<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1995
REGISTRATION NO. 33-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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.) TO BE APPLIED FOR
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]
------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
<S> <C> <C> <C> <C>
PROPOSED
MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) FEE(2)
<CAPTION>
<S> <C> <C> <C> <C>
PERCS of Time Warner Financing Trust......... 12,057,561 $33 3/8 $ 402,421,099 $138,766
Guarantee of PERCS by Time Warner Inc.(3).... --
Exchange Rights of Time Warner Inc.(3)....... 12,057,561
Subordinated Notes of Time Warner Inc.(3).... 12,057,561
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) Registration fee calculated on the basis of 1/29 of 1% of the proposed
maximum offering price of $33 3/8 per PERCS.
(3) No separate consideration will be received for the Guarantee, the Exchange
Rights or the Subordinated Notes.
------------------------
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 JUNE 14, 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.
(Cover continued on next page)
------------------------
APPLICATION WILL BE MADE TO LIST THE PERCS ON THE NEW YORK STOCK EXCHANGE.
------------------------
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. 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 PERCS will be made on or about , 1995 at
the offices of Morgan Stanley & Co. Incorporated, New York, New York, against
payment therefor in New York funds.
------------------------
MORGAN STANLEY & CO.
INCORPORATED
, 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, 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 of the Trading
Day immediately preceding December 17, 1997, of one share of Hasbro Common Stock
plus (b) an amount equal to all accrued and unpaid distributions thereon to and
including 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, (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 -- 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 initially equal to $ per PERCS, declining by $ on each day following
the date of issue of the PERCS to $ on October 23, 1997, and equal to $54.41
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 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 for cash at
the Special Redemption Price, 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 , 1995, the closing price of the Hasbro
Common Stock on the AMEX was $ 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>
Time Warner Inc.................................................................................. 4
Time Warner Financing Trust...................................................................... 5
Hasbro, Inc...................................................................................... 5
Summary of the Offering.......................................................................... 7
Use of Proceeds.................................................................................. 13
Price Range and Dividend History of Hasbro Common Stock.......................................... 13
Recent Developments.............................................................................. 14
Selected Historical and Pro Forma Financial Information.......................................... 15
Consolidated Capitalization...................................................................... 20
Description of the PERCS......................................................................... 22
Description of the Guarantee..................................................................... 40
Description of the Subordinated Notes............................................................ 42
Effect of Obligations Under the Subordinated Notes and the Guarantee............................. 48
Holding Company Structure........................................................................ 50
Federal Income Tax Considerations................................................................ 50
ERISA Considerations............................................................................. 52
Underwriters..................................................................................... 53
Legal Matters.................................................................................... 53
Experts.......................................................................................... 53
Available Information............................................................................ 54
Documents Incorporated by Reference.............................................................. 55
</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>
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 to be acquired as a result of the Transactions referred to in
'Recent Developments' 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 '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.
4
<PAGE>
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 9, 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'). Upon issuance of
the PERCS, the purchasers thereof will own all of the PERCS. Time Warner will
directly or indirectly acquire Common Securities in an aggregate liquidation
amount equal to % of the total capital of the Trust. The Trust exists for the
exclusive purposes of (i) issuing 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.
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
5
<PAGE>
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 (AS
DEFINED BELOW) 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.
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.
6
<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 terms used in this summary are
defined elsewhere in this Prospectus.
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 and including 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 and including 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'.
7
<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 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, whether or not declared, for the
period to and including the Optional Redemption Date. The 'Call Price' is
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 $ on October 23, 1997, and equal to $54.41 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 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 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
and including 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 and including 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 optional or special redemption
thereof to exchange their Subordinated Notes for a combination of
8
<PAGE>
Exchange Property and cash as described herein. See 'Description of the
Subordinated Notes -- Time Warner Exchange Right'.
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, 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'.
Under current United States Federal income tax law, a distribution of
Subordinated Notes upon a Tax Event or Investment Company Event would not be a
taxable event to holders of the PERCS. Upon occurrence of a Tax Event or an
Investment Company Event, however, a dissolution of the Trust in which holders
of the PERCS receive cash or a redemption of the PERCS upon which holders
receive cash would be a taxable event to such holders to the extent of such cash
payment. 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.
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 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) any
accrued and unpaid distributions that are required to be paid on the PERCS, to
the extent the Trust has funds available therefor, (ii) 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, to the
extent the Trust has funds available therefor and (iii) 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 a redemption of all the PERCS), the lesser of (a) the
Liquidation Distribution, to the extent the Trust has funds available therefor
or (b) the amount of assets of the Trust remaining available for distribution to
holders of the PERCS upon such liquidation,
9
<PAGE>
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. 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. See 'Description of
the PERCS -- Additional Information Relating to the Trust', 'Description of the
Guarantee' and 'Description of the Subordinated Notes'.
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 liquidation 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 Denomination per annum,
which is equivalent to the annual distribution payments that are due with
respect to the PERCS), payable quarterly in arrears on the 30th day of March,
June, September and December, commencing 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 initially equal to $ per Minimum
Denomination of Subordinated Notes, declining by $ on each day
following the Issue Date to $ on October 23, 1997, and equal to $54.41
thereafter, plus an amount equal to all accrued and unpaid interest thereon to
and including 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
10
<PAGE>
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.
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 and, therefore, the Subordinated Notes may be
effectively subordinated to the claims of such third parties. 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. 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. The TWE Agreement of
Limited Partnership and the bank credit facilities of TWE and certain
subsidiaries of Time Warner limit 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 its bank credit facilities. As a
result of the expected acquisition by subsidiaries of Time Warner of certain
cable systems, certain subsidiaries of Time Warner 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
'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 60 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 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 liquidation 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'.
11
<PAGE>
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 8.3%.
LISTING
Application will be made to list the PERCS on the New York Stock Exchange
(the 'NYSE').
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Time
Warner's financial statements, with the PERCS shown as a minority interest
consisting of redeemable exchangeable preferred securities of a subsidiary.
12
<PAGE>
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 8.3%.
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 (through June 13, 1995)................................ 35 1/4 31 3/8 .08
</TABLE>
On June 13, 1995, the last reported sales price for the Hasbro Common Stock
on the AMEX was $32 3/4.
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.
13
<PAGE>
RECENT DEVELOPMENTS
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) agreed on January 26, 1995, to
acquire 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 $146
million of indebtedness. To acquire KBLCOM, Time Warner will issue one million
shares of its common stock and 11 million shares of a new convertible preferred
stock ('Series D Preferred Stock') and assume or incur approximately $1.3
billion of indebtedness, including $111 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) agreed on April 17, 1995, subject to certain conditions, to
recapitalize Six Flags Entertainment Corporation ('Six Flags'), sell 51% of its
interest therein and grant certain licenses to Six Flags and (ii) announced on
May 18, 1995, 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.
Time Warner and TWE are currently in negotiations with an administrative
agent for a bank syndicate regarding a five-year revolving credit facility (the
'New Credit Agreement') expected to be executed in late June or early July 1995,
pursuant to which TWE, the TWE-A/N Partnership and a wholly owned subsidiary of
Time Warner will be 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.
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<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 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
------ ------ ------ ------ -------- ------- ------- -------
(MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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>
15
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
MARCH 31, RESTATED
1995 1994 1993 1992 1992 1991 1990
--------- ------- ------- -------- ------- ------- -------
(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 Time Warner's Redeemable Reset Notes due
2002 and its Liquid Yield Option Notes due 2012 and 2013.
16
<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 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
------ ------ ------ ------ -------- ------ ------ ------
(MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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,
----------------------------------------------------------
MARCH 31, RESTATED
1995 1994 1993 1992 1992 1991 1990
--------- ------- ------- -------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
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.
17
<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 the issuance of the
PERCS offered hereby and the use of the net proceeds therefrom to repurchase,
redeem or otherwise repay outstanding indebtedness because such transaction 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 Time Warner's Redeemable Reset Notes due
2002 and its Liquid Yield Option Notes due 2012 and 2013.
18
<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>
19
<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 the
Transactions and the issuance of the PERCS offered hereby, as if such
transactions occurred at such date. Although the proceeds to Time Warner of the
issuance 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 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 $ -- $ --
Redeemable reset notes (8.7% yield)........................... 1,755 1,755 1,755 -- --
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 -- --
Debt due to TWE (7.13% interest rate)(b)...................... 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(c)....................................... -- 2,733 2,733 -- 1,682
TWE credit agreement (weighted average interest rate of
6.8%)(d)(e)................................................. -- -- -- 2,450 --
TWE commercial paper (weighted average interest rate of
6.5%)(e).................................................... -- -- -- 748 748
Six Flags 9.25% zero coupon notes(f).......................... -- -- -- 126 --
TWE 8 7/8%, 9 5/8% and 10.15% Notes(e)........................ -- -- -- 1,197 1,197
TWE 7 1/4%, 8 3/8% and 8 3/8% Debentures(e)................... -- -- -- 2,583 2,583
Other......................................................... 235 235 235 58 58
Reduction of debt with proceeds from the issuance of the PERCS
offered hereby.............................................. -- -- ()(a) -- --
---------- ------- ----------- ---------- -------
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(b)................... (400) (400) (400) -- --
---------- ------- ----------- ---------- -------
Total long-term debt..................................... 9,001 12,374 7,162 6,268
Minority interest -- redeemable exchangeable preferred
securities....................................................... -- -- (a) -- --
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 $15,814 $ 15,321 $14,385
---------- ------- ----------- ---------- -------
---------- ------- ----------- ---------- -------
</TABLE>
(footnotes on following page)
20
<PAGE>
(footnotes from previous page)
(a) Although the proceeds to Time Warner of the issuance 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.
(b) 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 (effective July
1, 1995) 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.
(c) It is anticipated that the New Credit Agreement will permit borrowings in
an aggregate amount of up to $9 billion, which Time Warner and TWE may
reduce to the extent of any excess availability resulting from the
anticipated debt reductions associated with the Asset Sale Transactions.
Any reductions in excess availability under the New Credit Agreement would
not affect the pro forma consolidated capitalization of Time Warner and the
Entertainment Group. Based upon an assumed $9 billion of aggregate
availability under the New Credit Agreement, borrowings are expected to be
limited to $4 billion in the case of TWI Cable, $5 billion in the case of
the TWE-Advance/Newhouse Partnership and $9 billion in the case of TWE,
subject in each case to certain limitations and adjustments. It is also
anticipated that 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 is expected
to contain 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 Report on
Form 8-K dated May 30, 1995, incorporated by reference herein for a
description of the New Credit Agreement.
(d) 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.
(e) Guaranteed by certain subsidiaries of Time Warner which are the general
partners of TWE.
(f) Guaranteed by TWE.
21
<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. The payment of distributions out of money held by the Trust,
and payments upon redemption of the PERCS or liquidation of the Trust, are
guaranteed by Time Warner on a subordinated basis as and to the extent described
under 'Description of the Guarantee'.
DISTRIBUTIONS
The holders of the PERCS are entitled to receive cumulative cash
distributions of $ per PERCS per annum, or $ per quarter, accruing from
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 and including
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'. 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'. 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
22
<PAGE>
Basis (as defined below). 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. 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 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 Only Issuance' 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 day on which
banking institutions in The City of New York are authorized or required by law
to close.
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) 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 PERCS to and including 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.
23
<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 Trust shall call for redemption 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
and including the Optional Redemption Date. The Call Price is 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 $
on October 23, 1997, and equal to $54.41 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.
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
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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 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 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 and including 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 and including the applicable Optional
Redemption Date or Special Redemption Date, as the case may be.
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 PERCS, each holder of PERCS
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.
The 'Exchange Property' with respect to each PERCS on any date shall
consist of (i) initially, one share of Hasbro Common Stock (in the aggregate,
the 'Initial Shares'), (ii) any property (other than cash dividends and other
cash distributions paid by the issuer thereof that do not constitute
Extraordinary Cash Dividends (as defined in the Declaration) and other than
interest, if any, paid in respect thereof) distributed in respect of the Initial
Shares or other Exchange Property and (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;
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 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
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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'. 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) if applicable, the respective portions of Exchange Property and cash
to be delivered and (iii) 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 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
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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 immediately after 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'.
On December 10, 1992, Time Warner issued a series of Liquid Yield Option
Notes due 2012 (Zero Coupon -- Senior) (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 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 the 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, which is the
maximum price payable per PERCS upon the mandatory redemption of the PERCS. In
the event that the closing sale price of the Hasbro Common Stock prior to
December 17, 1997, exceeds $54.41 and Time Warner calls the LYONs for
redemption, it is likely that the holders of the LYONs will elect to exchange
their LYONs. If Time Warner elects to deliver Hasbro Common Stock to such
exchanging holders in lieu of paying such holders cash, it is more likely that
Time Warner will not exercise the Time Warner Exchange Right on the Mandatory
Redemption Date in respect of the PERCS.
It is Time Warner's intention to deliver the Hasbro Common Stock (or other
Exchange Property) owned by it to satisfy its obligations in respect of either
the Subordinated Notes and the PERCS or the LYONs.
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
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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 any amount required
to be withheld by the Depositary on account of withholding taxes or otherwise
required pursuant to law, regulation or court process.
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 subdivision
of outstanding shares or other units of Exchange Property or (iv) the conversion
or reclassification of Exchange Property by issuance or exchange of other
securities. 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.
