to the Noteholder at the Noteholder's address as it appears on the
registration books of the Registrar with a copy to the Trustee and shall be
sufficiently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or
any defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.03. Communication by Holders with Other Holders.
Noteholders may communicate pursuant to TIA
<PAGE>
66
'ss' 312(b) or any successor provision thereto with other Noteholders with
respect to their rights under this Indenture or the Notes. The Corporation, the
Trustee, the Registrar and anyone else shall have the protection of TIA 'ss'.
312(c) or any successor provision thereto.
SECTION 12.04. Certificate and Opinions as to Conditions
Precedent. Upon any request or application by the Corporation to the Trustee to
take any action under this Indenture, the Corporation shall furnish to the
Trustee:
(1) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
Unless otherwise provided herein, each certificate or opinion with respect to
compliance with a covenant or condition provided for in this Indenture shall
include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 12.06. When Treasury Notes Disregarded. In
determining whether the Holders of the required aggregate Principal Amount of
Notes have concurred in any
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67
direction, waiver or consent, Notes owned by the Corporation or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Corporation shall be disregarded, except that for the
purpose of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Notes which a Trust Officer of the
Trustee knows are so owned shall be so disregarded. Also, subject to the
foregoing, only Notes outstanding at the time shall be considered in any such
determination.
SECTION 12.07. Rules by Trustee, Paying Agent and Registrar.
The Trustee may make reasonable rules for action by or a meeting of Noteholders,
including, without limitation, the setting of a record date for the taking of
any such action as set forth in Section 9.02. The Registrar or the Paying Agent
may make reasonable rules for its functions.
SECTION 12.08. Payment Date. Unless otherwise specified
herein, if a payment date is not a Business Day at a place of payment, payment
shall be made at that place on the next succeeding Business Day; and no interest
shall accrue for the intervening period, except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the applicable payment date.
SECTION 12.09. Governing Law. The laws of the State of New
York shall govern this Indenture and the Notes.
SECTION 12.10. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Corporation or a Subsidiary of the Corporation. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.11. No Recourse Against Others. All liability
described in Section 15 of the Notes of any director, officer, employee or
stockholder, as such, of the Corporation is waived and released.
SECTION 12.12. Successors. All agreements of the Corporation
in this Indenture and the Notes shall bind its successor. All agreements of the
Trustee in this Indenture shall bind its successor.
<PAGE>
68
SECTION 12.13. Duplicate Originals. The parties may sign any
number of copies of this Indenture. Each signed copy shall be an original, but
all of them together represent the same agreement. One signed copy is enough to
prove this Indenture.
SECTION 12.14. Assignment. The Corporation will have the
right at all times to assign any of its rights or obligations under this
Indenture and the Notes to a direct or indirect wholly owned subsidiary of the
Corporation, provided that, in the event of any such assignment, the Corporation
will remain jointly and severally liable for all such obligations. Subject to
the foregoing, the Indenture will be binding upon and inure to the benefit of
the parties thereto and their respective successors and assigns. This Indenture
may not otherwise be assigned by the parties hereto.
SECTION 12.15. Tax Characterization. The Corporation, the
Trustee and each Holder of a Note (by acceptance thereof) agrees to treat the
Notes as debt instruments for United States Federal, state and local income and
franchise tax purposes and agrees not to take any contrary position before any
taxing authority or on any tax return.
TIME WARNER INC.,
by
----------------------------------
Name:
Title:
[Seal]
Attest:
- --------------------------------
Title: Assistant
Secretary
<PAGE>
69
CHEMICAL BANK,
by
----------------------------------
Name:
Title:
[Seal]
Attest:
- -----------------------------------
Title: [ ]
<PAGE>
EXHIBIT A
[FORM OF FACE OF NOTE]
No. $
TIME WARNER INC.
[ ]% Subordinated Notes due December 23, 1997
Time Warner Inc., a Delaware corporation, or any successor
under the Indenture referred to on the reverse hereof promises to pay to [ ] or
its registered assigns, in respect of each Minimum Denomination of this Note an
amount equal to the lesser of (a) $54.41 and (b) the Exchange Valuation Price on
the Trading Day immediately preceding December 17, 1997, on December 23, 1997.
See Section 7, 'Subordination', on the other side of this Note. This Note has a
stated principal amount of $[ ].
Interest Payment Dates: March 30, June 30,
September 30 and December 30
Record Dates: March 15, June 15, September 15 and
December 15
Additional provisions of this Note are set forth on the other
side of this Note.
Dated:
TIME WARNER INC.,
by
- --------------------------
President
by
- --------------------------
Secretary
<PAGE>
3
CHEMICAL BANK, as Trustee,
certifies that this is one
of the Notes referred
to in the Indenture.
by
--------------------------
Authorized Signature
[Seal]
<PAGE>
4
[FORM OF REVERSE SIDE OF Note]
TIME WARNER INC.
[ ]% Subordinated Note due December 23, 1997
1. Interest. Time Warner Inc., a Delaware corporation (such
corporation or any successor pursuant to the Indenture referred to below being
called the 'Corporation'), promises to pay interest on the stated principal
amount of this Note, at the rate per annum shown above (or $[ ] per annum). The
Corporation will pay interest quarterly on March 30, June 30, September 30 and
December 30 of each year. Interest on the Notes will accrue from the most recent
date on which interest has been paid or, if no interest has been paid, from [ ],
1995. Interest will be computed on the basis of a 360-day year of twelve 30-day
months. Interest payable for any period shorter than a full quarterly interest
period will be computed on the basis of a 360-day year of twelve 30-day months
on the basis of the actual number of days elapsed in such 30-day month. In the
event, however, that the Notes shall not continue to remain in book-entry only
form, the Corporation shall have the right to select the applicable record
dates, which shall be more than one Business Day prior to the relevant interest
payment date.
2. Method of Payment. The Corporation will pay interest on
the Notes (except Defaulted Interest) to the persons who are registered holders
of Notes at the close of business on March 15, June 15, September 15 or December
15 next preceding the Interest Payment Date. In the event that any date on which
interest is payable is not a Business Day (as defined in the Indenture (as
defined below)), then payment of such interest will be made on the next
succeeding Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
Holders must surrender Notes to a Paying Agent to collect payments of Maturity
Payment Amounts. The Corporation will pay Maturity Payment Amounts and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Corporation may pay Maturity
Amount Payments and interest by check payable in such money. It may mail an
interest check to a Holder's registered address.
<PAGE>
5
3. Paying Agent and Registrar. Initially, Chemical Bank, a
New York banking corporation (the 'Trustee'), will act as Paying Agent and
Registrar. The Corporation may appoint and change any Paying Agent, Registrar or
co-registrar without notice. The Corporation or any of its Subsidiaries may act
as Paying Agent, Registrar or co-registrar.
4. Indenture. The Corporation issued the Notes under an
Indenture dated as of [ ], 1995 (the 'Indenture'), between the Corporation and
the Trustee. The terms of the Notes include those stated herein and in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S.C. 'ss' 'ss' 77aaa-77bbbb) (the 'Trust Indenture
Act') as in effect from time to time. The Notes are subject to all such terms,
and Noteholders are referred to the Indenture and the Trust Indenture Act for a
statement of those terms. Capitalized terms used but not defined in this Note
have the meanings ascribed to them in the Indenture.
5. Redemption. The Corporation may, at its sole option,
redeem at any time or from time to time all or any part of the outstanding Notes
at the Note Call Price together in each case with an amount equal to accrued and
unpaid interest to the Optional Redemption Date.
Upon the occurrence of a Tax Event or an Investment Company
Event, the Corporation will have the right to elect to, under certain
circumstances, (a) dissolve the Trust and cause the Notes to be distributed to
the Holders of the Preferred Securities, (b) redeem all the Notes at the Special
Redemption Priceplus accrued and unpaid interest thereon or (c) in the case of a
Tax Event, allow the Notes to remain outstanding and indemnify the Trust for any
taxes payable by it as a result of such Tax Event.
If a Note Redemption Notice for any such optional redemption
or special event redemption shall have been given as provided in Section 3.03 of
the Indenture, interest on the Notes called for redemption shall cease to
accrue, such Notes shall no longer be deemed to be outstanding, and all rights
of the Holders thereof (except the right to receive from the Corporation the
Note Redemption Price plus interest to the Redemption Date without further
interest) shall cease (including any right to receive interest otherwise payable
on any Interest Payment Date that would
<PAGE>
6
have occurred after the Redemption Date) from and after the Redemption Date
(unless the Corporation shall default in the payment of the Note Redemption
Price). Upon surrender (in accordance with the Note Redemption Notice) of the
certificate or certificates for any Notes to be so redeemed (properly endorsed
or assigned for transfer, if the Corporation shall so require and the Note
Redemption Notice shall so state), such Notes shall be redeemed by the
Corporation at the applicable Note Redemption Price plus interest to the
Redemption Date. In case fewer than all the Notes represented by any such
certificates are to be redeemed a new certificate shall be issued representing
the unredeemed Notes without cost to the Holder thereof. Subject to applicable
escheat laws, any moneys set aside by the Corporation and unclaimed at the end
of one year from the Redemption Date shall revert to the general funds of the
Corporation, after which reversion the Holders of such Notes so called for
redemption shall look only to the general funds of the Corporation for the
payment of the Note Redemption Price without interest.
6. Exchange Right. In the event the Corporation causes,
pursuant to Section 3.03 of the Indenture or otherwise, the Notes held by the
Property Trustee to be distributed to Holders of the Preferred Securities the
Corporation shall have the right in respect of the maturity or any redemption of
the Notes, exercisable upon notice to such Holders of the Notes in accordance
with the Indenture, to require such Holders to exchange their Notesfor Exchange
Property (and, at the option of the Corporation, cash) plus cash in an amount
equal to all accrued and unpaid interest. Initially, the Exchange Rate for each
Minimum Denomination of Notes is one share of Hasbro Common Stock, subject to
certain antidilution adjustments as set forth in the Indenture.
7. Subordination. The Notes are subordinated to Senior
Indebtedness (as defined in Section 11.02 of the Indenture). To the extent
provided in the Indenture, Senior Indebtedness must be paid before the Notes may
be paid. The Corporation agrees, and each Noteholder by accepting a Note agrees,
to the subordination and authorizes the Trustee to give it effect.
8. Denominations; Transfer; Exchange. The Notes are in
registered form without coupons in denominations equal to the Minimum
Denomination and whole multiples of the Minimum Denomination. A holder may
transfer or exchange
<PAGE>
7
Notes only in accordance with the Indenture. The Registrar may require a holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not transfer or exchange any securities selected for redemption,
except that, where the applicable Note Redemption Notice states that a Note is
to be redeemed in part, the portion of the Note not to be redeemed may be
transferred. Also, the Registrar need not transfer or exchange any Notes for a
period of 15 days before a selection of Notes to be redeemed or before an
interest payment.
9. Persons Deemed Owners. The registered Holder of this Note
may be treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of the Maturity
Payment Amount or any Note Redemption Price or interest remains unclaimed for
one year, the Trustee or Paying Agent will pay the money back to the Corporation
at its request; provided, however, that the Trustee or such Paying Agent, before
being required to make any such repayment, may at the expense of the Corporation
cause to be published once in a newspaper of general circulation in The City of
New York and will mail to each such Holder notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication or mailing, any unclaimed balance of
such money then remaining will be repaid to the Corporation. After payment to
the Corporation, Noteholders entitled to the money must look to the Corporation
for payment as general creditors unless an applicable abandoned property law
designates another person.
11. Amendment, Supplement, Waiver. Subject to certain
exceptions, the Indenture or the Notes may be amended or supplemented with the
written consent of the Holders of a majority in aggregate Principal Amount of
the Notes then outstanding, and any past default or noncompliance with any
provision may be waived with the written consent of the Holders of a majority in
aggregate Principal Amount of the Notes then outstanding. Without the consent of
any Noteholder, the Corporation may amend or supplement the Indenture or the
Notes to cure any ambiguity, omission, defect or inconsistency, or to comply
with Article V of the Indenture, or to provide for uncertificated Notes, or to
make any change that does not
<PAGE>
8
adversely affect the rights of any Noteholder. Without the consent of any
Noteholder, the Trustee may waive compliance with any provisions of the
Indenture or the Notes if the waiver does not adversely affect the rights of
any Noteholder.
12. Successor Corporation. When a successor corporation
assumes all the obligations of its predecessor under the Notes and the
Indenture, the predecessor corporation will be released from those obligations.
13. Defaults and Remedies. Each of the following is an Event
of Default: default for 60 days in payment of any interest on the Notes; default
in payment of the Maturity Payment Amount or Note Redemption Price of the Notes;
failure by the Corporation for 90 days after notice to it by the Trustee or the
Holders of at least 25% in aggregate Principal Amount of the Notes then
outstanding to comply with any of its other agreements or covenants in the
Indenture or the Notes; and certain events of bankruptcy or insolvency. If an
Event of Default occurs and is continuing, the Trustee or the Holders of at
least 40% in aggregate Principal Amount of the Notes then outstanding by notice
to the Corporation and the Trustee, may declare the Notes to be due and payable
and, upon any such declaration, the Notes shall become due and payable
immediately in an amount per Minimum Denomination equal to: (a) the lesser of
(i) $54.41 and (ii) the Exchange Valuation Price on the Trading Day immediately
preceding such Indenture Event of Default of such amount of Exchange Property as
relates to each Minimum Denomination of Notes on such Trading Day (the
'Acceleration Price') plus (b) accrued interest on all the Notes to be due and
payable immediately. Upon payment of such amounts, all of the Corporation's
obligations hereunder shall terminate. The Trustee may refuse to enforce the
Indenture or the Notes unless it receives indemnity satisfactory to it. Subject
to certain limitations, Holders of a majority in aggregate Principal Amount of
the Notes then outstanding may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Noteholders notice of any continuing
default (except a default in payment of Maturity Payment Amount or Note
Redemption Price or interest) if it determines that withholding notice is in
their interest.
14. Trustee Dealings with the Corporation. Chemical Bank, a
New York banking corporation, the Trustee under the Indenture, in its individual
or any other
<PAGE>
9
capacity, may become the owner or pledgee of Notes and may otherwise deal with
and collect obligations owed to it by the Corporation or its affiliates and may
otherwise deal with the Corporation or its affiliates with the same rights it
would have if it were not Trustee.
15. No Recourse Against Others. A director, officer, employee
or stockholder, as such, of the Corporation shall not have any liability for any
obligations of the Corporation under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. By
accepting a Note, each Noteholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Notes.
16. Authentication. This Note shall not be valid until the
Trustee signs the certification of authentication on the other side of this
Note.
17. Abbreviations. Customary abbreviations may be used in the
name of a Noteholder or an assignee, such as: TEN COM ( = tenants in common),
TEN ENT ( = tenants by the entireties), JT TEN ( = joint tenants with right of
survivorship and not as tenants in common), CUST ( = Custodian), and U G M A ( =
Uniform Gifts to Minors Act).
The Corporation will furnish to any Noteholder upon written
request and without charge a copy of the Indenture. Requests may be made to:
Time Warner Inc., 75 Rockefeller Plaza, New York, N.Y. 10019, Attention of
Corporate Secretary.
<PAGE>
EXHIBIT 4.6
Form of Guarantee with respect
to PERCS
This GUARANTEE AGREEMENT dated as of [ ],
1995, executed and delivered by TIME WARNER INC., a
Delaware corporation ('Time Warner' or the
'Guarantor'), and [ ], as the initial Guarantee
Trustee (as defined herein for the benefit of the
Holders (as defined herein) from time to time of the
Preferred Securities (as defined herein) of Time
Warner Financing Trust, a Delaware statutor business
trust (the 'Trust').
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the 'Declaration'), dated as of [ ], 1995, among the trustees of the
Trust named therein, Time Warner Inc., as Sponsor, and the Holders from time to
time of undivided beneficial interests in the assets of the Trust, the Trust is
issuing as of the date hereof $[ ] aggregate stated amount of its $[ ] Preferred
Exchangeable Redemption Cumulative Securities (the 'Preferred Securities')
representing undivided beneficial interests in the assets of the Trust, having
the terms set forth in Exhibit B to the Declaration;
WHEREAS the Preferred Securities will be issued by the Trust
upon deposit of the Guarantor's Subordinated Notes (as defined herein) with the
Trust as trust assets; and
WHEREAS, as incentive for the Holders to purchase the
Preferred Securities, the Guarantor desires to irrevocably and unconditionally
agree, to the extent set forth herein, to pay to the Holders of the Preferred
Securities the Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each
Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall
benefit the Guarantor, the Guarantor executes and delivers this Guarantee
Agreement for the benefit of the Holders from time to time of the Preferred
Securities.
<PAGE>
2
ARTICLE I
Definitions
SECTION 1.01. Terms Generally. (a) The definitions in Section
1.02 shall apply equally to both the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words 'include',
'includes' and 'including' shall be deemed to be followed by the phrase 'without
limitation'. All references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and Exhibits and
Schedules to, this Guarantee Agreement unless the context shall otherwise
require. Except as otherwise expressly provided herein, any reference in this
Guarantee Agreement to this Guarantee Agreement, the Indenture or any other
document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time.
(b) Capitalized terms used in this Guarantee Agreement but not
defined in the preamble above have the respective meanings assigned to them in
Section 1.02.
(c) A term defined anywhere in this Guarantee Agreement has
the same meaning throughout.
(d) A term defined in the Trust Indenture Act has the same
meaning when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires.
SECTION 1.02. Definitions. As used in this Guarantee
Agreement, the following terms shall have the meanings specified below:
'Affiliate' has the same meaning as given to that term in Rule
405 of the Securities Act of 1933, as amended, or any successor rule thereunder.
'Board of Directors' means (i) the board of directors of Time
Warner, (ii) any duly authorized committee of such board, (iii) any committee of
officers of Time Warner or (iv) any officer of Time Warner acting, in the case
of (iii) or (iv), pursuant to authority granted by the board of directors of
Time Warner or any committee of such board.
<PAGE>
3
'Call Price' means the amount payable upon early redemption of
the Preferred Securities from time to time in accordance with Paragraph 4(b) of
the terms of the Preferred Securities {set forth in Exhibit B to the
Declaration.
'Capital Stock' for any corporation means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interest in (however designated) stock issued by that
corporation.
'Commission' means the Securities and Exchange Commission.
'Common Securities' means the securities representing
undivided beneficial interests in the assets of the Trust, having the terms set
forth in Exhibit C to the Declaration.
'Covered Person' means any Holder of Preferred Securities.
'Distributions' means the periodic distributions and other
payments payable to Holders of Preferred Securities in accordance with the terms
of the Preferred Securities.
'Event of Default' means a default by the Guarantor on any of
its payment or other obligations under this Guarantee Agreement.
'Exchange Property' shall have the meaning assigned to such
term in Section 10.04(a).
'Exchange Rate' shall have the meaning assigned to such term
in Section 10.04(b).
'Exchange Valuation Price' shall have the meaning assigned to
such term in Section 10.04(c).
'Extraordinary Cash Dividends' has the meaning assigned to
such term in Section 10.08(b).
'Guarantee Payments' shall mean the following payments or
distributions, without duplication, with respect to the Preferred Securities, to
the extent not paid or made by the Trust: (i)(A) any accrued and unpaid
Distributions that are required to be paid on the Preferred Securities, (B)
subject to the exercise by Time Warner of the Time
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4
Warner Exchange Right, the Mandatory Redemption Price, the Call Price and the
Special Redemption Price, including in each of cases (A) and (B) all accrued and
unpaid Distributions to but excluding the date of redemption (each a 'Redemption
Payment Amount'), with respect to the Preferred Securities subject to mandatory
redemption or called for redemption by the Trust, but if and only to the extent
that in each case Time Warner has made a payment to the Property Trustee of
interest or principal (whether at maturity or upon the earlier redemption) on
the Subordinated Notes and (ii) upon a voluntary or involuntary dissolution,
winding up or termination of the Trust (other than in connection with the
distribution of the Subordinated Notes to Holders or the redemption of all the
Preferred Securities upon the maturity or redemption of the Subordinated Notes
as provided in the Declaration), the lesser of (x) the Liquidation Distribution,
to the extent the Trust has funds available therefor, and (y) the amount of
assets of the Trust remaining available for distribution to Holders upon such
liquidation, dissolution, winding-up or termination.
'Guarantee Trustee' means The First National Bank of Chicago
until a Successor Guarantee Trustee has been appointed and accepted such
appointment pursuant to the terms of this Guarantee Agreement and thereafter
means each such Successor Guarantee Trustee.
'Hasbro' means Hasbro, Inc., a Rhode Island corporation.
'Hasbro Common Stock' means the common stock, par value $.50
per share, of Hasbro as it exists on the date of this Guarantee Agreement or any
other shares of Capital Stock of Hasbro into which the Hasbro Common Stock shall
be reclassified or changed.
'Holder' shall mean any holder, as registered on the books and
records of the Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, 'Holder'
shall not include the Guarantor or any entity directly or indirectly controlling
or controlled by or under direct or indirect common control with the Guarantor.
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5
'Indemnified Person' means the Guarantee Trustee, any
Affiliate of the Guarantee Trustee, and any officers, directors, shareholders,
members, partners, employees, representatives or agents of the Guarantee
Trustee.
'Indenture' means the Indenture dated as of [ ], 1995 between
the Guarantor and Chemical Bank, as trustee, pursuant to which the
Subordinated Notes are to be issued.
'Issuer' means any issuer, from time to time, of a security
constituting Exchange Property.
'Majority in Stated Amount of the Preferred Securities' means,
except as otherwise required by the Trust Indenture Act, Holder(s) of
outstanding Preferred Securities voting together as a single class, who are the
record owners of Preferred Securities whose Stated Amount represents more than
50% of the Stated Amount of all outstanding Preferred Securities.
'Mandatory Redemption Date' means December 23, 1997.
'Mandatory Redemption Price' means the amount payable upon
mandatory redemption of the Preferred Securities on December 23, 1997, in
accordance with Paragraph 4(a) of the terms of the Preferred Securities.
'Nasdaq' means the Nasdaq Stock Market.
'Optional Redemption Date' has the meaning set forth in
Paragraph 4(b) of the terms of the Preferred Securities.
'Person' means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association or
government or any agency or political subdivision thereof or any other entity of
whatever nature.
'Property Trustee' means the Person acting as Property Trustee
under the Declaration.
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6
'Redemption Payment Amount' means, as applicable, the
Mandatory Redemption Price, the Call Price or the Special Redemption Price.
'Redemption Payment Date' means, as applicable, the Mandatory
Redemption Date, any Optional Redemption Date or any Special Redemption Date.
'Resignation Request' has the meaning assigned to such term in
Section 4.02(d).
'Responsible Officer' means, with respect to the Guarantee
Trustee, the chairman of the Board of Directors, the President, any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust
Officer or any other Officer of the Guarantee Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
'Special Redemption Date' has the meaning set forth in
Paragraph 4(d)(ii) of the terms of the Preferred Securities.
'Special Redemption Price' means the amount payable upon
special redemption of the Preferred Securities in accordance with Paragraph
4(d)(ii) of the terms of the Preferred Securities.