If Hasbro or another issuer of Exchange Property is party to a
consolidation, merger or binding share exchange or a transfer of all or
substantially all of its assets, any Exchange Property consisting of securities
of such issuer will be changed into the kind and amount of securities, cash or
other assets which the holder of PERCS would have received if such PERCS had
been exchanged for Exchange Property immediately prior to any such transaction.
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 that
is less than the Exchange Valuation Price of such Exchange Property at the time
of issuance, 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 deliverable on such conversion, exchange or
exercise that is less than the Exchange Valuation Price of
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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) an
issuance of securities in a bona fide public offering pursuant to a firm
commitment underwriting, (b) the issuance of securities in connection with an
acquisition to persons not affiliated with Time Warner and (c) certain options
issued to such issuer's employees under 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.
Time Warner is required, within five days following the occurrence of an
event that permits or requires an adjustment to the Exchange Rate or a change to
the Exchange Property (or if Time Warner is not aware of such occurrence, as
soon as practicable after becoming so aware), to provide written notice to the
Regular Trustees of (i) the occurrence of such event, (ii) if applicable,
whether Time Warner 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 PERCS for each such item of Exchange Property.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
'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 (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 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.
'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
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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 the
Subordinated Notes with 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 PERCS 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 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 Trust Securities having an aggregate
stated liquidation amount equal to the principal amount of the Subordinated
Notes so redeemed, at a price per PERCS (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 PERCS,
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 PERCS and to the
Subordinated Notes, the 'Special Redemption Price'), plus an amount equal
to all accrued and unpaid distributions on such PERCS to and including the
Special Redemption Date; or
(c) in the case of a Tax Event, allow the Subordinated Notes and the
PERCS 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 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, which 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 direct the Regular Trustees to dissolve the Trust or to
redeem the Subordinated Notes 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, the Trust
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 PERCS 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
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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 liquidated 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
excluding the last date as of which distributions were paid in respect of the
PERCS formerly held by such holders to and including 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 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
Business Days 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.
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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,
except that if, as a result of a default with respect to the Trust's assets, the
assets of the Trust are insufficient to make such payment, the PERCS will have a
priority over the Common Securities with respect to payment of the Call Price or
the Special Redemption Price, as the case may be, and any accrued and unpaid
distributions. 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. Holders
of Subordinated Notes received as a result of any such dissolution and
distribution shall be entitled to receive interest accrued on the Subordinated
Notes from and excluding the last date as of which distributions were paid in
respect of the PERCS formerly held by such holders to and including the next
regularly scheduled Interest Payment Date with respect to the Subordinated
Notes. 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 immediately prior to 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 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 liquidation amount of the PERCS so
distributed.
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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 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 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 Optional
Redemption 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 and including 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 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'.
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VOTING RIGHTS
Except as provided below and 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 60 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 liquidation 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, the Property Trustee
shall request the 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
liquidation 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
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 or (iii) exercise any right to
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rescind or annul a declaration that the principal of all the Subordinated Notes
shall be due and payable; 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 (as
defined below) or of each holder of Subordinated Notes affected thereby, only
the holders of at least such Super-Majority of the PERCS 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 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 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
PERCS 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. Except in the case of
directing the time, method and place of conducting a proceeding for any remedy
available to the Property Trustee or the Indenture Trustee, the Property Trustee
shall be under no obligation to take any action described in clauses (ii) or
(iii) 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 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 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.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the holders of the PERCS 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 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.
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LISTING
Application will be made to list the PERCS on the NYSE.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with Time
Warner's financial statements, with the PERCS shown as a minority interest
consisting of redeemable exchangeable preferred securities of a subsidiary.
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
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 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 a financial institution or an
affiliate thereof which maintains a principal place of business or residence 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'.
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'.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and 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
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liquidation, dissolution, winding-up or termination of the Trust other than
pursuant to the terms of the Declaration, then the holders of the 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 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 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 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) to add to the
covenants, restrictions or obligations of Time Warner and (iv) to 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
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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 New York Stock Exchange, Inc., 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.
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.
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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 herein, 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)
any accrued and unpaid distributions that are required to be paid on the PERCS,
to the extent the Trust has funds available therefor, (ii) subject to the
exercise by Time Warner of the Time Warner Exchange Right, each Redemption
Payment Amount, to the extent the Trust has funds available therefor, and (iii)
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 a redemption of all the PERCS),
the lesser of (a) the Liquidation Distribution, to the extent the Trust has
funds available therefor or (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 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
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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.
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.
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 and (iii) senior
to Time Warner's common stock. The terms of the
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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 Redemption or Distribution'. 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 New York
Stock Exchange 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 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 to and including 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 Security. See
'Book-Entry and Settlement' below. In the event that Subordinated Notes are
issued in certificated form, such Subordinated Notes will be in denominations
equal to the Issue Price and integral multiples thereof and may be transferred
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or exchanged at the offices described below. Payments on Subordinated Notes
issued as a Global Security 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 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 Business Day next preceding such
Interest Payment 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. In the event the
Subordinated Notes shall not continue to remain in book-entry only form, Time
Warner shall have the right to select record dates, which shall be more than one
Business Day prior to the Interest Payment Date.
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 $ per Minimum
Denomination of Subordinated Notes, declining by $ on each day following the
date of issue of the Subordinated Notes to $ on October 23, 1997, and equal
to $54.41 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 and including 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 will also have the right to redeem the
Subordinated Notes at any time upon the occurrence of a Special Event if certain
conditions are met as described under 'Description of the PERCS -- Special Event
Distribution or Redemption'.
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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 have
exercised 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 and
including 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 (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 and including the Maturity Date.
If Time Warner shall have exercised 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 and including 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 and cause the Subordinated Notes to be distributed to the holders of
the PERCS, (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 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.
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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'. 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.
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. No payments on account
of the Subordinated Notes, including by way of any Claim (as defined below) may
be made if, at any time, there is a default in the payment of principal of or
interest on or other monetary obligation with respect to any Senior Indebtedness
(including, without limitation, fees, expenses and indemnities) or if there is
an event of default with respect to any Senior Indebtedness or any agreement
pursuant to which the Senior Indebtedness is issued which, or any event that,
with the giving of notice or lapse of time, would be an event of default and
permit the holders to accelerate the maturity thereof. 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, (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 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. The Subordinated Notes
will be subordinated to Time Warner's outstanding 8 3/4% Convertible
Subordinated Debentures due 2015.
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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 60 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; and (iv) certain events of bankruptcy, insolvency,
receivership or reorganization involving Time Warner. If any Indenture Event of
Default occurs and is continuing, the Indenture Trustee by notice to Time
Warner, or the holders of not less than 40% 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
(the 'Note Acceleration Price'). 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 the not less than a majority 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) extend the fixed
maturity of the Subordinated Notes, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
premium payable upon the redemption thereof, without the consent of the holder
of each Subordinated Note so affected or (ii) reduce the percentage of
Subordinated Notes, the holders of which are required to consent to any such
modification, without the consent of the holders of each Subordinated Note then
outstanding and affected thereby. 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 a majority 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 liquidation amount or all) of the
Trust Securities with respect to any such modification.
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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 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 Securities 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, 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.
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.
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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
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 other than
by Time Warner to a successor or purchaser pursuant to a consolidation, merger
or sale permitted by the Indenture.
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
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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 substantially equivalent to a full and
unconditional guarantee by Time Warner of payments due on the PERCS. See
'Description of the Guarantee -- General'.
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 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
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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.
HOLDING COMPANY STRUCTURE
Time Warner is a holding company and its assets consist primarily of
investments in its subsidiaries. A substantial portion of the consolidated
liabilities of Time Warner have been incurred by its subsidiaries. TWE, which is
not consolidated with Time Warner for financial reporting purposes, also has
substantial indebtedness and other liabilities. 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 any subsidiary 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
distributions and other transfers of funds to Time Warner. Generally,
distributions other than tax distributions are subject to restricted payments
limitations and availability under certain financial ratios applicable to TWE
contained in its bank credit facilities. As a result of the expected acquisition
by subsidiaries of Time Warner of certain cable systems, certain subsidiaries of
Time Warner 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.
FEDERAL INCOME TAX CONSIDERATIONS
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. Federal income tax consequences
that may be relevant to 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.
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 or
as part of a 'synthetic security' or other integrated investment, and does not
address the consequences under state, local or foreign law.
No statutory, judicial or administrative authority directly addresses the
characterization of the Subordinated Notes or instruments similar to the
Subordinated Notes for U.S. Federal income tax purposes. As a result,
significant aspects of the U.S. Federal income tax consequences of an investment
in the PERCS are not certain. No ruling is being requested from the Internal
Revenue Service (the 'IRS') with respect to the PERCS or the Subordinated Notes
and 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 tax advisor in determining the tax
consequences of an investment in the PERCS including the application of state,
local or other tax laws and the possible effects of changes in Federal or other
tax laws.
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CLASSIFICATION OF THE TRUST
In connection with the issuance of the PERCS, Cravath, Swaine & Moore,
counsel to Time Warner and the Trust, will render its opinion generally to the
effect that, under current law and assuming full compliance with the terms of
the Declaration, the Trust will 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.
TAXATION OF U.S. HOLDERS
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 income tax purposes, with interest accruing thereon
at the stated rate. See 'Description of the Subordinated Notes -- Interest'.
Under this approach:
(1) a U.S. Holder of PERCS will be required to include such U.S.
Holder's allocable pro rata share of interest on the Subordinated Notes in
taxable income 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
will recognize gain or loss 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 will 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 will not include the amount attributable to
the Holder's allocable pro rata share of accrued but unpaid interest on the
Subordinated Notes, which will be treated as interest. A U.S. Holder's tax
basis in the PERCS will generally be equal to its purchase price for the
PERCS. It is believed that any such gain or loss will be capital gain or
loss, and will 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 may require that any such gain be
treated as ordinary (interest) income. If a U.S. Holder receives 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 will 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 may apply. For example, (i) gain on the sale,
redemption or other disposition of the PERCS may 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 greater than the
stated rate of interest on the Subordinated Notes, and (correlatively) have less
gain or
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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 1984 ('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........................................................................
--------
--------
</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 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 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 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 will be 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.
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 and certain federal income tax matters will be
passed upon for Time Warner and the Trust by Cravath, Swaine & Moore, New York,
New York, and for the Underwriters by Davis Polk & Wardwell, New York, New York,
and by Shearman & Sterling, New York, New York. Cravath, Swaine & Moore is being
advised as to certain matters of Delaware law relating to the validity of the
PERCS by Richards, Layton & Finger, Wilmington, Delaware, special counsel to the
Trust.
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,
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
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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
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the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at 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 the Trust has funds available therefor.
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; (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 and (vi) Time Warner's Current Report on Form 8-K dated May 30, 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.
55
<PAGE>
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.
<TABLE>
<S> <C>
Securities and Exchange Commission Filing Fee..................................... $138,766
Trustees' Fees.................................................................... *
Rating Agency Fees................................................................ *
Accounting Fees and Expenses...................................................... *
Legal Fees and Expenses........................................................... *
Blue Sky Fees and Expenses........................................................ 23,500
Printing and Engraving Fees....................................................... *
Stock Exchange Listing Fee........................................................ *
NASD Filing Fee................................................................... 30,500
Miscellaneous..................................................................... *
--------
Total........................................................................ $ *
--------
--------
</TABLE>
- ------------
* 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.
II-1
<PAGE>
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 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) 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) 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.
<TABLE>
<S> <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 -- 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 (to be included in Exhibit 5)
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
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>
- ---------------
* To be filed by amendment.
II-2
<PAGE>
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.
II-3
<PAGE>
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in The City of New York, State of New York, on the 14th day of June,
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 June 14, 1995
......................................... Executive Officer (principal executive
(GERALD M. LEVIN) officer)
* Director, President June 14, 1995
.........................................
(RICHARD D. PARSONS)
/S/ RICHARD J. BRESSLER Senior Vice President and Chief Financial June 14, 1995
......................................... Officer (principal financial officer)
(RICHARD J. BRESSLER)
/S/ JOHN A. LABARCA Vice President and Controller (principal June 14, 1995
......................................... accounting officer)
(JOHN A. LABARCA)
* Director June 14, 1995
.........................................
(MERV ADELSON)
* Director June 14, 1995
.........................................
(LAWRENCE B. BUTTENWIESER)
* Director June 14, 1995
.........................................
(EDWARD S. FINKELSTEIN)
* Director June 14, 1995
.........................................
(BEVERLY SILLS GREENOUGH)
* Director June 14, 1995
.........................................
(CARLA A. HILLS)
* Director June 14, 1995
.........................................
(DAVID T. KEARNS)
* Director June 14, 1995
.........................................
(HENRY LUCE III)
* Director June 14, 1995
.........................................
(REUBEN MARK)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
* Director June 14, 1995
.........................................
(MICHAEL A. MILES)
* Director June 14, 1995
.........................................
(J. RICHARD MUNRO)
* Director June 14, 1995
.........................................
(DONALD S. PERKINS)
* Director June 14, 1995
.........................................
(RAYMOND S. TROUBH)
* Director June 14, 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
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in The City of New York, State of New York, on the 14th day of
June, 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
<TABLE>
<S> <C>
The trademark symbol shall be expressed as.....'tm'
The section symbol shall be expressed as....... ss.