'Stated Amount' means, with respect to each Preferred
Security, [ ].(1)
'Subordinated Notes' means the series of Subordinated Notes
issued by the Guarantor under the Indenture to the Property Trustee and entitled
the ' % Subordinated Notes due December 23, 1997'.
- -------
(1) Insert issue price.
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'Successor Guarantee Trustee' means a successor Guarantee
Trustee possessing the qualifications to act as a Guarantee Trustee under
Section 4.01.
'Time Warner Exchange Right' shall have the meaning assigned
to such term in Section 10.01.
'Trading Day' shall have the meaning assigned to such term in
Section 10.04(d).
'Trust Indenture Act' means the Trust Indenture Act of 1939,
as amended.
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application. (a) This
Guarantee Agreement is subject to the provisions of the Trust Indenture Act that
are required to be part of this Guarantee Agreement and shall, to the extent
applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by 'ss' 'ss'
310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(c) The application of the Trust Indenture Act to this
Guarantee Agreement shall not affect the nature of the Preferred Securities as
equity securities representing undivided beneficial interests in the assets of
the Trust.
SECTION 2.02. Lists of Holders of Preferred Securities. (a)
The Guarantor shall provide the Guarantee Trustee with such information as is
required under 'ss' 312(a) of the Trust Indenture Act at the times and in the
manner provided in 'ss' 312(a).
(b) The Guarantee Trustee shall comply with its obligations
under 'ss' 'ss' 310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Guarantee Trustee. Within 60
days after May 15 of each year, the Guarantee Trustee shall provide to the
Holders of the Preferred Securities such reports as are required by 'ss' 313
of the
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8
Trust Indenture Act, if any, in the form, in the manner and at the times
provided by 'ss' 313 of the Trust Indenture Act. The Guarantee Trustee shall
also comply with the requirements of 'ss' 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Guarantee Trustee. The
Guarantor shall provide to the Guarantee Trustee, the Commission and the Holders
of the Preferred Securities, as applicable, such documents, reports and
information as required by 'ss' 314(a)(l)-(3), if any, of the Trust Indenture
Act and the compliance certificates required by 'ss' 314(a)(4) and (c) of the
Trust Indenture Act, any such certificates to be provided in the form, in the
manner and at the times required by 'ss' 314(a)(4) and (c) of the Trust
Indenture Act, provided that any certificate to be provided pursuant to
'ss' 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of
the end of each fiscal year of the Trust.
SECTION 2.05. Evidence of Compliance with Conditions
Precedent. The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with any conditions precedent, if any, provided for in this Guarantee
Agreement which relate to any of the matters set forth in 'ss' 314(c) of the
Trust Indenture Act. Any certificate or opinion required to be given pursuant
to 'ss' 314(c) shall comply with ss 314(e) of the Trust Indenture Act.
SECTION 2.06. Events of Default; Waiver. (a) Subject to
Section 2.06(b), Holders of Preferred Securities may by vote of at least a
Majority in Stated Amount of the Preferred Securities, (i) direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee or (ii) on behalf of the Holders of all Preferred Securities waive any
past Event of Default and its consequences. Upon such waiver, any such default
shall cease to exist, and any Event of Default arising therefrom shall be deemed
to have been cured, for every purpose of this Guarantee Agreement, but no such
waiver shall extend to any subsequent or other default or Event of Default or
impair any right consequent thereon.
(b) The right of any Holder of Preferred Securities to receive
payment of the Guarantee Payments in accordance with this Guarantee Agreement,
or to institute suit for the enforcement of any such payment, shall not be
impaired without the consent of each such Holder.
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9
SECTION 2.07. Disclosure of Information. The disclosure of
information as to the names and addresses of the Holders of the Preferred
Securities in accordance with 'ss' 312 of the Trust Indenture Act, regardless of
the source from which such information was derived, shall not be deemed to be a
violation of any existing law, or any law hereafter enacted which does not
specifically refer to 'ss' 312 of the Trust Indenture Act, nor shall the
Guarantee Trustee be held accountable by reason of mailing any material pursuant
to a request made under 'ss' 312(b) of the Trust Indenture Act.
SECTION 2.08. Conflicting Interest. The Declaration shall be
deemed to be specifically described in this Guarantee Agreement for the purposes
of clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
ARTICLE III
Powers, Duties and Rights of Guarantee Trustee
SECTION 3.01. Powers and Duties of the Guarantee Trustee. (a)
This Guarantee Agreement shall be held by the Guarantee Trustee in trust for the
benefit of the Holders of the Preferred Securities. The Guarantee Trustee shall
not transfer its right, title and interest in the Guarantee Agreement to any
Person except a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Guarantee Trustee or to a Holder
of Preferred Securities exercising his or her rights pursuant to Section 5.04.
The right, title and interest of the Guarantee Trustee to the Guarantee
Agreement shall vest automatically in each Person who may hereafter be appointed
as Guarantee Trustee in accordance with Article IV. Such vesting and cessation
of title shall be effective whether or not conveyancing documents have been
executed and delivered.
(b) If an Event of Default occurs and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the
Holders of the Preferred Securities.
(c) This Guarantee Agreement and all moneys received by the
Property Trustee hereunder in respect of the Guarantee Payments will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of, or
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10
for the benefit of the Guarantee Trustee or its agents or their creditors.
(d) The Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the holders of the Preferred Securities, as their names and
addresses appear upon the register, notice of all Events of Default known to the
Guarantee Trustee, unless such defaults shall have been cured before the giving
of such notice; provided, that the Guarantee Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Guarantee Trustee in good faith determine that the withholding of such notice is
in the interests of the Holders of the Preferred Securities. The Guarantee
Trustee shall not be deemed to have knowledge of any default except any default
as to which the Guarantee Trustee shall have received written notice or a
Responsible Officer charged with the administration of this Guarantee Agreement
shall have obtained written notice.
(e) The Guarantee Trustee shall continue to serve until, a
Successor Guarantee Trustee has been appointed and that appointment is in
accordance with Article IV.
SECTION 3.02. Certain Rights and Duties of the Guarantee
Trustee. (a) The Guarantee Trustee, before the occurrence of an Event of Default
and after the curing {or waiver} of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Guarantee Agreement, and no implied covenants shall be read into
this Guarantee Agreement against the Guarantee Trustee. In case an Event of
Default has occurred (that has not been cured or waived pursuant to Section
2.06(a)), the Guarantee Trustee shall exercise such of the rights and powers
vested in it by this Guarantee Agreement, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
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11
(b) No provision of this Guarantee Agreement shall be
construed to relieve the Guarantee Trustee from liability for its own negligent
action, its own negligent failure to act or its own wilful misconduct, except
that:
(i) prior to the occurrence of an Event of Default and after
the curing or waiving of all such Events of Default that may have
occurred:
(A) the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall not be liable except for
the performance of such duties and obligations as are specifically set
forth in this Guarantee Agreement, and no implied covenants or
obligations shall be read into this Guarantee Agreement against the
Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth
of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Guarantee
Trustee and conforming to the requirements of this Guarantee
Agreement; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to
the Guarantee Trustee, the Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer of the
Guarantee Trustee, unless it shall be proved that the Guarantee
Trustee was negligent in ascertaining the pertinent facts upon which
such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect
to any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of Preferred Securities
as provided herein relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power
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12
conferred upon the Guarantee Trustee under this Guarantee Agreement;
and
(iv) no provision of this Guarantee Agreement shall require
the Guarantee Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if it shall
have reasonable ground for believing that the repayment of such funds
or liability is not reasonably assured to it under the terms of this
Guarantee Agreement or adequate indemnity against such risk or
liability is not reasonably assured to it.
(c) Subject to the provisions of Sections 3.02(a)
and (b):
(i) Whenever in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that a matter
be proved or established prior to taking, suffering or omitting any
action hereunder, the Guarantee Trustee (unless other evidence is
herein specifically prescribed) may, in the absence of bad faith on
its part, request and rely upon a certificate, which shall comply with
the provisions of 'ss' 314(e) of the Trust Indenture Act, signed by
any authorized officer of the Guarantor;
(ii) the Guarantee Trustee (A) may consult with counsel (which
may be counsel to the Guarantor or any of its Affiliates and may
include any of its employees) selected by it in good faith and with
due care and the written advice or opinion of such counsel with
respect to legal matters shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon and in accordance with
such advice and opinion and (B) shall have the right at any time to
seek instructions concerning the administration of this Guarantee
Agreement from any court of competent jurisdiction;
(iii) the Guarantee Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Guarantee Trustee shall not be
responsible for any misconduct or negligence on the
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13
part of any agent or attorney appointed by it in good faith and with
due care;
(iv) the Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Guarantee
Agreement at the request or direction of any Holders of Preferred
Securities, unless such Holders shall have offered to the Guarantee
Trustee reasonable security and indemnity against the costs, expenses
(including attorneys' fees and expenses) and liabilities that might be
incurred by it in complying with such request or direction; provided
that nothing contained in this clause (iv) shall relieve the Guarantee
Trustee of the obligation, upon the occurrence of an Event of Default
(which has not been cured or waived) to exercise such of the rights
and powers vested in it by this Guarantee Agreement, and to use the
same degree of care and skill in this exercise as a prudent person
would exercise or use under the circumstances in the conduct of his or
her own affairs; and
(v) any action taken by the Guarantee Trustee or its agents
hereunder shall bind the Holders of the Preferred Securities and the
signature of the Guarantee Trustee or its agents alone shall be
sufficient and effective to perform any such action; and no third
party shall be required to inquire as to the authority of the
Guarantee Trustee so to act, or as to its compliance with any of the
terms and provisions of this Guarantee Agreement, both of which shall
be conclusively evidenced by the Guarantee Trustee's or its agent's
taking such action.
SECTION 3.03. Not Responsible for Recitals or Issuance of
Guarantee. The recitals contained in this Guarantee shall be taken as the
statements of the Guarantor and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representations as to the validity or sufficiency of this Guarantee Agreement.
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14
ARTICLE IV
Guarantee Trustee
SECTION 4.01. Qualifications. (a) There shall at all times be
a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted
by the Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50 million
and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority. If such corporation
publishes reports of condition at least annually, pursuant to law or
to the requirements of the supervising or examining authority referred
to above, then for the purposes of this Section 4.01(a)(ii), the
combined capital and surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in its most recent
report of condition so published.
If at any time the Guarantee Trustee shall cease to satisfy
the requirements of clauses (i) and (ii) above, the Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.02. If
the Guarantee Trustee has or shall acquire any 'conflicting interest' within the
meaning of 'ss' 310(b) of the Trust Indenture Act, the Guarantee Trustee and the
Guarantor shall in all respects comply with the provisions of ss 310(b) of the
Trust Indenture Act.
SECTION 4.02. Appointment, Removal and Resignation of
Guarantee Trustee. (a) Subject to Section 4.02(b), the Guarantee Trustee may be
appointed or removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed in accordance
with Section 4.02(a) until a Successor Guarantee Trustee possessing the
Qualifications to act as Guarantee Trustee under Section 4.01(a) has been
appointed and has accepted such appointment by written instrument executed by
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15
such Successor Guarantee Trustee and delivered to the Guarantor and the
Guarantee Trustee being removed.
(c) The Guarantee Trustee appointed to office shall hold
office until his successor shall have been appointed or until its removal or
resignation.
(d) The Guarantee Trustee may resign from office (without need
for prior or subsequent accounting) by an instrument (a 'Resignation Request')
in writing signed by the Guarantee Trustee and delivered to the Guarantor, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that no such resignation of the Guarantee
Trustee shall be effective until a Successor Guarantee Trustee possessing the
qualifications to act as Guarantee Trustee under Section 4.1(a) has been
appointed and has accepted such appointment by instrument executed by such
Successor Guarantee Trustee and delivered to Guarantor and the resigning
Guarantee Trustee.
(e) If no Successor Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.02 within 60
days after delivery to the Guarantor of a Resignation Request, the resigning
Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, appoint a Successor
Guarantee Trustee.
ARTICLE V
Guarantee
SECTION 5.01. Guarantee. The Guarantor irrevocably and
unconditionally agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by the Trust) regardless of any
defense, right of set-off or counterclaim which the Trust may have or assert.
The Guarantor's obligation to make a Guarantee Payment may be satisfied by
direct payment of the required amounts by the Guarantor to the Holders or by
causing the Trust to pay such amounts to the Holders.
SECTION 5.02. Waiver of Notice. The Guarantor hereby waives
notice of acceptance of this Guarantee Agreement and of any liability to which
it applies or may
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16
apply, presentment, demand for payment, any right to require a proceeding first
against the Trust or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and
all other notices and demands.
SECTION 5.03. Obligations Not Affected. The obligations,
covenants, agreements and duties of the Guarantor under this Guarantee Agreement
shall in no way be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or
otherwise, of the performance or observance by the Trust of any express
or implied agreement, covenant, term or condition relating to the
Preferred Securities to be performed or observed by the Trust;
(b) the extension of time for the payment by the
Trust of all or any portion of the Distributions, Mandatory Redemption
Price, Call Price, Liquidation Distribution or any other sums payable
under the terms of the Preferred Securities or the extension of time
for the performance of any other obligation under, arising out of, or
in connection with, the Preferred Securities;
(c) any failure, omission, delay or lack of diligence
on the part of the Holders to enforce, assert or exercise any right,
privilege, power or remedy conferred on the Holders pursuant to the
terms of the Preferred Securities, or any action on the part of the
Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other similar
proceedings affecting, the Trust or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in,
the Preferred Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or
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17
(g) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 5.03 that the
obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent
of, the Guarantor with respect to the happening of any of the foregoing.
SECTION 5.04. Enforcement of Guarantee. The Guarantor and the
Guarantee Trustee expressly acknowledge that (i) this Guarantee Agreement will
be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) Holders representing not less than a
Majority in Stated Amount of the Preferred Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy available
in respect of this Guarantee Agreement including the giving of directions to the
Guarantee Trustee, or exercising any trust or other power conferred upon the
Guarantee Trustee under this Guarantee Agreement; provided, however, that,
except for directing the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee, the Guarantee Trustee shall not
take any of the foregoing actions at the direction of the Holders unless the
Guarantee Trustee shall have received, at the expense of Time Warner, an opinion
of nationally recognized independent tax counsel experienced in such matters to
the effect that such action will not result in the Trust being treated as an
association taxable as a corporation or a partnership for United States Federal
income tax purposes and that, following such action, each holder of Trust
Securities will be treated for United States Federal income tax purposes as
owning an undivided beneficial interest in the Subordinated Notes; and (iv) if
the Guarantee Trustee fails to enforce this Guarantee Agreement for any reason,
any Holder of Preferred Securities may, at its own expense, after a period of 30
days has elapsed from such Holder's written request to the Guarantee Trustee to
enforce this Guarantee Agreement, institute a legal proceeding directly against
the Guarantor to enforce its rights under this Guarantee Agreement, without
first instituting a legal proceeding against the Trust, the Guarantee Trustee,
or any other Person.
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18
SECTION 5.05. Guarantee of Payment. This Guarantee Agreement
creates a guarantee of payment and not merely of collection.
SECTION 5.06. Subrogation. The Guarantor shall be subrogated
to all (if any) rights of the Holders against the Trust in respect of any
amounts paid to the Holders by the Guarantor under this Guarantee Agreement;
provided, however, that the Guarantor shall not (except to the extent required
by mandatory provisions of law) be entitled to enforce or exercise any rights
which it may acquire by way of subrogation or any indemnity, reimbursement or
other agreement, in all cases as a result of payment under this Guarantee
Agreement, if, at the time of any such payment, any amounts are due and unpaid
under this Guarantee Agreement. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to hold such amount in
trust for the Holders and to pay over such amount to the Holders.
SECTION 5.07. Independent Obligations. The Guarantor
acknowledges that its obligations hereunder are independent of the obligations
of the Trust with respect to the Preferred Securities and that the Guarantor
shall be liable as principal and as debtor hereunder to make Guarantee Payments
pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence
of any event referred to in subsections (a) through (g), inclusive, of Section
5.03 hereof.
ARTICLE VI
Limitation of Transactions; Subordination
SECTION 6.01. Limitation of Transactions. So long as any
Preferred Securities remain outstanding, if there shall have occurred any Event
of Default or an event of default under the Declaration, the Guarantor shall not
declare or pay any dividend on, or make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock; provided, however, that the foregoing restriction shall not
apply to any stock dividends paid by the Guarantor where the dividend stock is
the same stock as that on which the dividend is being paid.
<PAGE>
19
SECTION 6.02. Subordination. This Guarantee Agreement will
constitute an unsecured obligation of the Guarantor and will rank (i)
subordinate and junior in right of payment to all other liabilities of the
Guarantor, including the Subordinated Notes, except those made pari passu or
subordinate by their terms, (ii) pari passu with the most senior preferred or
preference stock outstanding on the date of this Guarantee Agreement or
hereafter issued and with any guarantee now or hereafter entered into by the
Guarantor in respect of any preferred or preference stock of any affiliate of
the Guarantor and (iii) senior to the Guarantor's common stock.
ARTICLE VII
Termination
SECTION 7.01. Termination. This Guarantee Agreement shall
terminate and be of no further force and effect (a) as to any Preferred
Securities upon the exercise by Time Warner of the Time Warner Exchange Right in
connection with any redemption thereof and payment of the Exchange Property and,
if applicable, cash with respect thereto (together with any accrued and unpaid
Distributions thereon), (b) as to any Preferred Securities upon payment by the
Trust of the Redemption Payment Amount with respect thereto (together with any
accrued and unpaid Distributions thereon), (iii) as to all Preferred Securities
upon distribution of the Subordinated Debt Securities held by the Trust to the
holders of the Preferred Securities or (iv) as to all Preferred Securities upon
full payment of the amounts payable in accordance with the Declaration upon
liquidation of the Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must restore payment of any sums paid with respect
to the Preferred Securities or this Guarantee Agreement.
ARTICLE VIII
Limitation of Liability; Indemnification
SECTION 8.01. Exculpation. (a) No Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Guarantor or
any Covered Person for any loss, damage or claim incurred by reason of any act
<PAGE>
20
or omission performed or omitted by such Indemnified Person in good faith and in
a manner such Indemnified Person reasonably believed to be within the scope of
the authority conferred on such Indemnified Person by this Guarantee Agreement
or by law, except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's gross negligence
(or, in the case of the Guarantee Trustee, except as otherwise set forth in
Section 3.02 hereof) or wilful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying
in good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders of Preferred Securities
might properly be paid.
SECTION 8.02. Indemnification. (a) To the fullest extent
permitted by applicable law, the Guarantor shall indemnify and hold harmless
each Indemnified Person from and against any loss, damage or claim incurred by
such Indemnified Person by reason of any act or omission performed or omitted by
such Indemnified Person in good faith and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Guarantee Agreement, except that no Indemnified
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Indemnified Person by reason of gross negligence (or, in
the case of the Guarantee Trustee, except as otherwise set forth in Section 3.02
hereof) or wilful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law,
expenses (including reasonable legal fees) incurred by an Indemnified Person in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Guarantor prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Guarantor of an
undertaking by or on behalf of the Indemnified Person to repay such amount if it
shall be
<PAGE>
21
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 8.02(a).
ARTICLE IX
Miscellaneous
SECTION 9.01. Successors and Assigns. All guarantees and
agreements contained in this Guarantee Agreement shall bind the successors,
assigns, receivers, trustees and representatives of the Guarantor, including any
successors permitted under Article Five of the Indenture, and shall inure to the
benefit of the Holders of the Preferred Securities then outstanding. Except in
connection with a consolidation, merger or sale involving the Guarantor that is
permitted under Article Five of the Indenture, the Guarantor shall not assign
its obligations hereunder.
SECTION 9.02. Amendments. Except with respect to any changes
which do not adversely affect the rights of Holders (in which case no consent of
Holders will be required), this Guarantee Agreement may be amended only with the
prior approval of the Holders of not less than a Majority in Stated Amount of
the Preferred Securities and in either case only if the Guarantee Trustee shall
have obtained either a ruling from the Internal Revenue Service or a written
unqualified opinion of nationally recognized independent tax counsel experienced
in such matters to the effect that such action will not result in the Trust
being treated as an association taxable as a corporation or a partnership for
United States Federal income tax purposes and that, following such action, each
holder of Common Securities and Preferred Securities will be treated as owning
an undivided beneficial interest in the Subordinated Notes. The provisions of
Section 12.2 of the Declaration concerning meetings of Holders shall apply to
the giving of such approval.
SECTION 9.03. Notices. Any notice, request or other
communication required or permitted to be given hereunder shall be in writing,
duly signed by the party giving such notice, and delivered, telecopied or mailed
by first class mail as follows:
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22
(a) if given to the Guarantor, to the address set forth below
or such other address as the Guarantor may give notice of to the Holders:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Facsimile No.: (212) 956-7281
Attention: General Counsel
(b) if given to the Guarantee Trustee, to the address set
forth below or such other address as the Guarantee Trustee may give notice of to
the Holders:
Corporate Trust Securities Division
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Facsimile No.: (312) 407-1708
Attention: Trust #19-[ ]
(c) if given to any Holder of Preferred Securities, at the
address set forth on the books and records of the Trust; and
(d) if given to the Property Trustee for the purposes of
issuing any notice, demand or direction under Article Ten of this Guaranty, to
the address set forth below:
Corporate Trust Securities Division
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Facsimile No.: (312) 407-1708
Attention: Trust #19-[ ]
All notices hereunder shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or three Business Days
after mailed by first class mail, postage prepaid except that if a notice or
other document is refused delivery or cannot be delivered because of a changed
address of which no notice was given, such notice or other document shall be
deemed to have been
<PAGE>
23
delivered on the date of such refusal or inability to deliver.
SECTION 9.04. Benefit. This Guarantee Agreement is solely for
the benefit of the Holders and subject to Section 3.01(a) is not separately
transferable from the Preferred securities.
SECTION 9.05. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
ARTICLE X
Time Warner Exchange Right
SECTION 10.01. Exchange Right. Time Warner shall have the
right (the 'Time Warner Exchange Right'), exercisable upon notice to the Holders
of the Preferred Securities as provided below, to require such Holders to
exchange their Preferred Securities for shares of Hasbro Common Stock or
other Exchange Property and, at the option of Time Warner, cash.
SECTION 10.02. Mandatory Redemption of Preferred Securities.
(a) Time Warner may exercise the Time Warner Exchange Right by giving notice of
such exercise to the Property Trustee no later than 11:59 p.m., New York time,
on the second Business Day following December 17, 1997, in respect of the
Preferred Securities to be redeemed on the Mandatory Redemption Date.
(b) If Time Warner shall have exercised the Time Warner
Exchange Right in respect of the Mandatory Redemption Date, on the Mandatory
Redemption Date each Preferred Security shall be exchanged for (i) Exchange
Property in respect of the portion of such Preferred Security to be exchanged
for Exchange Property based on the Exchange Rate in effect on the Trading Day
immediately preceding December 17, 1997, (ii) cash in respect of the portion, if
any, of such Preferred Security that is not to be exchanged for Exchange
Property, calculated by subtracting from the Mandatory Redemption Price the
value of the Exchange Property to be delivered (based on the Exchange Valuation
Price of such Exchange Property as of the Trading Day immediately preceding
December 17, 1997), and (iii) cash in an amount equal to all accrued and unpaid
Distributions
<PAGE>
24
on such Preferred Security to and including the Mandatory Redemption Date;
provided that if the Exchange Valuation Price as of the Trading Day immediately
preceding December 17, 1997, of the Exchange Property that relates to one
Preferred Security is greater than $54.41, Time Warner shall deliver in exchange
for each Preferred Security in respect of which it exercised the Time Warner
Exchange Right (1) Exchange Property (valued on the basis of its Exchange
Valuation Price as of such Trading Day) and (2) at the option of Time Warner,
cash, having an aggregate value equal to $54.41 per Preferred Security and (b)
cash in an amount equal to all accrued and unpaid distributions on such
Preferred Security, to and including the Mandatory Redemption Date.