The registered mark shall be expressed as...... 'r'
</TABLE>
<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 -- 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 (to be included in Exhibit 5).......................
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...............................
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>
- ------------
* To be filed by amendment.
<PAGE>
TIME WARNER FINANCING TRUST and TIME WARNER INC.
Underwriting Agreement
New York, New York
June __, 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, [__________] [$___] 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 __________,
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"). [
] 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 "Preferred Securities Guarantee") pursuant to the Preferred
Securities Guarantee Agreement dated as of __________, 1995 (the "Preferred
Securities Guarantee Agreement") between the Company and ___________, as Trustee
(the "Guarantee Trustee"). The assets of the Trust will consist of, among other
things, % Subordinated Notes due December 30, 1997 (the "Subordinated Notes") of
the
<PAGE>
2
Company which will be issued under an indenture, dated as of June , 1995 (the
"Subordinated Notes Indenture"), between the Company and , 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 Preferred
Securities Guarantees 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, at any time and from time to time prior to maturity, 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 Preferred Securities 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")
guaranteed by the Company, to the extent set forth in the Prospectus, with
respect to distributions and payments upon liquidation, and redemption (the
"Common Securities Guarantee" and, together with the Preferred Securities
Guarantee, the "Guarantees") pursuant to the Common Securities Guarantee
Agreement (the "Common Securities Guarantee Agreement" and, together with the
Preferred Securities Guarantee Agreement, the "Guarantee Agreements"), dated as
of June , 1995, between the Guarantee Trustee, as Trustee, 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-_____) on such Form, including a
prospectus, for registration under the Act of the Preferred Securities,
the Guarantees, 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
<PAGE>
3
Securities as described in the Prospectus. 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 (the "Exchange Act"), the Trust Indenture Act and
the respective rules thereunder; on the 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 Agreements 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 each of the Guarantee Agreements 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
<PAGE>
4
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.
(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 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,
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; 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) The Common Securities have been duly authorized by the
Declaration and, when issued and delivered by the Trust to the Company
against payment therefor as described in the Registration Statement and
Prospectus, 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 and will conform to all statements
relating thereto contained in the Prospectus; the issuance of the
Common Securities is not subject to any preemptive or other similar
rights; and at the Closing Date, all of the issued and outstanding
Common Securities of the Trust will be directly owned by the Company
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(h) This Agreement has been duly authorized, executed and
delivered by each of the Offerors.
(i) 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 preferred 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
<PAGE>
5
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.
(j) 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.
(k) Each of the (i) Common Securities Guarantee Agreement and
(ii) Preferred Securities 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
Guarantees and the Guarantee Agreements will conform to all statements
relating thereto contained in the Prospectus; and the Preferred
Securities Guarantee Agreement, at the Closing Date, will have been
duly qualified under the Trust Indenture Act.
(l) 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.
(m) 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
<PAGE>
6
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.
(n) The Company's obligations under the Preferred Securities
Guarantee and Common Securities 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.
(o) The Subordinated Notes are subordinated and junior in
right of payment to all present and future senior indebtedness (as
defined in the Indenture) of the Company and rank pari passu with the
Company's [other general unsecured creditors].
(p) 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.
(q) 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 or the offering of the
Common Securities, the Subordinated Notes or the Guarantees, 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.
(r) Neither the Company nor any of its subsidiaries is in
violation of its Restated Certificate of Incorporation, as amended, or
By-laws, as amended; the Trust is not in violation of the Declaration
or its Certificate of Trust filed with the State of Delaware on June
_____, 1995 (the "Certificate of Trust"); and the execution, delivery
and performance of this Agreement, the Declaration, the Preferred
Securities, the Common Securities, the Indenture, the Subordinated
Notes, the Guarantee Agreements and the Guarantees, 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
<PAGE>
7
necessary action (corporate or otherwise) on the part of the Offerors
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 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 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.
(s) 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.
(t) __________, __________ and __________ (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.
<PAGE>
8
(u) 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").
(v) Each of Ernst & Young LLP, Deloitte & Touche LLP, Paul
Scherer & Company LLP and Arthur Andersen LLP, which is 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.
(w) The consolidated financial statements and the related
notes of the Company and the Trust, Newhouse Broadcasting Cable
Division of Newhouse Broadcasting Corporation and Subsidiaries
("Newhouse"), Vision Cable Division of Vision Cable Communications,
Inc. and Subsidiaries ("VCD"), Cablevision Industries Corporation and
Subsidiaries ("CVI"), Cablevision Industries Limited Partnership and
Combined Entities ("CVI L.P.") and KBLCOM Incorporated ("KBLCOM")
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 and the
Trust, CVI, Newhouse, VCD, CVI L.P. and KBLCOM, as the case may be, as
of the dates indicated and the consolidated results of operations and
cash flows of the Company and the Trust, CVI, Newhouse, VCD, CVI L.P.
and KBLCOM, as the case may be, 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 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.
(x) 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)
<PAGE>
9
otherwise provided in the laws of the State of Rhode Island, are full
paid and nonassessable.
(y) 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, except for the rights of first refusal contained in Section 4(I)
of the Shareholders Rights Agreement dated May 17, 1983 between Warner
Communications Inc. and Hasbro Industries, Inc., as amended by an
amendment dated December 1, 1985 (as so amended, the "Shareholders'
Agreement"), which rights of first refusal have expired, 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.
(z) 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.
(aa) 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.
(bb) 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 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
<PAGE>
10
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.
(cc) 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.
(dd) 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. (a) 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 II hereto, the Preferred Securities set forth opposite such
Underwriter's name in Schedule I hereto.
(b) The initial public offering price of the Preferred
Securities, the initial exchange rate applicable to the Preferred Securities,
the number of shares of Hasbro Common Stock for which each Preferred Security
shall initially be exchangeable, the purchase price to be paid by the
Underwriter for the Preferred Securities and the other information called for in
Schedule II hereto have each been determined and set forth 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
<PAGE>
11
of the purchase price by certified or official bank check or checks in funds
available the next succeeding business day drawn to the order of the Trust on
the [fourth] business day after the date hereof, or at such other time not later
than [ten] full business days thereafter as 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
<PAGE>
12
Prospectus would include any untrue statement of a material fact or
omit to state any 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
<PAGE>
13
Agreements, the Preferred Securities, the Blue Sky Survey and the Legal
Investment 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, (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 covered by any registration statement filed
under the Act.
(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
<PAGE>
14
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 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.
<PAGE>
15
(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 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 C hereto.
(e) At the Closing Date, you shall have received from
___________, counsel of __________, as Property Trustee under the
Declaration and Guarantee Trustee under the Guarantee Agreements, dated
the Closing Date, substantially in the form of Exhibit D hereto.
(f) 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 Preferred Securities 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.
(g) The Representative shall have received from Davis, Polk &
Wardwell, counsel for the Underwriters, such opinion or opinions, dated
the Closing Date, with respect to certain U.S. federal income tax
matters, 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.
(h) Each of the Trust and the Company shall have furnished to
you a certificate of the Trust and the Company, respectively, signed by
[the 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;
<PAGE>
16
(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.
(i) At the Closing Date and at the Execution Time, Ernst &
Young LLP shall have furnished to the Representative 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 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 included or incorporated in
the Registration Statement and the Prospectus and reported on
by them comply as to 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 made available by the Company
and its subsidiaries; carrying out certain specified
procedures (but not an examination in accordance with
generally 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 its
subsidiaries; and inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters of the Company and its 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:
(1) any unaudited financial statements
included or incorporated in the Registration
Statement and the Prospectus do not comply as to form
in all material respects with applicable accounting
requirements of the Act and the Exchange Act and with
the published
<PAGE>
17
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
(2) 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 and its consolidated
subsidiaries or any decreases in stockholders' equity
or the consolidated capital stock of the Company as
compared with the amounts shown on the most recent
consolidated balance sheet included or incorporated
in the Registration Statement and the Prospectus, or
for the period from the date of the most recent
unaudited financial statements included or
incorporated in the Registration Statement and the
Prospectus 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; and
(iii) 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.
(j) At the Closing Date and at the Execution Time, each of
Deloitte & Touche LLP, Paul Scherer & Company LLP and Arthur Andersen
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 KBLCOM, Newhouse and VCD and CVI and CVI L.P., respectively,
within the meaning of the Act and the 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(i) hereto.
<PAGE>
18
(k) 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.
(l) 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 either such rating agency.
[(m) At the Closing Date, the Preferred Securities shall have
been approved for listing on the New York Stock Exchange upon notice of
issuance.]
(n) 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 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 Trust or the
Company will reimburse the Underwriters severally upon
<PAGE>
19
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)(x) 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, (y) 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 (z)
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 (y) or (z), 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 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 Underwriter specifically for
inclusion therein or (ii) that part of the Registration Statement which shall
constitute the Statement of Eligibility and Qualification (Form T-1) under the
Trust Indenture Act of the Trustee. This indemnity agreement will be in addition
to any liability which the Trust or the Company may otherwise have.
<PAGE>
20
(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 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
<PAGE>
21
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 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
<PAGE>
22
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.
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
<PAGE>
23
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 it 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.
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>
24
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: _________________________________
Name:
Title:
TIME WARNER INC.
By: _________________________________
Name:
Title:
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
Number of Preferred
Securities to Be
Underwriter Purchased
<PAGE>
SCHEDULE II
TIME WARNER FINANCING TRUST and TIME WARNER INC.
[12,000,000] [$____] Preferred
Exchangeable Redemption
Cumulative Securities
1. The initial public offering price per security for the
Preferred Securities shall be $25.00.
2. The purchase price per security for the Preferred
Securities to be paid by the several Underwriters shall be $25.00,
being an amount equal to the initial public offering price set forth
above.
3. The compensation per Preferred Security to be paid by the
Company to the several Underwriters in respect of their commitments
hereunder shall be $__________; provided, however, that the
compensation per Preferred Security for sales of 10,000 or more
Preferred Securities to a single purchaser shall be
$____________.
[4. The Preferred Securities shall be exchangeable for shares
of Hasbro Common Stock at an initial rate of _____ shares of Hasbro
Common Stock per Preferred Security].
<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, to enter into and perform
its obligations under the Underwriting Agreement, the Declaration, the
Indenture and each of the Guarantee Agreements 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;
(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 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; 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;
<PAGE>
2
(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;
(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 Guarantees, the
consummation by the Trust and 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 Agreements have been duly authorized,
executed and delivered by the Trust and the Company, as the case may
be;
(viii) neither the Company nor any of its subsidiaries is in
violation of its Restated Certificate of Incorporation, as amended, or
By-Laws, as amended; the Trust is not in violation of the Declaration
or its Certificate of Trust; and the execution, delivery and
performance of this Agreement, the Declaration, the Preferred
Securities, the Common Securities, the Indenture, the Subordinated
Notes, the Guarantee, the Guarantee Agreements and the Guarantees, 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
Restated Certificate of Incorporation, as amended, or By-laws, as
amended, 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) 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 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
<PAGE>
3
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
or 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 Trust or 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;
(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;
(xi) the Trust is not an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the 1940
Act; and
(xii) 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 except for the rights of first refusal contained in Section 4(I)
of the Shareholders' Agreement, which have expired.
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 of the Trust 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
<PAGE>
4
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.
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 June
__, 1995 or their preliminary prospectus dated June __, 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 Common Securities have been duly authorized by the
Declaration and, when issued and delivered by the Trust to the Company
against payment therefor as described in the Registration Statement and
Prospectus, 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 and will conform to all statements
relating thereto contained in the Prospectus; the issuance of the
Common Securities is not subject to any preemptive or other similar
rights; and all of the issued and outstanding Common Securities of the
Trust will be directly owned by the Company free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or
equity;
(iii) the Preferred Securities have been duly authorized by
the Declaration and are validly issued and (subject to the terms of the
Declaration) when delivered to and paid for by the Underwriter 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; the holders of Preferred Securities will be entitled to the
same limitation of personal liability extended to stockholders of
private corporations for profit; and the Preferred Securities have been
approved for listing on the New York Stock Exchange upon notice of
issuance;
(iv) 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);
(v) each of the (i) Common Securities Guarantee Agreement and
(ii) Preferred Securities Guarantee Agreement has been duly authorized,
executed and
<PAGE>
2
delivered by the Company and (in the case of the Preferred Security
Guarantee Agreement only), 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; and the Preferred Securities Guarantee
Agreement has been duly qualified under the Trust Indenture Act;
(vi) 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 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);
(vii) 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;
(viii) the Subordinated Notes are subordinated and junior in
right of payment to all present and future senior indebtedness (as
defined in the Indenture) of the Company and rank pari passu with the
Company's [other general unsecured creditors];
(ix) the Company's obligations under the Preferred Securities
Guarantee and Common Securities 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;
(x) the Common Securities, the Preferred Securities, the
Subordinated Notes, each of the Guarantees, the Declaration, the
Indenture and the Guarantee Agreements conform to all statements
relating thereto contained in the Prospectus;
(xi) 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
<PAGE>
3
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;
(xii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Trust and the Company; and
(xiii) 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", "Holding Company Structure"
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.
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
<PAGE>
4
the Company's prospectus dated June __, 1995 or their preliminary prospectus
supplement dated June __, 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 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
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.
1. 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.
2. 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.