SECTION 10.03. Early Redemption and Special Redemption of
Preferred Securities. (a) Time Warner may exercise the Time Warner Exchange
Right by giving notice of such exercise to the Property Trustee no later than
11:59 p.m. New York, time, on the Business Day immediately preceding any
Optional Redemption Date or Special Redemption Date, in respect of the Preferred
Securities to be redeemed on any Optional Redemption Date or Special Redemption
Date, as the case may be.
(b) If Time Warner shall have exercised the Time Warner
Exchange Right in respect of any Optional Redemption Date or Special Redemption
Date, on such Optional Redemption Date or Special Redemption Date, as the case
may be, each Preferred Security to be redeemed on such date shall be exchanged
for (i)(A) Exchange Property (valued on the basis of its Exchange Valuation
Price as of the Trading Day immediately preceding the applicable Optional
Redemption Date or Special Redemption Date) and (B) at the option of Time
Warner, cash, having an aggregate value equal to the Call Price or the Special
Redemption Price in effect for each Preferred Security on such Optional
Redemption Date or Special Redemption Date, as the case may be, and (ii) cash in
an amount equal to all accrued and unpaid distributions on such Preferred
Security to and including the applicable Optional Redemption Date or Special
Redemption Date, as the case may be.
(c) In accordance with Section 10.02 and the foregoing
provisions of Section 10.03, in the event that Time Warner shall exercise the
Time Warner Exchange Right and elects to deliver Exchange Property with respect
to only a portion of each Preferred Security, each Holder of
<PAGE>
25
Preferred Securities to be redeemed shall be entitled to receive from Time
Warner for each Preferred Security held by such Holder, the same types, amounts
and relative proportions of Exchange Property and cash as every other Holder of
Preferred Securities to be redeemed.
SECTION 10.04. Definitions. (a) The 'Exchange Property' per
each Preferred Security on any date shall consist of (i) as of the date of this
Agreement, one share of Hasbro Common Stock (in the aggregate, the 'Initial
Shares'), (ii) any cash or other property (other than cash dividends and other
cash distributions, if any, paid by the Trust that do not constitute
Extraordinary Cash Dividends [(as defined in the Declaration)] and other than
interest, if any, paid in respect thereof) issued or distributed on or after
[ ], 1995(2) in respect of the Initial Shares or other Exchange Property, (iii)
any cash or other property issued or distributed on or after [ ], 1995,(2)
upon the exchange or conversion of such Initial Shares or other Exchange
Property, including upon any reorganization, consolidation or merger or any sale
or transfer or lease of all or substantially all the assets of the Issuer of
such Exchange Property and (iv) any cash or other property paid by an offeror in
connection with a tender or exchange offer for Exchange Property of a particular
type as set forth below; provided that Exchange Property shall not include any
property distributed in respect of Exchange Property for which an antidilution
adjustment has been made pursuant to the Declaration.
In the case of a tender or exchange offer for all Exchange
Property of a particular type, the Exchange Property shall be deemed to include
all cash or other property paid by the offeror in the tender or exchange offer
(in an amount determined on the basis of the rate of exchange in such tender or
exchange offer), whether or not Time Warner tenders or exchanges such Exchange
Property. In the event of a partial tender or exchange offer with respect to
Exchange Property of a particular type, Exchange Property shall be deemed to
include cash or other property paid by the offeror in the tender or exchange
offer in an amount determined as if the offeror had purchased or exchanged
Exchange Property from Time Warner in the proportion in which all property of
such type was purchased or exchanged from the holders thereof; provided that if
Time Warner
- --------
(2) Insert date of Prospectus.
<PAGE>
26
tenders all its Exchange Property of such type, the amount of cash or other
property received that will constitute Exchange Property will be determined on
the basis of the amount of such cash or other property actually received by Time
Warner. Except as provided above, in the event of a tender or exchange offer
with respect to the Exchange Property in which an offeree may elect to receive
cash or other property, Exchange Property shall be deemed to include the kind
and amount of cash and other property received by offerees who elect to receive
cash.
(b) The 'Exchange Rate' means initially one share of Hasbro
Common Stock per Preferred Security, subject to certain antidilution adjustments
as set forth in Section 10.08. The Exchange Rate for any other Exchange Property
will be determined on the basis of the portion of Exchange Property in respect
of which such Exchange Property is issued, distributed or exchanged.
(c) The 'Exchange Valuation Price' of each item of property
comprising the Exchange Property on, or as of, any date means the average of
the Purchase Sale Prices (as defined below) of the applicable Exchange Property
for the five Trading Day period ending on and including such date, appropriately
adjusted to take into account the occurrence, during such period, of any
Exchange Adjustment Events (as defined in Section 10.08(a)) with respect to such
Exchange Property. The 'Purchase Sale Price' on} any date means the closing per
share sale price for the applicable Exchange Property (or, if no closing sale
price is reported, the average of the bid and ask prices or, if more than one in
either case, the average of the average bid and average ask prices) on such date
as reported in the composite transactions for the principal United States
securities exchange on which such Exchange Property is traded or, if such
Exchange Property is not listed on a United States national or regional
securities exchange, as reported by Nasdaq, or, if such Exchange Property is not
reported by Nasdaq, the high per share bid price for such Exchange Property in
the over-the-counter market as reported by the National Quotation Bureau or
similar organization, or, if such bid price is not available, the per unit
market value of such Exchange Property on such date as determined by a
nationally recognized investment banking firm retained for such purpose by Time
Warner.
(d) The term 'Trading Day' means a day on which the AMEX (or
any successor thereto) or, to the extent that
<PAGE>
27
neither the Hasbro Common Stock nor any other Exchange Property is listed on the
AMEX, such other national securities exchange on which the Exchange Property is
listed or, if none, the NYSE is open for the transaction of business.
(e) 'Non-Equity Security' means any security or property which
is not (i) common stock; (ii) a security convertible or exchangeable into common
stock or participating without limitation in earnings and dividends in parity
with common stock; (iii) a warrant or option to purchase common stock; or (iv)
listed or admitted to trading on a United States national or regional securities
exchange or reported by the Nasdaq.
SECTION 10.05. Notice of Exercise. (a) Upon any election by
Time Warner to exercise the Time Warner Exchange Right, Time Warner shall
provide {written} notice to the Property Trustee as set forth in Section 10.02
or 10.03 of (i) Time Warner's election to exercise the Time Warner Exchange
Right in accordance with Section 10.06, (ii) if applicable, the respective
portions of Exchange Property and cash to be delivered and (iii) in connection
with an exercise pursuant to Section 10.03, the applicable Redemption Payment
Date.
(b) Time Warner shall cause notice of such exercise of the
Time Warner Exchange Right to be published by means of the Dow Jones Business
Newswires Service promptly after providing notice of such exercise to the
Property Trustee.
SECTION 10.06. Delivery of Exchange Property; Effect on
Holders. (a) Delivery of the Exchange Property to the Holders of any Preferred
Securities to be redeemed will be conditioned upon delivery or book-entry
transfer of such Preferred Securities (together with necessary endorsements) to
the Property Trustee at any time (whether prior to, on or after the applicable
Redemption Payment Date) after notice of the exercise of the Time Warner
Exchange Right is given to the Property Trustee. In such event, such Exchange
Property with respect to such Preferred Securities shall be delivered to each
Holder of Preferred Securities to be redeemed no later than the later of (i) the
applicable Redemption Payment Date or (ii) the time of delivery or transfer of
such Preferred Securities.
<PAGE>
28
If, following any exercise of the Time Warner Exchange Right, the Property
Trustee holds, in accordance with the terms of the Declaration, (A) Exchange
Property in respect of the portion of the Preferred Securities to be exchanged
for Exchange Property, (B) cash in respect of the portion, if any, of the
Preferred Securities that are not to be exchanged for Exchange Property, and (C)
cash in an amount equal to all accrued and unpaid distributions on all such
Preferred Securities to be redeemed to the applicable Redemption Payment Date,
then at the close of business on such Redemption Payment Date, whether or not
such Preferred Securities are delivered to the Property Trustee, (1) Time Warner
will become the owner and record Holder of such Preferred Securities and (2) the
Holder of such Preferred Securities shall have no further rights with respect to
the Preferred Securities other than the right to receive the Exchange Property,
together with cash as described above, upon delivery of the Preferred
Securities.
SECTION 10.07. Fractional Shares. (a) No fractional shares or
other units of Exchange Property will be issued upon the exercise by Time Warner
of the Time Warner Exchange Right. In lieu of any fractional share or other unit
of Exchange Property otherwise issuable in respect of all Preferred Securities
of any Holder, including any Clearing Agency, that are redeemed or exchanged on
any Redemption Payment Date, Time Warner shall make a cash payment in respect of
such fractional interest in an amount equal to the same fraction of the Exchange
Valuation Price of the Exchange Property deliverable upon such redemption,
determined as of the Trading Day immediately preceding such Redemption Payment
Date (or, in the case of a mandatory redemption, December 17, 1997).
(b) To the extent that the Preferred Securities are exchanged
for Exchange Property and all such Exchange Property cannot be distributed by
The Depository Trust Company, or such other person who may be acting in the
capacity of depositary or Exchange Agent (the 'Depositary') to its participants
that are beneficial holders of the Preferred Securities without creating
fractional interests in the shares or units making up such Exchange Property,
the Depositary may, with the Trust's and Time Warner's consent, adopt such
method as it deems equitable and practicable for the purpose of effecting such
distribution, including the sale (at public or private sale) of such Exchange
Property representing in the aggregate such fractional interests at such place
or places and upon such
<PAGE>
29
terms as it may deem proper, and the net proceeds of any such sale shall be
distributed or made available for distribution to such record holders that would
otherwise have received such fractional interests. The amount distributed in the
foregoing cases will be reduced by any amount required to be withheld by the
Depositary on account of withholding taxes or otherwise required pursuant to
law, regulation or court process.
SECTION 10.08. Adjustment of Exchange Rate. The Exchange Rate
shall be subject to adjustment and the Exchange Property shall be subject to
change as follows:
(a) The Exchange Rate shall be adjusted (and, if applicable,
the Exchange Property shall be changed) upon the (i) distribution of a dividend
on Exchange Property in the same type of Exchange Property, (ii) combination of
Exchange Property into a smaller number of shares or other units, (iii)
subdivision of outstanding shares or other units of Exchange Property, (iv)
conversion or reclassification of Exchange Property by issuance or exchange of
other securities or (v) a consolidation, merger or binding share exchange or a
transfer of all or substantially all of the Issuer's assets (each of the
foregoing an 'Exchange Adjustment Event'). In such an event, the Exchange Rate
in effect immediately before such action shall be adjusted (and if applicable
the Exchange Property shall be changed) to reflect the amount of cash or the
kind and amount of property that a Holder of Exchange Property would have owned
or been entitled to receive upon or by reason of such event if the Preferred
Securities had been exchanged for such Exchange Property immediately before such
event. Such adjustment shall become effective retroactively immediately after
the record date in the case of a dividend or distribution and shall become
effective retroactively immediately after the effective date in the case of a
subdivision, combination, conversion, reclassification, consolidation, merger,
share exchange or transfer specified in this Section 10.08(a). For the purposes
of this Section 10.08(a), each Holder shall be deemed to have failed to exercise
any right to elect the kind or amount of Exchange Property receivable upon the
payment of any such dividend, subdivision, combination, conversion,
reclassification, consolidation, merger, share exchange or transfer specified in
this Section 10.08(a), provided that if the kind or amount of Exchange Property
receivable upon such dividend, subdivision, combination, conversion,
reclassification, consolidation, merger, share exchange or
<PAGE>
30
transfer specified in this Section 10.08(a) is not the same for each nonelecting
share or other unit, then the kind and amount of property receivable upon such
dividend, subdivision, combination, conversion, reclassification, consolidation,
merger or share exchange or transfer specified in this Section 10.08(a) for each
nonelecting share shall be deemed to be the kind and amount so receivable per
share or other unit by a plurality of the nonelecting shares or other units.