3. 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.
4. 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 ).
<PAGE>
2
5. 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.
6. 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.
7. 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.
8. 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.
9. 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).
<PAGE>
3
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 D
FORM OF OPINION OF
[TRUSTEE'S COUNSEL]
(i) ___________ is a Delaware banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws of
the State of Delaware with all necessary power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of the
Declaration and the Guarantee Agreements.
(ii) The execution, delivery and performance by the Property
Trustee of the Declaration and the Guarantee Agreements have been duly
authorized by all necessary corporate action on the part of the Property
Trustee. The Declaration and the Guarantee Agreements 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) The execution, delivery and performance of the
Declaration and the Guarantee Agreements by the Property Trustee do not conflict
with or constitute a breach of the Articles of Organization or Bylaws of the
Property Trustee.
(iv) No consent, approval or authorization of, or registration
with or notice to, any Delaware or federal banking authority is required for the
execution, delivery or performance by the Property Trustee of the Declaration
and the Guarantee Agreements.
(v) The Property Trustee is the record holder of the
Subordinated Notes and the Guarantees and no security interest, mortgage,
pledge, lien, encumbrance, claim or equity is noted thereon or on the register.
<PAGE>
Exhibit 4.1
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 /s/ STEVEN M. WAGNER
---------------------------
Name: Steven M. Wagner
Title: Vice President
FIRST CHICAGO DELAWARE INC.,
as Delaware Trustee,
by /s/ STEVEN M. WAGNER
---------------------------
Name: Steven M. Wagner
Title: Vice President
<PAGE>
2
by /s/ PETER R. HAJE
---------------------------
Peter R. Haje,
as trustee
by /s/ RICHARD J. BRESSLER
---------------------------
Richard J. Bressler,
as trustee
by /s/ THOMAS W. MCENERNEY
----------------------------
Thomas W. McEnerney,
as trustee
<PAGE>
EXHIBIT 4.2
DECLARATION OF TRUST, dated as of June 7,
1995, between Time Warner Inc., a Delaware
corporation, as Sponsor (the "Sponsor"), and The
First National Bank of Chicago, a national banking
association, as Property Trustee, First Chicago
Delaware Inc., as Delaware Trustee, and Richard J.
Bressler, Peter R. Haje and Thomas W. McEnerney, not
in their individual capacities but solely as
Trustees. The Sponsor and the Trustees hereby agree
as follows:
1. The trust created hereby (the "Trust") shall be known as
"Time Warner Financing Trust", in which name the Trustees, or the Sponsor to the
extent provided herein, may conduct the business of the Trust, make and execute
contracts, and sue and be sued.
2. The Sponsor hereby assigns, transfers, conveys and sets
over to the Trust the sum of $10. The Trustees hereby acknowledge receipt of
such amount from the Sponsor, which amount shall constitute the initial trust
estate. It is the intention of the parties hereto that the Trust created hereby
constitute a business trust under Chapter 38 of Title 12 of the Delaware Code,
12 Del. C. Section 3801 et seq. (the "Business Trust Act"), and that this
document constitute the governing instrument of the Trust. The Trustees are
hereby authorized and directed to execute and file a certificate of trust with
the Delaware Secretary of State in the form attached as Exhibit A hereto.
3. The Sponsor and the Trustees will enter into an amended and
restated Declaration of Trust, satisfactory to each such party, to provide for
the contemplated operation of the Trust created hereby and the issuance of
preferred securities and common securities of the Trust. Prior to the execution
and delivery of such amended and restated Declaration of Trust, the Trustees
shall not have any duty or obligation hereunder or with respect to the trust
estate, except as otherwise required by applicable law or as may be necessary to
obtain prior to such execution and delivery any licenses, consents or approvals
required by applicable law or otherwise.
4. The Sponsor and the Trustees hereby authorize
and direct the Sponsor, as the sponsor of the Trust, (a) to
<PAGE>
2
execute and file with the Securities and Exchange Commission (the "Commission"),
on behalf of the Trust, (i) a Registration Statement on Form S-3 (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 1933 of the Preferred Securities of the Trust and (ii) a
Registration Statement on Form 8-A (the "1934 Act Registration Statement"),
including any pre-effective and post-effective amendments thereto, relating to
the registration of the Preferred Securities of the Trust under Section 12(b) of
the Securities Exchange Act of 1934, as amended; (b) to execute on behalf of the
Trust and file with the New York Stock Exchange or any other national stock
exchange 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 stock 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 the
Sponsor, on behalf of the Trust, may deem necessary or desirable and (d) to
execute on behalf of the Trust an Underwriting Agreement among the Trust, the
Sponsor and Morgan Stanley & Co. Incorporated relating to the offer and sale of
the Preferred Securities, satisfactory to each such party. In the event that any
filing referred to in clauses (a) through (c) above is required by the rules and
regulations of the Commission, the New York Stock Exchange or any other national
stock exchange or state securities or blue sky laws, to be executed on behalf of
the Trust by the Trustees, Richard J. Bressler, Peter R. Haje and Thomas W.
McEnerney, 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 First National Bank
of Chicago and First Chicago Delaware Inc., 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 any other national stock exchange
or state securities or blue sky laws. In connection with all of the foregoing,
the Sponsor and each Trustee, solely in its capacity as Trustee of the Trust,
hereby constitutes and appoints Gerald M.
<PAGE>
3
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 the Sponsor or such Trustee or in the Sponsor'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, 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 the
Sponsor 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.
5. This Declaration of Trust may be executed in
one or more counterparts.
6. The number of Trustees initially shall be five and
thereafter the number of Trustees shall be such number as shall be fixed from
time to time by a written instrument signed by the Sponsor which may increase or
decrease the number of Trustees; provided, however, that the number of Trustees
shall in no event be less than five; and provided further that to the extent
required by the Business Trust Act, one Trustee shall either be a natural person
who is a resident of the State of Delaware or, if not a natural person, an
entity which has its principal place of business in the State of Delaware.
Subject to the foregoing, the
<PAGE>
4
Sponsor is entitled to appoint or remove without cause any Trustee at any time.
The Trustees may resign upon thirty days' prior notice to the Sponsor.
IN WITNESS WHEREOF, the parties hereto have caused this
Declaration of Trust to be duly executed as of the day and year first above
written.
TIME WARNER INC.,
as Sponsor,
by /s/ THOMAS W. MCENERNEY
-------------------------------
Name: Thomas W. McEnerney
Title: V.P. and Associate
General Counsel
THE FIRST NATIONAL BANK OF
CHICAGO, not in its individual
capacity but solely as
Trustee,
by
/s/ STEVEN M. WAGNER
-------------------------------
Name: Steven M. Wagner
Title: Vice President
FIRST CHICAGO DELAWARE
INC., not in its individual
capacity but solely as Delaware
Trustee,
by
/s/ STEVEN M. WAGNER
-------------------------------
Name: Steven M. Wagner,
Title: Vice President
by
/s/ RICHARD J. BRESSLER
-------------------------------
Richard J. Bressler,
not in his individual capacity
but solely as Trustee
<PAGE>
5
by
/s/ PETER R. HAJE
-------------------------------
Peter R. Haje,
not in his individual capacity
but solely as Trustee
by
/s/ THOMAS W. MCENERNEY
-------------------------------
Thomas W. McEnerney,
not in his individual capacity
but solely as Trustee
[Draft--6/4/95]
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 , 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 , 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 hereinafter defined); 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
that the Trust constitute a business trust under the Business Trust Act, that
the Original Declaration be amended and restated in its entirety as provided
herein and that this Declaration constitute the governing
<PAGE>
2
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 Securities 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 Liquidation Amount of the Preferred Securities to appoint a Special
Regular Trustee.
<PAGE>
3
"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 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. 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
depository 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 July , 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.
"Commission" means the Trust Securities and
Exchange Commission.
"Common Security" has the meaning specified in
Section 7.1(b).
<PAGE>
4
"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, employees, representatives
or agents 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)(3).
"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.
"Guarantee" means the Guarantee Agreement to be dated as of
July , 1995, of Time Warner in respect of the Preferred Securities.
"Holder" means a Person in whose name a Certificate
representing a 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 officers, directors, shareholders, members, partners, employees,
representatives or agents of any Trustee, or any employee or agent of the Trust
or its Affiliates.
<PAGE>
5
"Indenture" means the Indenture dated as of July [ ], 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 [ ] 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(g).
"Liquidation Amount" means, with respect to each Trust
Security, $[ ], or the issue price of such Trust Security.
"Liquidation Distribution" has the meaning set forth in
Exhibits B and C hereto establishing the terms of the Trust Securities.
"Majority in Liquidation 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 Liquidation Amount (including the
stated amount that would be paid on liquidation, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined)
represents more than 50% of the Liquidation Amount of all outstanding Trust
Securities of such class.
<PAGE>
6
"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).
"Quorum" means a majority of the Regular Trustees or, if there
are only two Regular Trustees, both such Regular Trustees.
"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
<PAGE>
7
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, 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 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-7" means Rule 3a-7 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.
"66-2/3% in Liquidation 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 Liquidation Amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) represents 66-2/3% or more of the Liquidation Amount of all
outstanding Trust Securities of such class.
"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.
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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 Liquidation 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 a merger, in its capacity as sponsor of
the Trust.
"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 30, 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 under Section 5.01(c).
"10% in Liquidation 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 Liquidation Amount (including the
stated amount that would be paid on liquidation, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined)
represents 10% or more of the Liquidation 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
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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
entered into among Time Warner, the Trust and Morgan Stanley & Co. Incorporated
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 [to the extent permitted by
applicable law and/or the rules and regulations of the Commission] 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 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 [ ] 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 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 Liquidation
Amount of the Preferred Securities (i) in accordance with
the terms of the Preferred Securities direct the time,
<PAGE>
11
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 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 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 (A) above, the
vote of Holders of Preferred Securities representing such specified
percentage of the aggregate Liquidation 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 Liquidation 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 deemed to have waived such
Event of Default under the
<PAGE>
12
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 Liquidation 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 continued by this Declaration 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. [The name of the
registered agent and office of the Trust in the State of Delaware is
[ ]. At any time,
<PAGE>
14
the Regular Trustees may designate another registered agent and/or registered
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 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 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 Certificates
shall not have legal title to any part of the assets of the Trust, but shall
have an individual 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
<PAGE>
15
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 and the
issuance of Trust Securities shall be limited to a one-time,
simultaneous issuance of both Preferred Securities and Common
Securities;
[(b) in connection with the issuance and sale of the Preferred
Securities, at the direction of the Sponsor, to take such actions as
are set forth in Section 3.11];
(c) 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;
(d) to give the Sponsor and the Property Trustee prompt
written notice of the occurrence of a Special Event 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;
(e) 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;
(f) to take all actions and perform such duties as
may be required of the Regular Trustees pursuant to the
term of the Trust Securities;
(g) 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;
<PAGE>
16
(h) 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;
(i) to cause the Trust to comply with the Trust's
obligations under the Trust Indenture Act;
(j) 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;
(k) to incur expenses which are necessary or
incidental to carry out any of the purposes of the
Trust;
(l) 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];
(m) to take all actions and perform such duties as may be
required of the Regular Trustee pursuant to the terms of the Trust
Securities set forth in Exhibits B and C hereto;
(n) 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;
(o) 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;
(p) 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
<PAGE>
17
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 partnership and will be treated as a grantor
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; and
(q) 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
(r) 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.
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
<PAGE>
18
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 not:
(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;
(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; or
(h) (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 [6.06] of the Indenture, (iii) exercise any right to rescind or
annul any declaration that the principal of all of 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 in the case of this clause
(h) the Property Trustee shall have received an unqualified opinion of
nationally recognized independent tax counsel [recognized as expert 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,
<PAGE>
19
each holder of Trust Securities will not be treated as owning an
undivided beneficial interest in the Subordinated Notes.
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 Holders of
the Trust Securities. The right, title and 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 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 Trust 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;
<PAGE>
20
(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 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(b), 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 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) 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 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 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
<PAGE>
21
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 giving of any notice provided therein); provided, that,
except in the case of default in the payment of the principal of (or premium, if
any) 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 principal, premium 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 not resign as a
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 Preferred 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.
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22
(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 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)(3), 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)(3), 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 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:
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23
(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 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
<PAGE>
24
under the terms of this Declaration or adequate indemnity against such
risk or liability is not reasonably assured to it.
(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
<PAGE>
25
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 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 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 No. 33- ) (the "1933 Act Registration Statement") including any
pre-effective or post-effective amendments to such Registration Statement,
relating to the registration under the Trust 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
preeffective 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 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; (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
<PAGE>
26
desirable to register the Preferred Securities under the securities or "Blue
Sky" laws of such jurisdictions as Time Warner on behalf of the Trust, may deem
necessary or desirable and (d) to execute on behalf of the Trust that certain
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]. 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, [individuals],
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, 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.
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 , 1995 is attached hereto as Exhibit A. On or after the date of
execution of this Declaration, the Trustees shall cause the
<PAGE>
27
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 July [ ],
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.
SECTION 4.02. Expenses. (a) The Sponsor 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
<PAGE>
28
of the Trust, the issuance of the Preferred Securities pursuant to the offer,
the fees and expenses (including reasonable counsel fees and expenses) of the
Trustees (including any amounts payable under Article X), the costs and expenses
relating to the operation of the Trust, including without limitation, 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 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. Responsibilities of the Sponsor. In connection
with the issue and sale of the Preferred Securities, the Sponsor shall have the
exclusive right and responsibility to engage in the following activities:
(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 in relation to the Preferred
Securities, including any amendments thereto;
(b) to determine the states in which to take appropriate
action to qualify or register for sale all or part of the Preferred
Securities and to take any and all such acts, other than actions which
must be taken
<PAGE>
29
by the Trust, and advise the Trust of actions it must take, and prepare
for execution and filing any documents to be executed and filed by the
Trust, as the Sponsor deems necessary or advisable in order to comply
with the applicable laws of any such states;
(c) to prepare for filing by the Trust an application to the
New York Stock Exchange or any other national stock exchange or the
NASDAQ National Market for listing upon notice of issuance of any
Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a
Registration Statement on Form 8-A relating to the registration of the
Preferred Securities under Section 12(b) of the Exchange Act, including
any amendments thereto; and
(e) to negotiate the terms of the Underwriting
Agreement [and Pricing Agreement] providing for the
sale of the Preferred Securities.
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 Liquidation 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 cases the number of Trustees shall be at least three;
<PAGE>
30
(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 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 Liquidation 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:
[Time Warner employees]
c/o Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
<PAGE>
31
(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;
(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, 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[; and
(iii) if the Trust is excluded from the definition of an
Investment Company solely by reason of Rule 3a-7 and to the extent Rule
3a-7 requires a trustee having certain qualifications to hold title to
the "eligible assets" (as defined in Rule 3a-7) of the Trust, the
Property Trustee shall possess those qualifications].
If at any time the Property Trustee shall cease to satisfy the
requirements of clauses (i) through (iii) 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.
<PAGE>
32
The initial Trustee that shall serve as the Property Trustee
is [New York Trustee], whose address is as set forth in Section 14.01(b).
(d) The initial Trustee that shall serve as the Delaware
Trustee is [Delaware Trustee], 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 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 Liquidation
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 need not be an
Affiliate of the Sponsor, by vote
<PAGE>
33
of the Holders of a Majority in Liquidation 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 Liquidation 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) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Section
5.01(a)(3) (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 his
successor shall have been appointed or until his 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
<PAGE>
34
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:
(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 instrument executed by such Successor Property Trustee and
delivered to the Trust, the Sponsor and the resigning Property
Trustee[; or
(B) if the Trust is excluded from the definition of
an Investment Company solely by reason of Rule 3a-7, until the
assets of the Trust have been completely liquidated and the
proceeds thereof distributed to the Holders of the Trust
Securities;]
(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 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
<PAGE>
35
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 meetings of the Regular Trustees shall
be hand-delivered or otherwise delivered in writing (including by facsimile,
with a hard copy by overnight courier) not less than 48 hours before such
meeting. Notice of any telephonic meetings of the Regular Trustees or any
committee thereof shall be hand- delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 24
hours before a 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
<PAGE>
36
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
Time Warner makes a payment of interest, premium and principal 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.
<PAGE>
37
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) and for the consideration specified in
Section 3.03.
(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 Security. 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 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 Security, 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,
<PAGE>
38
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
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.
<PAGE>
39
ARTICLE VIII
Termination of Trust
This Declaration and the Trust shall terminate and be of no
further force or effect upon the earliest of:
(a) all the Trust Securities shall have been called for
redemption and the amounts necessary for redemption thereof (whether
cash or Exchange Property) shall have been paid to the Holders of Trust
Securities in accordance with the terms of the Trust Securities or,
with respect to any Preferred Securities, the Time Warner Exchange
Right shall have been exercised in respect thereof and payment of (i)
Exchange Property in respect of the portion of the Preferred Securities
to be exchanged for Exchange Property, (ii) cash in respect of the
portion, if any, of the Preferred Securities that are not to be
exchanged for Exchange Property and (iii) cash in an amount equal to
all accrued and unpaid distributions on such Preferred Securities to
the applicable Redemption Payment Date, shall have been made to the
holders of the Preferred Securities in accordance with the terms of the
Preferred Securities and the provisions of the Guarantee relating to
the Time Warner Exchange Right; or
(b) 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; or
(c) upon the expiration of the term of the Trust
as set forth in Section 3.15;
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.
The provisions of Sections 3.10 and Article X shall survive
the termination of the Trust.
<PAGE>
40
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 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 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 it. Upon surrender
for registration of transfer of any Certificate, the Regular Trustees shall
cause one or more new Certificates to be issued in the name of the designated
transferee or transferees. Every Certificate surrendered for registration of
transfer shall be
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41
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 [or in
Rule 3a-7 with respect to the Property Trustee,] 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
(c) the rights of the Preferred Security
Beneficial Owners shall be exercised only through the
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42
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 or in Rule 3a-7 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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43
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.
<PAGE>
44
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 (or any return thereon) 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) The Holder of the Common Securities shall be liable for
all of the debts and obligations of the Trust (other than with respect to the
Trust Securities) to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Preferred Securities shall 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.
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, negligence) 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
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45
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. Fiduciary Duty. (a) To the extent that, at law
or in equity, an Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to any other Covered Person, an
Indemnified Person acting under this Declaration shall not be liable to the
Trust or to any other Covered Person for its good faith reliance on the
provisions of this Declaration. The provisions of this Declaration, to the
extent that they restrict the duties and liabilities of an Indemnified Person
otherwise existing at law or in equity (other than the Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or
arises between an Indemnified Person and any Covered
Person; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any Holder of Trust Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any
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46
other agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified
Person is permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no
duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and shall
not be subject to any other or different standard imposed by this
Declaration or by applicable law.
SECTION 10.04. 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, negligence) 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 10.04(a).
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47
SECTION 10.05. 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.
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
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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 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 shall 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
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49
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 applicable jurisdictions. 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.
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 cause the Trust to be
classified for United States Federal income tax purposes as an association
taxable as a corporation or a partnership and to the effect that the Trust will
continue to be treated as a grantor trust for purposes of United States federal
income taxation
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50
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 which 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.
(b) Notwithstanding Section 12.02(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-7 or any change in
interpretation or application of Rule 3a-7 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 on which the Preferred Securities are listed or
admitted for trading. The Regular Trustees shall
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51
call a meeting of Holders of Preferred Securities or Common Securities, if
directed to do so by Holders of at least 10% in Liquidation Amount of such class
of Trust Securities. Such direction shall be given by delivering to the Regular
Trustees one or more calls in a writing 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
securities is permitted or required under this Declaration or the rules
of any stock exchange 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 Liquidation 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 Security may authorize any
Person to act for it by proxy on all matters in which a
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52
Holder of a 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 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
(iv) unless otherwise provided in the Business Trust Act, this
Declaration or the rules of any stock exchange 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
(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:
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53
(i) The Property Trustee is a banking corporation with trust
powers, duly organized, validly existing and in good standing under the
laws of the state of its incorporation, 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
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 the Charter or By-laws of 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)(3);
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54
(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 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 [ ],
[ ] and
[ ],
Trustees
Facsimile No.: (212)
(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):
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[New York Trustee]
[Address]
Attention of:
Facsimile No.:
(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):
[Delaware Trustee]
[Address]
Attention of:
Facsimile No.:
(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 [Corporate Secretary]
Facsimile No.: (212)
(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. All notices shall be deemed to have
been given when received in person, telecopied with receipt confirmed or 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
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56
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 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 of Preferred Securities, or group of Holders of Preferred Securities,
holding more than 10% in aggregate Liquidation 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 principal of (or premium,
if any) 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
<PAGE>
57
have the same force and effect as though all the signers had signed a single
signature page.
SECTION 14.07. Intention of the Parties. 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
States federal income tax purposes. The provisions of this
Declaration shall be interpreted to further this intention
of the parties.
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 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:
-------------------------
as Trustee
-------------------------
as Trustee
-------------------------
as Trustee
<PAGE>
58
[NEW YORK TRUSTEE], as
Trustee,
by
-------------------------
Name:
Title:
[DELAWARE TRUSTEE], as
Trustee,
by:
-------------------------
Name:
Title:
<PAGE>
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):
1. Designation and Number. Preferred Securities of the Trust
with an aggregate Liquidation Amount in the assets of the Trust of ($ ) and a
Liquidation 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. 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 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
- --------
1/ Same as interest rate on Subordinated Notes.
<PAGE>
2
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 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 the actual number of days
elapsed in such a 30- day month.
(b) Distributions on the Preferred Securities will be
cumulative, will accrue from , 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
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
- --------
2/ Insert date of issue.
<PAGE>
3
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 Pro Rata to the Holders
thereof entitled thereto. If an Event of Default has occurred and is continuing,
the Preferred Securities shall have a priority over the Common Securities with
respect to Distributions.
(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, such
money or property shall be distributed Pro Rata 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, the Holders of the Preferred Securities and Common Securities at
the date of the liquidation, dissolution, winding-up or termination, as the case
may be, will be entitled to receive Pro Rata solely out of the assets of the
Trust available for distribution to Holders of Preferred Securities and Common
Securities after satisfaction of liabilities to creditors (to the extent not
satisfied by Time Warner, as provided in the Declaration), an amount equal to
the aggregate of the stated Liquidation Amount of $[ ] 3/ per Preferred Security
and Common Security plus accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"), unless, in
connection with such liquidation, dissolution, winding-up or termination, and
after satisfaction of liabilities to creditors, Subordinated Notes in an
aggregate principal amount equal to the aggregate stated Liquidation Amount of
such Preferred Securities and Common Securities and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on, such
Preferred Securities and Common Securities, shall be distributed Pro Rata to the
Holders of the Preferred Securities and Common Securities in exchange for such
Trust Securities.
- --------
3/ Insert issue price.
<PAGE>
4
If, upon any such dissolution, the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Preferred Securities and Common Securities shall be
paid, subject to the next paragraph, on a Pro Rata basis.
Holders of Common Securities will be entitled to receive
Liquidation Distributions upon any such dissolution Pro Rata with Holders of
Preferred Securities, except that if an Event of Default has occurred and is
continuing, the Preferred Securities shall have a priority over the Common
Securities with respect to such Liquidation Distribution.
4. Redemption and Distribution of Subordinated Notes. The
Preferred Securities and Common Securities may be redeemed only if Subordinated
Notes having an aggregate principal amount equal to the aggregate Liquidation
Amount of the Preferred Securities and Common 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, upon the
repayment of the Subordinated Notes at the maturity thereof on December
23, 1997 (the "Mandatory Redemption Date"), each of the Preferred
Securities and Common Securities then outstanding will be redeemed Pro
Rata by the Trust, in cash, at a mandatory redemption price per Trust
Security 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 December 17, 1997 of such amount of Exchange Property (which
initially consists of shares of Hasbro Common Stock) as relates to one
Trust Security at such time to and including the Mandatory Redemption
Date plus (b) an amount equal to all accrued and unpaid distributions
on such Trust Security to and including the Mandatory Redemption Date.
(b) Subject to the exercise by Time Warner of the Time Warner
Exchange Right with respect to the Preferred Securities, upon the
redemption of the Subordinated Notes prior to the maturity thereof, in
whole or in part, at any time or from time to time, the proceeds of
such redemption will be promptly applied to redeem Pro Rata Preferred
Securities and Common Securities having an aggregate Liquidation Amount
equal
<PAGE>
5
to the aggregate principal amount of the Subordinated Notes so
redeemed, upon not less than 20 nor more than 45 Business Days' notice,
at 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 and including the Optional Redemption Date. The "Call
Price" is initially equal to $[ ] per Trust Security, declining by $[ ]
on each day following the date of issue of the Trust Securities
(computed on the basis of a 360-day year of twelve 30-day months) to $[
] on October 23, 1997, and equal to $54.41 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 Preferred Securities and
Common Securities are to be so redeemed, the Preferred Securities and
the Common Securities will be redeemed Pro Rata and the Preferred
Securities to be redeemed will be redeemed as described in paragraph
4(g)(ii) below. If a partial redemption would result in the delisting
of the Preferred Securities by any national securities exchange or
other organization on which the Preferred Securities 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
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, Time Warner may elect (A) to direct the
Regular Trustees to dissolve the Trust and cause Subordinated Notes
held by the Property Trustee having an aggregate principal amount equal
to the aggregate stated Liquidation Amount of, and accrued and unpaid
interest equal to accrued and unpaid Distributions on, and having the
same record date for payment as, the Preferred Securities and the
Common Securities, to be distributed to the Holders of the Preferred
Securities and Common Securities on a Pro Rata basis in liquidation of
such Holders' interests in the Trust, (B) to redeem the Subordinated
Notes in accordance with the Indenture and as described under paragraph
(ii) below or (C) in the case of a Tax Event, not to redeem the
Subordinated Notes but to indemnify the Trust for all taxes payable by
it as a result of such Tax Event,
<PAGE>
6
within 90 days following the occurrence of such Special Event (the
"90-Day Period"); provided that, if and as long as at the time there is
available to the Trust the opportunity to eliminate, within 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 Preferred 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 while the Regular Trustees on behalf of
the Trust are pursuing such Ministerial Action, 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 a 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; 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, the Trust 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 pursue any of the above alternatives
if, after giving effect to such alternative, the condition giving rise
to such Tax Event (other than the condition described in clause (iv)
above) or Investment Company Event would not be eliminated.