(b) Upon a distribution of cash or other property (including
rights, warrants or other securities) on Exchange Property of a particular type
(excluding (i) ordinary periodic cash dividends and distributions, if any, paid
from time to time by an Issuer that do not constitute Extraordinary Cash
Dividends, (ii) interest (whether in cash, securities or other property), if
any, paid in respect thereof and (iii) dividends payable in Exchange Property
for which adjustment is made in Section 10.08(a), if any, the Exchange Rate
shall be adjusted, subject to the provisions of paragraph (C) of this Section
10.08(b), in accordance with the following formula:
R' = R x M
---
M-F
where:
R' = the adjusted Exchange Rate.
R = the current Exchange Rate.
M = the Average Quoted Price, minus, in the case
of a distribution of Capital Stock on
Exchange Property for which (i) the record
date shall occur on or before the record date
for the distribution to which this
Section 10.08(b) applies and (ii) the
Exchange Dividend Time (as defined below)
shall occur on or after the date of the Time
of Determination (as defined below) for the
distribution to which this Section 10.08(b)
applies, the fair market value (on the record
date for the distribution to which this
Section 10.08(b) applies) of such Capital
Stock distributed in respect of Exchange
Property.
<PAGE>
31
F = the fair market value (on the record date for
the distribution to which this
Section 10.08(b) applies) of cash or other
property (including rights, warrants or other
securities) to be distributed in respect of
each share or unit of Exchange Property of a
particular type in the distribution to which
this Section 10.08(b) is being applied
(including, in the case of cash dividends or
other cash distributions giving rise to an
adjustment, all such cash distributed
concurrently).
The Board of Directors shall determine fair market values for
the purposes of this Section 10.08(b).
The adjustment shall become effective immediately
after the record date for the determination of those shareholders
entitled to receive the distribution to which this Section 10.08(b)
applies.
For purposes of this Section 10.08(b), the term
'Extraordinary Cash Dividend' shall mean any cash dividend with respect
to Exchange Property the amount of which, together with the aggregate
amount of such cash dividends on the Exchange Property to be aggregated
with such cash dividend in accordance with the provisions of this
paragraph, equals or exceeds the threshold percentages set forth in
paragraph (A) or (B) below:
(A) If, upon the date prior to the Ex- Dividend Time
with respect to a cash dividend on Exchange Property, the
aggregate amount of such cash dividend together with the
amounts of all cash dividends on Exchange Property with Ex-
Dividend Times occurring in the 85 consecutive day period
ending on the date prior to the Ex-Dividend Time with respect
to the cash dividend to which this provision is being applied
equals or exceeds on a per share basis 12.5% of the average of
the Quoted Prices during the period beginning on the date
after the first such Ex-Dividend Time in such period and
ending on the date prior to the Ex-Dividend Time with respect
to the cash dividend to which this provision is being applied
(except that if no other cash dividend has had an Ex-Dividend
Time occurring in such period, the
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32
period for calculating the average of the Quoted Prices shall
be the period commencing 85 days prior to the date prior to
the Ex-Dividend Time with respect to the cash dividend to
which this provision is being applied), such cash dividend
together with each other cash dividend with an Ex-Dividend
time occurring in such 85 day period shall be deemed to be an
Extraordinary Cash Dividend and for purposes of applying the
formula set forth above in this Section 10.08(b), the value of
'F' shall be equal to (w) the aggregate amount of such cash
dividend together with the amounts of the other cash dividends
with Ex-Dividend Times occurring in such period minus (x) the
aggregate amount of such other cash dividends with Ex-Dividend
Times occurring in such period for which a prior adjustment in
the Exchange Rate was previously made under this Section
10.08(b).
(B) If, upon the date prior to the Ex-Dividend Time
with respect to a cash dividend on the Exchange Property, the
aggregate amount of such cash dividend together with the
amounts of all cash dividends on Exchange Property with
Ex-Dividend Times occurring in the 365 consecutive day period
ending on the date prior to the Ex-Dividend Time with respect
to the cash dividend to which this provision is being applied
equals or exceeds on a per share basis 25% of the average of
the Quoted Prices (as defined below) during the period
beginning on the date after the first such Ex-Dividend Time in
such period and ending on the date prior to the Ex-Dividend
Time with respect to the cash dividend to which this provision
is being applied (except that if no other cash dividend has
had an Ex-Dividend Time occurring in such period, the period
for calculating the average of the Quoted Prices shall be the
period commencing 365 days prior to the date prior to the
Ex-Dividend Time with respect to the cash dividend to which
this provision is being applied), such cash dividend together
with each other cash dividend with an Ex-dividend Time
occurring in such 365 day period shall be deemed to be an
Extraordinary Cash Dividend and for purposes of applying the
formula set forth above in this Section 10.08(b), the value of
'F' shall be equal
<PAGE>
33
to (y) the aggregate amount of such cash dividend together
with the amounts of the other cash dividends with Ex-Dividend
Times occurring in such period minus (z) the aggregate amount
of such other cash dividends with Ex-Dividend Times occurring
in such period for which a prior adjustment in the Exchange
Rate was previously made under this Section 10.08(b).
In making the determinations required by paragraphs
(A) and (B) above, the amount of cash dividends paid on a per
share basis and the average of the Quoted Prices, in each case
during the period specified in paragraphs (A) and (B) above,
as applicable, shall be appropriately adjusted to reflect the
occurrence during such period of any event described in
Section 10.08(a).
(C) In the event that, with respect to any
distribution to which this Section 10.08(b) would otherwise
apply, 'F' is equal to or greater than 'M', then the
adjustment provided by this Section 10.08(b) shall not be made
and the property received upon the distribution in respect of
Exchange Property shall constitute Exchange Property.
'Quoted Price' means, for any given day, the last
reported per share sale price (or, if no sale price is reported, the
average of the bid and ask prices or, if more than one in either case,
the average of the average bid and average ask prices) on such day of
Exchange Property in the composite transactions for the principal
United States national or regional securities exchange on which such
shares are traded, or, if such Exchange Property is not listed on a
United States national or regional securities exchange, as reported by
Nasdaq, or, if such shares are not reported by Nasdaq, the high per
share bid price for such share in the over-the-counter market on such
date as reported by the National Quotation Bureau or similar
organization satisfactory to the Paying Agent. If such bid price is not
available, the Quoted Price shall not be determinable.
<PAGE>
34
'Average Quoted Price' means the average of the
Quoted Prices of Exchange Property for the shortest of:
(i) 30 consecutive Trading Days ending on the last
full trading day prior to the Time of Determination with
respect to the distribution in respect of which the Average
Quoted Price is being calculated;
(ii) the period (x) commencing on the date next
succeeding the first public announcement of the distribution
in respect of which the Average Quoted Price is being
calculated and (y) proceeding through the last full trading
day prior to the Time of Determination with respect to the
distribution in respect of which the Average Quoted Price is
being calculated (excluding days within such period, if any,
which are not trading days); and
(iii) the period, if any, (x) commencing on the date next
succeeding the Ex-Dividend Time with respect to the next
preceding distribution for which an adjustment is required by
the provisions of Section 10.08(b) and (y) proceeding through
the last full trading day prior to the Time of Determination
with respect to the distribution in respect of which the
Average Quoted Price is being calculated (excluding days
within such period, if any, which are not trading days).
In the event that the Ex-Dividend Time (or in the case of a
subdivision, combination or reclassification, the effective date with
respect thereto) with respect to a dividend, subdivision, combination
or reclassification to which Section 10.08(a) applies occurs during the
period applicable for calculating 'Average Quoted Price' pursuant to
the definition in the preceding sentence, 'Average Quoted Price' shall
be calculated for such period in a manner determined by the Board of
Directors to reflect the impact of such dividend, subdivision,
combination or reclassification on the Quoted Price of such Exchange
Property during such period.
Notwithstanding the foregoing, if a Quoted Price shall not be
determinable pursuant to the definition
<PAGE>
35
thereof, then the Average Quoted Price shall mean the per share market
value of the Exchange Property as of the last full trading day prior to
the Time of Determination as determined by a nationally recognized
investment banking firm retained by the Company for such purpose.
'Time of Determination' means the time and date of the earlier
of (i) the determination of shareholders entitled to receive cash or
other property (including rights, warrants or other securities) on
Exchange Property of a particular type in each case to which this
Section 10.08(b) applies and (ii) the time ('Ex-Dividend Time')
immediately prior to the commencement of 'ex-dividend' trading for such
property or distribution on the principal United States national or
regional exchange or market on which the Exchange Property is then
listed or quoted.
Notwithstanding the foregoing, Time Warner shall be entitled,
by notice to the Property Trustee not later than the close of business
on the fifth Business Day following the date of any distribution
referred to in this Section 10.08(b) (or if Time Warner is not aware of
such distribution, as soon as practicable after becoming so aware), to
elect not to have the antidilution adjustments of this Section 10.08(b)
apply, in which case the property received upon the distribution in
respect of Exchange Property shall constitute Exchange Property;
provided that if rights, warrants, options or similar securities are
distributed on Exchange Property and such rights, warrants, options or
similar securities expire before December 30, 1997, then the Company
shall adjust the Exchange Rate under this Section 10.08(b).
(c) If any Issuer controlled by Time Warner or its Affiliates,
at any time any Preferred Securities are then outstanding, issues shares or
units of any Exchange Property for a consideration per share or unit less than
the Average Quoted Price per share or unit on the date such Issuer fixes the
issue price of such additional shares or units, the Exchange Rate for such
Exchange Property shall be adjusted in accordance with the following formula:
A
-----
E' = E x P
-
O + M
<PAGE>
36
where:
E' = the adjusted Exchange Rate
E = the then current Exchange Rate
O = the number of shares or units of such
security which includes Exchange
Property outstanding immediately
prior to the issuance of such
additional shares or units.
P = the aggregate consideration received
for the issuance of such additional
shares or units.
M = the Average Quoted Price per share or
unit on the date of issuance of such
additional shares or units.
A = the number of shares or units of such
class of such security which includes
Exchange Property outstanding
immediately after the issuance of such
additional shares or units.
Any Holder of Preferred Securities in respect of which the
Time Warner Exchange Right shall be exercised after the date of such issuance
shall be entitled to receive Exchange Property at the Exchange Rate as so
adjusted pursuant to this Section 10.08(c). The adjustment shall be made
successively whenever any such issuance is made, and shall become effective
immediately after such issuance.