(ii) Upon the occurrence and continuation of a Tax Event or an
Investment Company Event Time Warner shall have the right at any time,
upon not less than 20 nor more than 45 Business Days' notice, to redeem
the Subordinated Notes in whole (but not in part), within the 90-Day
Period, for cash, in which case the Trust shall redeem in cash Trust
Securities having an aggregate Liquidation Amount equal to the
aggregate principal amount of the Subordinated Notes so redeemed,
<PAGE>
7
at a price per Trust Security equal to (1) the lesser of (x) $54.41 and
(y) an amount equal to the Exchange Valuation Price on the Trading Day
immediately preceding such Special Redemption Date of such amount of
Exchange Property as relates to one Trust Security at such time, plus
(2) 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
and including the Special Redemption Date. The Common Securities will
be redeemed Pro Rata with the Preferred Securities, except if an Event
of Default under the Indenture has occurred and is continuing, the
Preferred Securities will have a priority over the Common Securities
with respect to payment of the Special Redemption Price.
(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 [ ], 1995, 4/ 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, 5/ there is more than an
- --------
4 Insert date of prospectus.
5 Insert date of prospectus.
<PAGE>
8
insubstantial risk that (1) the Trust is, or will be within 90 days of
the date thereof, subject to United States Federal income tax with
respect to income accrued or received on the Subordinated Notes, (2)
more than [75]% of the interest payable by Time Warner to the Trust on
the Subordinated Notes is not, or within 90 days of the date thereof
will not be, deductible by Time Warner for United States Federal income
tax purposes, (3) the Trust is, or will be within 90 days of the date
thereof, subject to more than a de minimis amount of 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 would be
treated as having disposed of the Hasbro Common Stock owned by it for
United States Federal income tax purposes.
(iv) "Investment Company Event" means that the Regular
Trustees shall have received an opinion of nationally recognized
independent counsel experienced in practice under the Investment
Company Act 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 which is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes effective
on or after [ ], 1995. 6/
(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) certificates representing
Preferred Securities will be deemed to represent beneficial interests
in the Subordinated Notes having
- --------
6/ Insert date of prospectus.
<PAGE>
9
an aggregate principal amount equal to the aggregate stated Liquidation
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 as the
Preferred Securities were listed immediately prior to the distribution
of the Subordinated Notes.
(g) (i) Notice of any 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 exchange 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. 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.
<PAGE>
10
(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 Pro Rata from each Holder of Preferred
Securities [and, in respect of Preferred Securities registered in the
name of and held of record by DTC (or successor Clearing Agency) Pro
Rata from each Clearing Agency Participant (subject to adjustment to
eliminate fractional Preferred Securities)].
(iii) Payment of the 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 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 Price, but without interest on
such Redemption Price. 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
<PAGE>
11
Business Day, then payment of the Redemption Price 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 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 Price in respect of Preferred
Securities is improperly withheld or refused and not paid either by the
Property Trustee or by Time Warner pursuant to the Preferred Securities
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 Price.
(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 Liquidation 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.
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
<PAGE>
12
failure continues unremedied for 60 days or (2) fails to pay the Redemption
Payment Amount of any PERCS to be redeemed on the applicable Redemption Payment
Date; or (ii) 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 of Preferred Securities representing a
Majority in Liquidation 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 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 Liquidation 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 Liquidation 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 Liquidation Amount of the
Preferred Securities in accordance with Section 5.02(a)(ii)(B) of the
Declaration. The Holders of 10% in Liquidation 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>
13
(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 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 66- 2/3% in Liquidation 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 66-2/3% in Liquidation 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 Liquidation Amount of
the Trust Securities voting together as a single class; provided that where such
amendment, modification or termination of the Indenture requires the consent or
vote of (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)
PAGE>
14
above, the vote of Holders of Trust Securities representing such specified
percentage of the aggregate Liquidation 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 be under no obligation to 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 recognized as expert
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 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 Liquidation 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 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 Liquidation Amount of the Preferred Securities, or,
in the case of clause (y) above, each Holder of Preferred Securities. The
Property Trustee shall not
<PAGE>
15
revoke any action previously authorized or approved by a vote of the Holders of
the Preferred Securities. Other than with respect to directing the time, method
and place of conducting any proceeding for any remedy available to the Property
Trustee or the Indenture Trustee as set forth above, the Property Trustee shall
be under no obligation to 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 recognized as expert 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
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 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
<PAGE>
16
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 "Pro
Rata" shall mean pro rata to each Holder of Trust Securities according to the
aggregate Liquidation Amount of the Trust Securities held by the relevant Holder
in relation to the aggregate Liquidation Amount of all Trust Securities
outstanding unless, in relation to a payment, an Event of Default has occurred
and is continuing, in which case any funds available to make such payment shall
be paid first to each Holder of the Preferred Securities pro rata according to
the aggregate Liquidation Amount of Preferred Securities held by the relevant
Holder relative to the aggregate Liquidation Amount of all Preferred Securities
outstanding, and 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 Liquidation Amount of Common Securities held by the relevant
Holder relative to the aggregate Liquidation Amount of all Common Securities
outstanding.
7. Ranking. The Preferred Securities rank pari passu and
payment thereon will be made Pro Rata with, the Common Securities except that
where an Event of Default
<PAGE>
17
occurs and is continuing, the rights of Holders of Preferred Securities to
payment in respect of Distributions and payments upon liquidation, redemption or
otherwise rank in priority to the rights of holders of the Common 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 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 Liquidation 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 will be
made only upon surrender of such Preferred Security to the Property Trustee.
10. Acceptance of Indenture and Preferred Guarantee. Each
Holder of Preferred Securities, by the acceptance thereof, agrees to the
provisions of (i) the Preferred Guarantee, including the subordination
provisions therein and (ii) the Indenture and the Subordinated Notes, including
the subordination provisions of the Indenture.
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 Trust 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.
<PAGE>
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 Trust 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) as
and to the extent provided in the Indenture [and pari passu in right of payment
with Time Warner's outstanding 8-3/4% Convertible Subordinated Debentures due
2015] 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, the 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)
<PAGE>
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
[July] , 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 Liquidation Amount in the assets of the Trust of ($ )
and a Liquidation 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
payable for any period will be computed
<PAGE>
2
(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 the actual number of days elapsed in such a
30- day month.
(b) Distributions on the Common Securities will be cumulative,
will accrue from the first day following [ ], 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 is in the next succeeding calendar year, such payment shall
- --------
1/ Insert date of issue.
<PAGE>
3
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 Pro Rata to the Holders
thereof entitled thereto. If an Event of Default has occurred and is continuing,
the Preferred Securities shall have a priority over the Common Securities with
respect to Distributions.
(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, such
money or property shall be distributed Pro Rata 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, the Holders of the Preferred Securities and Common Securities at
the date of the liquidation, dissolution, winding-up or termination, as the case
may be, will be entitled to receive Pro Rata solely out of the assets of the
Trust available for distribution to Holders of Preferred Securities and Common
Securities, after satisfaction of liabilities to creditors (to the extent not
satisfied by Time Warner, as provided in the Declaration), an amount equal to
the aggregate of the stated Liquidation Amount of $[ ] 2/ per Preferred Security
and Common Security plus accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"), unless, in
connection with such liquidation, dissolution, winding-up or termination, and
after satisfaction of liabilities to creditors, Subordinated Notes in an
aggregate principal amount equal to the aggregate stated Liquidation Amount of
such Preferred Securities and Common Securities bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on, such
Preferred Securities and Common Securities, shall be distributed pro rata to the
Holders of the Preferred Securities and Common Securities in exchange for such
Securities.
If, upon any such dissolution, the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate
- --------
2/ Insert issue price.
<PAGE>
4
Liquidation Distribution, then the amounts payable directly by the Trust on the
Preferred Securities and Common Securities shall be paid, subject to the next
paragraph, on a pro rata basis.
Holders of Common Securities will be entitled to receive
Liquidation Distributions upon any such dissolution Pro Rata with Holders of
Preferred Securities, except that if an Event of Default has occurred and is
continuing, the Preferred Securities shall have a priority over the Common
Securities with respect to such Liquidation Distribution.
SECTION 4. Redemption and Distribution of Subordinated Notes.
The Preferred Securities and Common Securities may only be redeemed if
Subordinated Notes having an aggregate principal amount equal to the aggregate
Liquidation Amount of the Preferred Securities and Common 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, upon the repayment of
the Subordinated Notes at the maturity thereof on December 30, 1997 (the
"Mandatory Redemption Date"), each of the Common Securities and Preferred
Securities then outstanding will be redeemed Pro Rata by the Trust, in cash, at
a mandatory redemption price per Trust Security 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 December 17, 1997 of such amount of Exchange Property
(which initially consists of shares of Hasbro Common Stock) as relates to one
[Trust Security] at such time to and including the Mandatory Redemption Date
plus (b) an amount equal to all accrued and unpaid distributions on such Trust
Security to and including the Mandatory Redemption Date.
(b) Subject to the exercise by Time Warner of the Time Warner
Exchange Right with respect to the Preferred Securities, upon the redemption of
the Subordinated Notes prior to the maturity thereof, in whole or in part, at
any time or from time to time, the proceeds of such redemption will be promptly
applied to redeem Pro Rata Common Securities and Preferred Securities having an
aggregate Liquidation 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, at the Call Price in effect on the date of redemption (the
"Optional
<PAGE>
5
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
and including the Optional Redemption Date. The "Call Price" is initially equal
to $[ ] per Trust Security, declining by $[ ] on each day following the date of
issue of the Trust Securities (computed on the basis of a 360-day year of twelve
30-day months) to $[ ] on October 30, 1997, and equal to $54.41 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 Common Securities and
Preferred Securities are to be so redeemed, the Common Securities and Preferred
Securities will be redeemed Pro Rata 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 organization on which the Preferred
Securities 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 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, Time Warner may elect (A) to redeem the Subordinated Notes in
accordance with the Indenture and as described under paragraph (ii) below, (B)
in the case of a Tax Event, not to redeem the Subordinated Notes but to
indemnify the Trust for all taxes payable by it as a result of such Tax Event,
or (C) to direct the Regular Trustees to dissolve the Trust and, after
satisfaction of creditors, cause Subordinated Notes held by the Property Trustee
having an aggregate principal amount equal to the aggregate stated Liquidation
Amount of, and accrued and unpaid interest equal to accrued and unpaid
Distributions on, and having the same record date for payment as, the Common
Securities and Preferred Securities, to be distributed to the Holders of the
Common Securities and Preferred 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 (the "90-Day Period"); 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 a
nationally recognized
<PAGE>
6
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; provided further that, if and as long as at
the time there is available to the Trust the opportunity to eliminate, within
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 Preferred Securities (a "Ministerial Action"), the Trust will pursue such
measure in lieu of dissolution or redemption; and provided further still that
Time Warner shall have no right to redeem the Subordinated Notes while the
Regular Trustees on behalf of the Trust are pursuing such Ministerial Action.
(ii) [If in the case of the occurrence of a Tax Event, (A) the
Regular Trustees have received an opinion (a "Redemption Tax Opinion")
of nationally recognized independent tax counsel experienced in such
matters that, as a result of a Tax Event, there is more than an
insubstantial risk that Time Warner would be precluded from deducting
the interest on the Subordinated Notes for United States Federal income
tax purposes even if the Subordinated Notes were distributed to the
Holders of Common Securities and Preferred Securities in liquidation of
such Holders' interest in the Trust as described in this paragraph 4(d)
or (B) the Regular Trustees shall have been informed by such tax
counsel that a No Recognition Opinion cannot be delivered to the
Trust,] upon the occurrence and continuation of a Tax Event or an
Investment Company Event Time Warner shall have the right at any time,
upon not less than 20 nor more than 45 Business Days' notice, to redeem
the Subordinated Notes in whole (but not in part), within the 90-Day
Period, for cash, in which case the Trust shall redeem in cash Trust
Securities having an aggregate Liquidation Amount equal to the
aggregate principal amount of the Subordinated Notes so redeemed, at a
price per Trust Security equal to (1) the lesser of (x) $54.41 and (y)
an amount equal to the Exchange Valuation Price on the Trading Day
immediately preceding such Special Redemption Date of such amount
<PAGE>
7
of Exchange Property as relates to one Trust Security at such time,
plus (2) 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 30,
1997 and thereafter (such price the "Special Redemption Price") plus an
amount equal to all accrued and unpaid distributions on such Trust
Security to and including the Special Redemption Date. The Common
Securities will be redeemed Pro Rata with the Preferred Securities,
except if an Event of Default under the Indenture has occurred and is
continuing, the Preferred Securities will have a priority over the
Common Securities with respect to payment of the Special Redemption
Price.
(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, 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 July [ ], 1995, 4/ there is more than an insubstantial
risk that (1) the Trust is, or will be within 90 days of the date
thereof, subject to United States Federal income tax with respect to
income
- --------
3/ Insert date of prospectus.
4/ Insert date of prospectus.
<PAGE>
8
accrued or received on the Subordinated Notes, (2) interest payable by
Time Warner to the Trust on the Subordinated Notes is not, or within 90
days of the date thereof will not be, deductible by Time Warner for
United States Federal income tax purposes, (3) the Trust is, or will be
within 90 days of the date thereof, subject to more than a de minimis
amount of 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 would be treated as having disposed of
the Hasbro Common Stock owned by it for United States Federal income
tax purposes.
(a) (iv) "Investment Company Event" means that the Regular
Trustees shall have received an opinion of nationally recognized
independent counsel experienced in practice under the Investment
Company Act 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 which is required to be registered under the
Investment Company Act, which Change in 1940 Act Law becomes effective
on or after July [ ], 1995. 5/
(v) On the date fixed for any distribution of Subordinated
Notes, upon dissolution of the Trust, (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 Liquidation 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.
- --------
5/ Insert date of prospectus.
<PAGE>
9
(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 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 exchange 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. 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 Common
Securities are to be redeemed, the Common Securities to be redeemed will be
redeemed pro rata from each Holder of Common Securities (subject to adjustment
to eliminate fractional Common Securities).
(iii) Payment of the 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
<PAGE>
10
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 Price, but without interest on such Redemption Price. 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 redemption.
If any date fixed for redemption of Common Securities is not a Business Day,
then payment of the Redemption Price 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 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 Price in respect of
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 Price.
(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
<PAGE>
11
shall have an aggregate principal amount equal to the aggregate Liquidation
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, 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 Liquidation 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 66-2/3% in Liquidation 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 66-2/3% in Liquidation 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
<PAGE>
12
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 Liquidation Amount of
the Trust Securities voting together as a single class; provided that where such
amendment, modification or termination of the InDenture 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 Liquidation 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 be under no
obligation to 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 recognized as an expert 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 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 Liquidation 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
<PAGE>
13
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 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
Liquidation 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. Other than with
respect to directing the time, method and place of conducting any proceeding for
any remedy available to the Property Trustee or the Indenture Trustee as set
forth above, the Property Trustee shall be under no obligation to take any of
the foregoing actions at the direction of the Holders of Common Securities
unless the Properties Trustee shall have received, at the expense of the
Sponsor, an opinion of nationally recognized independent tax counsel recognized
as expert 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 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
<PAGE>
14
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 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 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
<PAGE>
15
or treatment as being "pro rata" shall mean pro rata to each Holder of Trust
Securities according to the aggregate Liquidation Amount of the Trust Securities
held by the relevant Holder in relation to the aggregate Liquidation Amount of
all Trust Securities outstanding unless, in relation to a payment, an Event of
Default has occurred and is continuing, in which case any funds available to
make such payment shall be paid first to each Holder of the Preferred Securities
pro rata according to the aggregate Liquidation Amount of Preferred Securities
held by the relevant Holder relative to the aggregate Liquidation Amount of all
Preferred Securities outstanding, and 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 Liquidation Amount of Common
Securities held by the relevant Holder relative to the aggregate Liquidation
Amount of all Common Securities outstanding.
7. Ranking. The Common Securities rank pari passu with the
Preferred Securities except that where an Event of Default occurs and is
continuing, the rights of Holders of Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise are
subordinate to the rights of Holders 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 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 Liquidation 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 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.
<PAGE>
16
10. Acceptance of Indenture. Each Holder of Common Securities,
by the acceptance thereof, agrees to the provisions of the Indenture and the
Subordinated Notes, including the subordination provisions thereof.
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 Trust 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.
<PAGE>
[CS&M Draft--6/4/95]
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 Time Warner Inc. (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 b30ks 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
2
to in the Declaration. The Trust 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) as and to the extent provided in the Indenture
[and pari passu in right of payment with Time Warner's
outstanding 8-3/4% Convertible Subordinated Debentures due
2015].
Upon receipt of this certificate, the Holder is
bound by the Declaration and is entitled to the benefits
thereunder.
IN WITNESS WHEREOF, the 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>
TIME WARNER INC.
$[ ] Subordinated Notes
due December 23, 1997
INDENTURE
Dated as of June , 1995
[ ],
a [New York banking] corporation,
Trustee
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.............................................. 1
SECTION 1.02. Other Definitions........................................ 4
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act.......................................... 5
SECTION 1.04. Rules of Construction.................................... 6
ARTICLE II
The Notes
SECTION 2.01. Form and General Terms................................... 6
SECTION 2.02. Execution and Authentication............................. 7
SECTION 2.03. Registrar and Paying Agent............................... 7
SECTION 2.04. Paying Agent to Hold Money in
Trust.................................................. 8
SECTION 2.05. Notesholder Lists........................................ 8
SECTION 2.06. Transfer and Exchange.................................... 8
SECTION 2.07. Replacement Notes........................................ 9
SECTION 2.08. Outstanding Notes........................................ 9
SECTION 2.09. Temporary Notes.......................................... 10
SECTION 2.10. Cancelation.............................................. 10
SECTION 2.11. Defaulted Interest....................................... 10
SECTION 2.12. Global Note.............................................. 11
ARTICLE III
Redemption
SECTION 3.01. Optional Redemption Distribution......................... 12
SECTION 3.02. Selection of Notes To Be Redeemed........................ 12
SECTION 3.03. Special Event Redemption
or Distribution........................................ 13
<PAGE>
2
SECTION 3.04. Notice of Redemption..................................... 15
SECTION 3.05. Effect of Notice of Redemption........................... 16
ARTICLE IV
Covenants
SECTION 4.01. Payment of Notes......................................... 17
SECTION 4.02. SEC Reports.............................................. 17
SECTION 4.03. Compliance Certificate................................... 17
ARTICLE V
Successor Corporation
SECTION 5.01. When Corporation May Merge, etc.......................... 18
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default........................................ 18
SECTION 6.02. Acceleration............................................. 20
SECTION 6.03. Other Remedies........................................... 20
SECTION 6.04. Waiver of Past Defaults.................................. 20
SECTION 6.05. Control of Majority...................................... 20
SECTION 6.06. Limitation on Suits...................................... 21
SECTION 6.07. Rights of Holders To Receive
Payment................................................ 21
SECTION 6.08. Collection Suit by Trustee............................... 21
SECTION 6.09. Trustee May File Proofs of Claim......................... 22
SECTION 6.10. Priorities............................................... 22
SECTION 6.11. Undertaking for Costs.................................... 23
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee........................................ 23
SECTION 7.02. Rights of Trustee........................................ 25
SECTION 7.03. Individual Rights of Trustee, etc........................ 25
SECTION 7.04. Trustee's Disclaimer..................................... 25
SECTION 7.05. Notice of Defaults....................................... 25
SECTION 7.06. Reports by Trustee to Holders............................ 25
<PAGE>
3
SECTION 7.07. Compensation and Indemnity............................... 25
SECTION 7.08. Replacement of Trustee................................... 26
SECTION 7.09. Successor Trustee by Merger, etc......................... 27
SECTION 7.10. Eligibility; Disqualification............................ 27
SECTION 7.11. Preferential Collection of Claims
Against Corporation................................... 28
ARTICLE VIII
[Reserved]
ARTICLE IX
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders............................... 28
SECTION 9.02. With Consent of Holders.................................. 28
SECTION 9.03. Compliance with Trust Indenture
Act................................................... 29
SECTION 9.04. Revocation and Effect of Consents........................ 29
SECTION 9.05. Notation on or Exchange of Notes......................... 30
SECTION 9.06. Trustee To Sign Amendments, etc.......................... 30
ARTICLE X
Exchange Right
SECTION 10.01. Exchange Right........................................... 30
SECTION 10.02. Maturity................................................. 31
SECTION 10.03. Optional Redemption and Special
Event Redemption ...................................... 31
SECTION 10.04. Definitions.............................................. 32
SECTION 10.05. Notice of Exercise....................................... 33
SECTION 10.06. Delivery of Exchange
Property; Effect on Holders........................... 34
SECTION 10.07. Fractional Shares........................................ 34
SECTION 10.08. Adjustment of Exchange Rate.............................. 35
SECTION 10.09. Notice of Certain Events................................. 47
<PAGE>
4
ARTICLE XI
Subordination
SECTION 11.01. Agreement to Subordinate................................. 48
SECTION 11.02. Certain Definitions...................................... 48
SECTION 11.03. Liquidation, Dissolution,
Bankruptcy............................................ 49
SECTION 11.04. Default on Senior Debt................................... 51
SECTION 11.05. Disputes with Holders of Certain
Senior Debt........................................... 52
SECTION 11.06. Acceleration of Notes.................................... 53
SECTION 11.07. When Distribution Must Be Paid
Over.................................................. 53
SECTION 11.08. Relative Rights.......................................... 53
SECTION 11.09. Subordination May Not Be Impaired
by Corporation........................................ 54
SECTION 11.10. Distribution or Notice to
Representative........................................ 54
SECTION 11.11. Rights of Trustee and Paying
Agent................................................. 54
SECTION 11.12. Notice to Trustee........................................ 55
SECTION 11.13. Trustee Not a Fiduciary.................................. 55
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls............................. 55
SECTION 12.02. Notices.................................................. 56
SECTION 12.03. Communication by Holders with Other
Holders............................................... 56
SECTION 12.04. Certificate and Opinions as to
Conditions Precedent.................................. 56
SECTION 12.05. Statements Required in Certificate
or Opinion............................................ 57
SECTION 12.06. When Treasury Notes Disregarded.......................... 57
SECTION 12.07. Rules by Trustee, Paying Agent,
and Registrar......................................... 58
SECTION 12.08. Business Day............................................. 58
SECTION 12.09. Governing Law............................................ 58
SECTION 12.10. No Adverse Interpretation of Other
Agreements............................................ 58
SECTION 12.11. No Recourse Against Others............................... 58
SECTION 12.12. Successors............................................... 58
SECTION 12.13. Duplicate Originals...................................... 59
<PAGE>
5
SIGNATURES .......................................................... 59
Exhibit A Form of Note
- --------------------
Notes: This Table of Contents shall not, for any purposes,
be deemed to be a part of the Indenture.
<PAGE>
<PAGE>
INDENTURE dated as of June , 1995, between
TIME WARNER INC., a Delaware corporation (the
"Corporation"), and [ ], 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.
"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 (iii) or (iv), 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 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 representing
undivided beneficial interests in the assets of the Trust, having the terms set
forth in Exhibit C to the Declaration.
"Common Stock" shall mean the class of Common Stock, par value
$1.00 per share, of the Corporation authorized at the date of the Indenture as
originally signed, or any other class of stock resulting from
<PAGE>
2
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 and thereafter means the successor.
Declaration" means the [Amended and Restated] Declaration of
Trust, dated as of June , 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" shall mean the Securities Exchange
Act of 1934, as amended.
"Hasbro" means Hasbro, Inc., a Rhode Island
corporation.
"Hasbro Common Stock" means that shares of common stock, par
value $.50 per share, of Hasbro as it exists on the date of this First
Supplemental Indenture or any other shares of Capital Stock of Hasbro into which
the Hasbro Common Stock 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.
"Maturity Date" means the date on which the Notes mature and
on which the Maturity Payment Amount shall be due and payable together with all
accrued and unpaid interest thereon.
<PAGE>
3
"Notes" means the Notes substantially in the form of Exhibit A
hereto as amended or supplemented from time to time issued under the Indenture.
"NYSE" shall mean 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 Treasurer,
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 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 reasonably 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.
"Property Trustee" means the Person acting as
Property Trustee under the Declaration.
"Scheduled Maturity Date" means December 23, 1997.
"SEC" means the Securities and Exchange
Commission.
"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
<PAGE>
4
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.
"Trading Day" shall have the meaning assigned to
such term in Section 10.04(d).
"Trustee" means the party named as such in this Indenture
until a successor replaces it and thereafter means the successor.
"Trust Officer" means the Chairman of the Board, the President
or any other officer or assistant officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"Trust Securities" means the Common Securities the
and 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] or, if such State shall not have adopted such
section, to such section as it appears in the Uniform Commercial Code as amended
as of the date of this Indenture.
SECTION 1.02. Other Definitions.
The following terms have the meanings given to
them in the Declaration: (i) Clearing Agency; (ii) Delaware
Trustee; (iii) Dissolution Tax Opinion; (iv) No Recognition
Opinion; (v) Property Trustee; (vi) Preferred Security
Certificate; (vii) Regular Trustees; (viii) Special Event;
and (ix) Tax Event.
The following terms are defined in the Section of this
Indenture as set forth below.
<PAGE>
5
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Bankruptcy Law" ............................................... 6.01
"Business Day" ................................................. 12.08
"Common Stock Conversion Price" ................................ 10.02
"Common Stock Conversion Rate" ................................. 10.02
"Conversion Agent" ............................................. 2.03
"Converting Holder" ............................................ 10.02
"Custodian" .................................................... 6.01
"Depositary" ................................................... 10.02
"Depositary Shares" ............................................ 10.02
"Equivalent Notes" ............................................. 11.03
"Event of Default" ............................................. 6.01
"Exchange Property" ............................................ 10.04
"Exchange Rate" ................................................ 10.04
"Exchange Right" ............................................... 10.01
"Exchange Valuation Price" ..................................... 10.04
"Extraordinary Cash Dividends" ................................. 10.08
"Minimum Denomination" ......................................... 2.01
"Ministerial Action" ........................................... 3.05
"Note Redemption Notice" ....................................... 3.04
"Paying Agent" ................................................. 2.03
"Registrar" .................................................... 2.03
"Representative" ............................................... 11.02
"Rescission Date" .............................................. 3.05
"Senior Debt" .................................................. 11.02
"Series E Conversion Price" .................................... 10.02
"Series E Conversion Rate" ..................................... 10.02
"Surrendered Designated Shares" ................................ 10.02
</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.