This Section 10.08(c) does not apply to (i) the exchange of
Preferred Securities or the issuance of any security upon the conversion,
exchange or exercise of other securities convertible into or exchangeable or
exercisable for Exchange Property, (ii) securities issued to any Issuer's
employees under bona fide employee benefit plans approved by an Issuer's board
of directors (but only to the extent that the aggregate number of shares or
units excluded hereby and issued after the date of this Guarantee Agreement
shall not exceed 10% of such securities outstanding at the time of the adoption
of each such plan, exclusive of antidilution adjustments thereunder), (iii)
securities issued upon the exercise of rights or warrants issued pro rata to all
of the holders of such securities,
<PAGE>
37
(iv) securities issued in a bona fide public offering pursuant to a firm
commitment underwriting, or (v) securities issued in connection with a bona fide
acquisition to any Person or to the shareholders of any Person in exchange for
the stock or assets of such Person, which Person is not controlling, controlled
by, or under common control with the Company or any Affiliate of Time Warner.
For the purposes of this Section 10.08(c), in determining whether securities
issued to an Issuer's employees under bona fide employee benefit plans approved
by such Issuer's board of directors were issued for a consideration (per share
or unit) that is less than the Average Quoted Price (per share or unit) of such
securities, the Average Quoted Price of such securities on the date such
securities are awarded or granted to the Issuer's employees under such plans.
(d) If any Issuer controlled by Time Warner or its Affiliates,
at any time any Preferred Securities are then outstanding, issues any securities
convertible into or exchangeable or exercisable for shares or units of any
Exchange Property (the 'Underlying Exchange Property') for a total consideration
per share or unit issuable upon conversion, exchange or exercise of such
convertible, exchangeable or exercisable securities less than the current
Average Quoted Price per share or unit of the Underlying Exchange Property on
the date of issuance of such convertible, exchangeable or exercisable
securities, the Exchange Rate shall be adjusted in accordance with the following
formula:
O + D
-----
E' = E x P
-
O + M
where:
E' = the adjusted Exchange Rate.
E = the then current Exchange Rate.
O = the number of shares or units of the
Underlying Exchange Property outstanding
immediately prior to the issuance of such
convertible, exchangeable or exercisable
securities.
<PAGE>
38
P = the aggregate consideration received in respect of
such convertible, exchangeable or exercisable
securities (including consideration receivable upon
such conversion, exchange or exercise, if any).
M = the current Average Quoted Price per share or unit of
the Underlying Exchange Property on the date of
issuance of such convertible, exchangeable or
exercisable securities.
D = the maximum number of shares or units of the
Underlying Exchange Property issuable upon
conversion, exchange or exercise of such convertible,
exchangeable or exercisable securities at the initial
conversion or exchange rate or exercise price.
Any Holder exchanging any Preferred Securities after the date
of such issuance shall be entitled to receive Exchange Property at the Exchange
Rate as so adjusted pursuant to this Section 10.08(d), but subject to the
provisions for readjustment set forth in this Section 10.08(d). The adjustment
shall be made successively whenever any such issuance is made, and shall become
effective immediately after such issuance. If all of the Exchange Property
deliverable upon conversion, exchange or exercise of such convertible,
exchangeable or exercisable securities have not been issued when such securities
are no longer outstanding, then the Exchange Rate shall promptly be readjusted
to the Exchange Rate which would then be in effect had the adjustment upon the
issuance of such convertible, exchangeable or exercisable securities been made
on the basis of the actual number of shares or units of such Exchange Property
issued upon conversion, exchange or exercise of such securities.
This Section 10.08(d) does not apply to (i) securities
convertible into or exchangeable or exercisable for Exchange Property issued to
any Issuer's employees under bona fide employee benefit plans approved by an
Issuer's board of directors (but only to the extent that the aggregate number of
shares excluded hereby and issued after the date of this Indenture shall not be
convertible into or exchangeable or exercisable for more than 10%, at the time
of adoption of each such plan, of the outstanding shares or other units of such
Exchange Property, exclusive of antidilution adjustments thereunder), (ii)
securities
<PAGE>
39
issued upon the exercise of rights or warrants issued pro rata to all of the
holders of shares or units of a class of securities, (iii) securities issued in
a bona fide public offering pursuant to a firm commitment underwriting or (iv)
securities issued in connection with a bona fide acquisition to any Person or to
the shareholders of any Person in exchange for the stock or assets of such
Person, which Person is not controlling, controlled by or under common control
with Time Warner or any Affiliate of Time Warner. For purposes of this Section
10.08(d), in determining whether securities convertible into or exchangeable or
exercisable for Underlying Exchange Property that are issued to an Issuer's
employees under bona fide employee benefit plans approved by such Issuer's board
of directors were issued for a total consideration (per share or unit) initially
issuable upon conversion, exchange or exercise of such convertible, exchangeable
or exercisable securities that is less than the Average Quoted Price (per share
or unit) of the Underlying Exchange Property, the Average Quoted Price shall be
deemed to be equal to the Quoted Price of such Underlying Exchange Property on
the date such convertible, exchangeable or exercisable securities are awarded or
granted to the Issuer's employees under such plans.
(e) Notwithstanding the provisions of paragraphs (a), (b), (c)
and (d) of this Section 10.08, no adjustment in the Exchange Rate shall be
required unless such adjustment would require an increase or decrease in the
then current Exchange Rate of more than 1%; provided, however, that any
adjustments which by reason of this Section 10.08(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
(f) All calculations under this Section 10.08 shall be made to
the nearest .0001 of a share, the nearest whole dollar of Stated Amount of the
Preferred Securities or the nearest integral unit, as applicable.
(g) Time Warner shall, within five Business Days following the
occurrence of an event that permits or requires an adjustment to the Exchange
Rate or a change to the Exchange Property pursuant to this Section 10.08 (or if
Time Warner is not aware of such occurrence, as soon as practicable after
becoming so aware), provide written notice to the Property Trustee of (i) the
occurrence of such event, (ii) if applicable, whether Time Warner has elected
<PAGE>
40
to cause such adjustment to occur, (iii) in the case where the Exchange Rate has
been adjusted, the Exchange Valuation Price each item of property related to
such adjustment and a statement in reasonable detail setting forth the method by
which the Exchange Valuation Price and the adjustment to the Exchange Rate were
determined and (iv) in the case where the Exchange Property has been changed, a
statement in reasonable detail identifying each item of property comprising the
Exchange Property and setting forth the Exchange Rate per Preferred Security for
each such item of Exchange Property.
(h) Upon a distribution of cash or other property (including
rights, warrants or other securities) on Exchange Property of a particular type
where Time Warner has exercised its right set forth in the last paragraph of
Section 10.08(b) to have the antidilution adjustments of Section 10.08(b) not
apply, or in the event of a tender or exchange offer which, pursuant to the
definition of 'Exchange Property' results in the creation of new or additional
Exchange Property (the 'Tender Offer Consideration'), then, from and after the
record date for determining the holders of Exchange Property entitled to receive
the distribution, a Holder of Preferred Securities in respect of which the Time
Warner Exchange Right shall have been exercised shall upon such exchange be
entitled to receive, in addition to the Exchange Property into which the
Preferred Securities are exchangeable, the kind and amount of securities, cash
or other assets comprising the distribution that such Holder would have received
if such Holder had exchanged the Preferred Securities are immediately prior to
the record date for determining the Holders of Exchange Property entitled to
receive the distribution or the Tender Offer Consideration described in the
definition of Exchange Property, as the case may be.
<PAGE>
41
THIS GUARANTEE AGREEMENT is executed as of the day and year
first above written.
TIME WARNER INC.,
By
---------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Guarantee Trustee,
By
-------------------------------
Name: Melissa G. Weisman
Title: Assistant Vice President}
<PAGE>
[LETTERHEAD OF
CRAVATH, SWAINE & MOORE]
August 4, 1995
Time Warner Inc.
Time Warner Financinq Trust
Reqistration Nos. 33-60203 and 33-60203-01
Dear Sirs:
We have acted as counsel for Time Warner Inc., a Delaware corporation (the
"Company") and Time Warner Financing Trust, a statutory business trust created
under the Business Trust Act of the State of Delaware (the "Trust"), in
connection with the proposed issuance by the Trust of 12,057,561 Preferred
Exchangeable Redemption Cumulative Securities (the "Preferred Securities")
issued pursuant to the terms of a declaration of trust, dated as of June 7,
1995, amended and restated by an Amended and Restated Declaration of Trust to be
dated as of the date of issuance of the Preferred Securities (the "Amended
Declaration") (as so amended and restated from time to time, the "Declaration"),
among the Company, as sponsor, the trustees named therein and the holders from
time to time of undivided beneficial interests in the assets of the Trust. The
Preferred Securities will be guaranteed by the Company on a subordinated basis
with respect to distributions and payments upon liquidation, redemption or
otherwise (the "Guarantee") pursuant to a Guarantee Agreement to be dated as of
the date of issuance of the Preferred Securities (the "Guarantee Agreement")
between the Company and The First National Bank of Chicago, as Trustee (the
"Guarantee Trustee"). The assets of the Trust will consist of Subordinated Notes
due December 23, 1997 (the "Subordinated
<PAGE>
2
Notes") of the Company which will be issued under an indenture to be dated as of
the date of issuance of the Preferred Securities (the "Indenture"), between the
Company and Chemical Bank, as Trustee (the "Indenture Trustee").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for the purpose
of this opinion, including (a) the Restated Certificate of Incorporation of the
Company; (b) the above referenced Registration Statement on Form S-3 filed with
the Securities and Exchange Commission (the "Commission") on June 14, 1995, as
amended by Amendment No. 1 thereto filed with the Commission on July 19, 1995
(as so amended, the "Registration Statement"); (c) the Certificate of Trust of
the Trust dated June 7, 1995 and filed with the Secretary of State of the State
of Delaware on June 9, 1995; (d) the Declaration; (e) the form of Amended
Declaration filed with the Commission as an exhibit to the Registration
Statement; (f) the form of Indenture filed with the Commission as an exhibit to
the Registration Statement; (g) the form of Preferred Security filed with the
Commission as an exhibit to the Registration Statement; (h) the form of
Guarantee Agreement filed with the Commission as an exhibit to the Registration
Statement; and (i) the form of Subordinated Note filed with the Commission as an
exhibit to the Registration Statement.
Based on the foregoing, we are of opinion as follows:
(i) when the Guarantee Agreement is duly authorized, executed and
delivered by the Company, assuming the due authorization execution and
delivery thereof by the Guarantee Trustee, each of the Guarantee Agreement
and the Guarantee will constitute a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other laws affecting creditors' rights
generally from time to time in effect and subject as to enforceability to
general principles of equity, regardless of whether considered in a
proceeding in equity or at law);
<PAGE>
3
(ii) when duly authorized, executed and delivered by the Company and,
assuming the due authorization, execution and delivery thereof by the
Indenture Trustee, the Indenture will constitute a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms (subject to applicable bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium or other laws affecting creditors'
rights generally from time to time in effect and subject as to
enforceability to general principles of equity, regardless of whether
considered in a proceeding in equity or at law);
(iii) when duly authorized, executed and delivered by the Company and,
when authenticated in the manner provided for in the Indenture and
delivered against payment therefor as described in the Prospectus contained
in the Registration Statement (the "Prospectus"), the Subordinated Notes
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms.
We are members of the bar of the State of New York and we do not express
any opinion as to any laws other than the laws of the State of New York and the
Federal laws of the United States of America.
We know that we may be referred to, as counsel who has passed upon the
validity of the Subordinated Notes and the Guarantee Agreement, in the
Prospectus forming a part of the Registration Statement, and we hereby consent
to such use of our name in the Registration Statement, as well as to the use of
this letter as an exhibit to the Registration Statement.
Very truly yours,
/s/ CRAVATH, SWAINE & MOORE
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
<PAGE>
[LETTERHEAD OF
RICHARDS, LAYTON & FINGER]
August 4, 1995
Time Warner Financing Trust
c/o Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Re: Time Warner Financing Trust
Ladies and Gentlemen:
We have acted as special Delaware counsel for Time Warner Inc., a Delaware
corporation ("Time Warner"), and Time Warner Financing Trust, a Delaware
business trust (the "Trust"), in connection with the matters set forth herein.
At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our examination
of documents has been limited to the examination of originals or copies of the
following:
(a) The Certificate of Trust of the Trust, dated as of June 7, 1995 (the
"Certificate"), as filed in the office of the Secretary of State of the State
of Delaware (the "Secretary of State") on June 9, 1995;
(b) The Declaration of Trust of the Trust, dated as of June 7, 1995,
between Time Warner and the trustees of the Trust named therein;
(c) Amendment No. 2 to the Registration Statement (the "Registration
Statement") on Form S-3, including a preliminary Prospectus (the "Prospectus"),
relating to the Preferred Exchangeable Redemption Cumulative Securities of the
Trust representing preferred undivided beneficial interests in the assets of the
Trust (each, a
<PAGE>
Time Warner Financing Trust
August 4, 1995
Page 2
"Preferred Security" and collectively, the "Preferred Securities"), as
proposed to be filed by Time Warner and the Trust with the Securities and
Exchange Commission on August 4, 1995;
(d) A form of Amended and Restated Declaration of Trust of the Trust, to be
entered into between Time Warner, the trustees of the Trust named therein, and
the holders, from time to time, of the undivided beneficial interests in the
assets of the Trust (including the exhibits thereto) (the "Declaration"),
attached as an exhibit to the Registration Statement; and
(e) A Certificate of Good Standing for the Trust, dated July 26, 1995,
obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are used
as defined in the Declaration.
For purposes of this opinion, we have not reviewed any documents other than
the documents listed in paragraphs (a) through (e) above. In particular, we have
not reviewed any document (other than the documents listed in paragraphs (a)
through (e) above) that is referred to in or incorporated by reference into the
documents reviewed by us. We have assumed that there exists no provision in any
document that we have not reviewed that is inconsistent with the opinions stated
herein. We have conducted no independent factual investigation of our own but
rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the additional matters recited or assumed
herein, all of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Declaration when
executed, will constitute the entire agreement among the parties thereto with
respect to the subject matter thereof, including with respect to the creation,
operation and termination of the trust, and that the Declaration and the
Certificate will be in full force and effect and will not been amended, (ii)
except to the extent provided in paragraph 1 below, the due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its organization or formation, (iii) the legal
<PAGE>
Time Warner Financing Trust
August 4, 1995
Page 3
capacity of natural persons who are parties to the documents examined by us,
(iv) that each of the parties to the documents examined by us has the power and
authority to execute and deliver, and to perform its obligations under, such
documents, (v) the due authorization, execution and delivery by all parties
thereto of all documents examined by us, (vi) the receipt by each Person to whom
a Preferred Security if to be issued by the Trust (collectively, the "Preferred
Seurity Holders") of a Preferred Security Certificate and the payment for the
Preferred Security acquired by it, in accordance with the Declaration and the
Registration Statement, and (vii) that the Preferred Securities are issued and
sold to the Preferred Security Holders in accordance with the Declaration and
the Registration Statement. We have not participated in the preparation of the
Registration Statement and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding the
securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of law
and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good standing
as a business trust under the Business Trust Act.
2. The Preferred Securities, when issued, will represent valid and, subject
to the qualifications set forth in paragraph 3 below, fully paid and
nonassessable undivided beneficial interests in the assets of the Trust.
3. The Preferred Security Holders, as beneficial owners of the Trust, will
be entitled to the same limitation of personal liability extended to
stockholders of private corporations for profit organized under the General
Corporation Law of the State of Delaware. We note that the Preferred Security
Holders may be obligated pursuant to the Declaration, to (i) provide indemnity
and security in connection with and pay taxes or governmental charges arising
from transfers of Preferred Security Certificates and the issuance of
replacement Preferred Security Certificates, (ii) provide security and indemnity
in connection with requests of or directions to the Property Trustee to exercise
its rights and powers under the Declaration, and (iii) undertake as a party
litigation to pay costs in any suit for the enforcement of any right or remedy
under
<PAGE>
Time Warner Financing Trust
August 4, 1995
Page 4
the Declaration or against the Property Trustee, to the extent provided in the
Declaration.
We consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement. We hereby consent to the
use of our name under the heading "Legal Matters" in the Prospectus. In giving
the foregoing consents, we do not thereby admit that we come within the category
of Persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or relied upon by, any
other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
<PAGE>
[LETTERHEAD OF
CRAVATH, SWAINE & MOORE]
August 4, 1995
Time Warner Inc.
Time Warner Financinq Trust
Reqistration Nos. 33-60203 and 33-60203-01
Dear Sirs:
We have acted as counsel for Time Warner Inc., a Delaware corporation (the
"Company") and Time Warner Financing Trust, a statutory business trust created
under the Business Trust Act of the State of Delaware (the "Trust"), in
connection with the proposed issuance by the Trust of 12,057,561 Preferred
Exchangeable Redemption Cumulative Securities (the "Preferred Securities")
issued pursuant to the terms of a declaration of trust, dated as of June 7,
1995, amended and restated by an Amended and Restated Declaration of Trust to be
dated as of the date of issuance of the Preferred Securities (the "Amended
Declaration") (as so amended and restated from time to time, the
"Declaration"), among the Company, as sponsor, the trustees named therein and
the holders from time to time of undivided beneficial interests in the assets of
the Trust. The Preferred Securities will be guaranteed by the Company on a
subordinated basis with respect to distributions and payments upon liquidation,
redemption or otherwise (the "Guarantee") pursuant to a Guarantee Agreement to
be dated as of the date of issuance of the Preferred Securities (the "Guarantee
Agreement") between the Company and The First National Bank of Chicago, as
Trustee (the "Guarantee Trustee"). The assets of the Trust will consist of
Subordinated Notes due December 23, 1997 (the "Subordinated Notes") of the
Company which will be issued under an indenture to be dated as of the date of
issuance of the
<PAGE>
2
Preferred Securities (the "Indenture"), between the Company and Chemical Bank,
as Trustee (the "Indenture Trustee").
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for the purpose
of this opinion, including (a) the Restated Certificate of Incorporation of the
Company; (b) the above referenced Registration Statement on Form S-3 filed with
the Securities and Exchange Commission (the "Commission") on June 14, 1995, as
amended by Amendment No. 1 thereto filed with the Commission on July 19, 1995
(as so amended, the "Registration Statement"); (c) the Certificate of Trust of
the Trust dated June 7, 1995 and filed with the Secretary of State of the State
of Delaware on June 9, 1995; (d) the Declaration; (e) the form of Amended
Declaration filed with the Commission as an exhibit to the Registration
Statement; (f) the form of Indenture filed with the Commission as an exhibit to
the Registration Statement; (g) the form of Preferred Security filed with the
Commission as an exhibit to the Registration Statement; (h) the form of
Guarantee Agreement filed with the Commission as an exhibit to the Registration
Statement; and (i) the form of Subordinated Note filed with the Commission as an
exhibit to the Registration Statement.
Based on the foregoing, we are of opinion that the statements set forth in
the Prospectus contained in the Registration Statement (the "Prospectus") under
the caption "Federal Income Tax Considerations", to the extent they constitute
matters of law, accurately describe the material United States Federal income
tax consequences to holders of the acquisition, holding and disposition of the
Preferred Securities.
We also confirm that the statements set forth in the Prospectus under the
caption "Federal Income Tax Considerations" purporting to describe our opinion
as to certain matters accurately describe our opinion as to those matters.
We do not express any opinion as to any laws other than the Federal income
tax laws of the United States of America.
We know that we may be referred to in the Prospectus in the discussion
captioned "Federal Income Tax
<PAGE>
3
Considerations", and we hereby consent to such use of our name in the
Registration Statement, as well as to the use of this letter as an exhibit to
the Registration Statement.
Very truly yours,
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in
Amendment No. 2 to the Registration Statement Nos. 33-60203 and 33-60203-01 on
Form S-3 and related Prospectus of Time Warner Inc. ('TWI') and Time Warner
Financing Trust for the registration of 12,057,561 Preferred Exchangeable
Redemption Cumulative Securities ('PERCS'), the guarantee of the PERCS by TWI,
the exchange rights of TWI, and the subordinated notes of TWI, and to the
incorporation by reference therein of our reports dated February 7, 1995, with
respect to the consolidated financial statements and schedule of TWI and Time
Warner Entertainment Company, L.P. included in TWI's Annual Report on Form 10-K
for the year ended December 31, 1994, as amended by Amendment No. 1 thereto
dated June 28, 1995 ('TWI's 1994 Form 10-K'), and our report dated March 3,
1995, with respect to the combined financial statements of the Time Warner
Service Partnerships incorporated by reference in TWI's 1994 Form 10-K, filed
with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
August 3, 1995
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement Nos. 33-60203 and 33-60203-01 of Time Warner Inc. and
Time Warner Financing Trust on Form S-3 of our report dated March 10, 1995, with
respect to the consolidated financial statements of Summit Communications Group,
Inc. incorporated by reference in the Form 8-K of Time Warner Inc. dated May 30,
1995, and to the reference to us under the heading 'Experts' in the Prospectus,
which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
August 4, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in
Pre-Effective Amendment No. 2 to Registration Statement Nos. 33-60203 and
33-60203-01 on Form S-3 and related Prospectus of Time Warner Inc. ('TWI') and
Time Warner Financing Trust for the registration of 12,057,561 Preferred
Exchangeable Redemption Cumulative Securities ('PERCS'), the guarantee of the
PERCS by TWI, the exchange rights of TWI, and the subordinated notes of TWI, and
to the incorporation by reference therein of (i) our report dated October 7,
1994, with respect to the financial statements of Newhouse Broadcasting Cable
Division of Newhouse Broadcasting Corporation and Subsidiaries for each of the
three years in the period ended July 31, 1994, and (ii) our report dated March
24, 1995, with respect to the financial statements of Vision Cable Division of
Vision Cable Communications, Inc. and Subsidiaries for each of the three years
in the period ended December 31, 1994, appearing in the Current Report on Form
8-K of TWI dated May 30, 1995, filed with the Securities and Exchange
Commission.
/s/ Paul Scherer & Company LLP
PAUL SCHERER & COMPANY LLP
New York, New York
August 4, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of
Amendment No. 2 to the Registration Statement (Nos. 33-60203 and 33-60203-01) on
Form S-3, relating to the 12,057,561 Preferred Exchangeable Redemption
Cumulative Securities of Time Warner Inc. and Time Warner Financing Trust.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Stamford, Connecticut
August 4, 1995
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement Nos. 33-60203 and 33-60203-01, respectively, of Time
Warner Inc. and Time Warner Financing Trust on Form S-3 of our report dated
April 20, 1995, with respect to the consolidated financial statements of KBLCOM
Incorporated appearing in the Form 8-K of Time Warner Inc. dated May 30, 1995,
and to the reference to us under the heading 'Experts' in the Prospectus, which
is part of such Registration Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Houston, Texas
August 4, 1995
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Amendment No. 2 to Registration Statement on Form S-3
(Nos. 33-60203 and 33-60203-01) of Time Warner Inc. and Time Warner Financing
Trust relating to the 12,057,561 Preferred Exchangeable Redemption Cumulative
Securities of our report on the Paragon Communications financial statements and
schedule dated January 19, 1995, except as to Note 6, which is as of January 27,
1995, which appears on Page F-82 of the Annual Report on Form 10-K for Time
Warner Entertainment Company, L.P. for the year ended December 31, 1994, which
is incorporated by reference in the Time Warner Inc. Annual Report on Form 10-K
for the year ended December 31, 1994. We also consent to the reference to us
under the heading 'Experts' in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
August 4, 1995