<PAGE>
6
"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
(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
Exhibit A which is a part hereof. 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.
The Notes shall be limited to an aggregate principal amount
equal to $[ ], such amount being the sum of (i) the aggregate stated liquidation
value of the Preferred Securities and (ii) the proceeds received by the Trust
upon issuance of the Common Securities to the Corporation (the "stated principal
amount"). The aggregate principal amount of Notes outstanding at any time may
not
<PAGE>
7
exceed that amount except as provided in Section 2.07. The Notes will be issued
in denominations of $[ ] (the "Minimum Denomination"). The Notes shall mature on
December 23, 1997 ("Maturity Date"). Subject to the exercise by the Corporation
pursuant to Article 10 hereof the Exchange Right, the amount payable upon
maturity (the "Maturity Payment Amount") for each Minimum Denomination of Notes
shall be equal to (a) the lesser of (i) $54.41 and (ii) an amount equal to the
Exchange Valuation Price on the Trading Day immediately preceding December 17,
1997 of such amount of Exchange Property as relates to one Preferred Security at
such time, plus (b) an amount equal to all accrued and unpaid interest on the
Notes.
SECTION 2.02. Execution and Authentication. Two Officers, one
of whom must be the Secretary or an Assistant 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
stated 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 stated 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"), 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
coregistrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent.
<PAGE>
8
The Corporation shall enter into an appropriate agency
agreement with any Registrar, Paying Agent or coregistrar 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 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 coregistrar 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
coregistrar 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
<PAGE>
9
may charge a reasonable fee for any registration of transfer or exchange but not
for any exchange pursuant to Section 2.09, Section 9.05 or Article 10. Neither
the Corporation nor the Trustee shall be required to make transfers or exchanges
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.
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 Exchange Agent, the
Registrar or any coregistrar from any loss which any of them may suffer if a
Note is replaced. The Corporation may charge for its expenses in replacing a
Note.
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. A Note does not cease to be outstanding because
the Corporation or an Affiliate of the Corporation holds the Note.
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 Notes payable on such date, then on and after that date such Notes cease
to be outstanding and interest on them ceases 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
<PAGE>
10
required stated 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 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. Cancelation. The Corporation at any time may
deliver Notes to the Trustee for cancelation. The Registrar and the Paying Agent
shall forward to the Trustee any Notes surrendered to them for 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 cancelation, 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 cancelation or that have been exchanged pursuant to
Article 10.
SECTION 2.11. Defaulted Interest. If the Corporation defaults
in a payment of interest on the Notes, it shall pay the defaulted interest to
the Persons who are Noteholders on a subsequent special record date. The
Corporation shall fix the special record date and payment date. At least 15 days
before the special record date, the Corporation shall mail to each Noteholder a
notice that states the special record date, the payment date and the amount of
defaulted interest to be paid. The Corporation may pay defaulted interest in any
other lawful manner.
<PAGE>
11
SECTION 2.12. Global Note.
In connection with a Special Event and in the event the
Corporation elects, pursuant to Section 3.03, to cause the Notes held by the
Property Trustee to be distributed to holders of the Preferred Securities and
Common Securities;
(a) the Notes in certificated form may be
presented to the Trustee by the Property
Trustee in exchange for a global Note in an
aggregate principal amount equal to all
outstanding Notes (a "Global Note"), to be
registered in the name of the Depository, or
its nominee, and delivered by the Trustee to
the Depository for crediting to the accounts
of its participants pursuant to the
instructions of the Regular Trustees. The
Company 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 Depository; and
(b) if any Preferred Securities are held in non
book-entry certificated form, the Notes in
certificated form may be presented to the
Trustee by the Property Trustee and 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 liquidation
amount of the Non Book-Entry Preferred
Securities until such Preferred Security
Certificates are presented to the Security
Registrar for transfer or reissuance at which
time such Preferred Security Certificates
will be canceled and a Note registered in the
name of the holder of the Preferred Security
Certificate or the transferee of the holder
of such Preferred Security Certificate, as
the case may be, with an aggregate principal
<PAGE>
12
amount equal to the aggregate liquidation amount of
the Preferred Security Certificate canceled will be
executed by the Company 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.
ARTICLE III
Redemption
SECTION 3.01. Optional Redemption. The Corporation may, at its
sole option, subject to the provisions of Section 11.04 hereof, redeem at any
time or from time to time all or any part of the Notes outstanding at such time
at the Optional Note Redemption Price in effect at the time and on the date
fixed for such optional redemption (the "Optional Redemption Date"), plus cash
in an amount equal to all accrued and unpaid interest on the Notes to and
including the Optional Redemption Date. The "Optional Note Redemption Price" is
initially equal to $[ ] per Minimum Denomination of Notes, declining by $[ ] on
each day following the date of issue of the Notes (computed on the basis of a
360-day year of twelve 30- day months) to $[ ] on October 23, 1997, and equal to
$54.41 thereafter.
If a partial redemption of the Notes would result in the
delisting of the Preferred Securities from any national securities exchange or
other organization on which the Preferred Securities are then listed, the
Corporation shall not be permitted to 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. The Trustee may select for redemption portions
of the stated principal of Notes in denominations equal to or larger than the
Minimum Denomination. Notes and portions of them it selects shall be in amounts
equal to the Minimum
<PAGE>
13
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)
If, at any time, a Special Event shall occur and be continuing, the Corporation
may elect, within 90 days following the occurrence of such Special Event (the
"90-day Period"), (A) to redeem the Notes in accordance with this Section, (B)
in the case of a Tax Event, not to redeem the Notes but to indemnify the Trust
for all taxes payable by it as a result of such Tax Event, or (C) to cause the
Notes held by the Property Trustee to be distributed to the holders of the
Preferred Securities and Common Securities on a pro rata basis in liquidation of
such holders' interests in the Trust; provided, however, that in the case of the
occurrence of a Tax Event, as a condition of any such distribution, the
Corporation shall have received a No Recognition Opinion; provided further that,
if and as long as at the time there is available to the Trust or the Corporation
the opportunity to eliminate, within 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 Preferred Securities (a
"Ministerial Action"), the Trust or the Corporation will pursue such measure in
lieu of dissolution or redemption; and provided further that the Corporation
shall have no right to redeem the Notes pursuant to this paragraph while the
Regular Trustees on behalf of the Trust are pursuing such Ministerial Action.
(b) If the Corporation shall elect to redeem the Notes upon
the occurrence of a Special Event pursuant to paragraph (a) above, all of the
outstanding Notes shall be redeemed at the Special Event Redemption Price in
effect at the time and on the date fixed for such redemption (the "Special Event
Redemption Date" and together with the "Optional Redemption Date", the
Redemption Date"), plus cash in an amount equal to all accrued and unpaid
interest on the Notes to and including the Special Event Redemption Date. The
"Special Event Redemption Price" is an amount per Minimum Denomination of Notes
equal to (1) the lesser of (x) $54.41 and (y) the Exchange Valuation Price on
the Trading Day immediately preceding the Special Event 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 $[ ] on
<PAGE>
14
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 equal to $[
] thereafter. References herein to "Note Redemption Price" shall refer to the
Optional Note Redemption Price or the Special Event Redemption Price, as the
case may be.
SECTION 3.04. Notice of Redemption. (a) At least 20 days but
not more than 45 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 such 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 Redemption Price; and
(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 its expense. In such event
the Corporation will provide the Trustee with the information required by
clauses (1) through (5).
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
Corporation. 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.
<PAGE>
15
(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
(to the extent such notice is required). Payment of the Note Redemption Price,
together with any accrued and unpaid interest on Notes selected for redemption,
will be made by the delivery of cash no later than the applicable Redemption
Date with respect to such Notes or, if later, the time of delivery or transfer
of such Notes.
(c) If the Corporation gives a Note Redemption Notice in
respect of a redemption of Notes as provided in this paragraph (c) (which notice
will be irrevocable), unless the Corporation shall have exercised the Exchange
Right, then immediately prior to the close of business on the Redemption Date,
so long as the Corporation has paid to the Trustee in immediately available
funds a sufficient amount of cash in connection with the related redemption of
the Notes, interest will cease to accrue on the Notes called for redemption,
such Notes will no longer be deemed to be outstanding and all rights of Holders
of such Notes so called for redemption will cease, except the right of the
Holders of such Notes to receive the Note Redemption Price, but without interest
on such Redemption Price. 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
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 is improperly withheld or refused and not
paid either by the Trustee or by the Corporation, interest on such Notes 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 Note Redemption Price.
(d) Upon the distribution of Notes to holders of Preferred
Securities as a result of the occurrence of a
<PAGE>
16
Special Event, Preferred Security Certificates outstanding prior to such
distribution shall be deemed to represent beneficial interests in the Notes so
distributed.
(e) Upon the distribution of Notes to holders of Preferred
Securities as 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 3.05. Effect of Notice of Redemption. If a Note
Redemption Notice shall have been given as provided in Section 3.03 hereof,
interest on the Notes so 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 Redemption Price)
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 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 notice of redemption shall so state), such Notes shall
be redeemed by the Corporation at the Redemption Price set forth in the Note
Redemption Notice. 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 Redemption Price without interest; provided, however, that the
Trustee or any 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.
<PAGE>
17
ARTICLE IV
Covenants
SECTION 4.01. Payment of Notes. The Corporation shall promptly
pay 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. Principal
and interest shall be considered paid on the date due if the Paying Agent holds
on that date money sufficient to pay all principal and interest then due.
The Corporation shall pay interest on 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.
SECTION 4.02. SEC Reports. The Corporation shall file with the
Trustee within 15 days after it files them 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 4.03. 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 Certificate need not comply with Section 12.05.
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
<PAGE>
18
(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, (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
supplemental indenture comply with this Indenture. Upon any such consolidation,
merger or transfer, if the resulting, surviving or transferee Person is not the
Corporation, 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 60 days;
(2) the Corporation defaults in the payment of the
Maturity Payment Amount of any Note 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
<PAGE>
19
(D) makes a general assignment for the
benefit of its creditors; or
(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 stated
principal amount of the Notes 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 Exchange Agent, the Holder
of a Note or an agent (duly authorized in writing) of such Holder.
SECTION 6.02. Acceleration. If an Event of Default occurs and
is continuing, the Trustee by notice to the Corporation, or the Holders of at
least 40% in stated principal amount of the Notes then outstanding by notice to
the Corporation and the Trustee, may declare the Maturity Payment Amount of and
accrued interest on all the Notes to be due and payable. Upon such a
declaration, such Maturity Payment Amount and interest shall be due and payable
immediately. The Holders of a majority in stated principal amount of the Notes
then outstanding by notice to the Trustee may rescind an acceleration and its
consequences if
<PAGE>
20
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction and if all existing Events of Default have been cured or
waived except nonpayment of the Maturity Payment Amount or interest that has
become due solely because of acceleration. 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 Maturity Payment Amount of or interest on the Notes or to enforce
the performance 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. 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 stated principal amount of the Notes by
notice to the Trustee may waive an existing Default and its consequences. When a
Default is waived, it is cured and stops continuing, but no such waiver shall
extend to any subsequent or other Default or impair any consequent right.
SECTION 6.05. Control of Majority. The Holders of a majority
in stated principal amount of the Notes 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. 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;
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21
(2) the Holders of at least 25% in stated principal amount of
the Notes 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
stated principal amount of the Notes 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 of and interest on the Note,
on or after the respective due dates expressed in the Note, 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 the Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of
Default in payment of interest or the Maturity Payment Amount 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 and interest
remaining unpaid 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.
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22
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 Debt to the extent
required by Article XI;
Third: to Noteholders for amounts due and unpaid
on the Notes for the Maturity Payment Amount 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 and
interest, respectively; and
Fourth: to the Corporation.
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 stated principal amount of the Notes.
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23
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
(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, 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.
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24
(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.
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
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 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, Exchange 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.
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25
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Noteholder notice of the Default within 90 days after it occurs. Except in the
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 on which the
Notes are listed. The Corporation agrees to notify the Trustee whenever the
Notes become listed on any stock exchange.
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 principal of and
interest on particular Notes.
When the Trustee incurs expenses or renders services after an
Event of Default specified in
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26
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.
SECTION 7.08. Replacement of Trustee. The Trustee may resign
by so notifying the Corporation. The Holders of a majority in principal amount
of the Notes 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 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 stated principal amount of the Notes
may
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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 TIAss. 310(b) or any
successor provision thereto, including the optional provision permitted by the
second sentence of TIAss. 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.
ARTICLE VIII
[Reserved]
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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;
(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 stated principal
amount of the Notes. The Holders of a majority in stated principal amount of the
Notes may waive any past default or compliance by the Corporation with any
provision of this Indenture or the Notes without notice to any Noteholder. 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 stated principal amount of the Notes 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;
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29
(3) reduce the, or alter the method of calculation
of the Maturity Payment Amount of 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 the redemption of any Note;
(5) make any Note payable in money 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
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30
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, 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 Indenture and all conditions precedent to such
amendment, supplement or waiver have been satisfied.
ARTICLE X
Exchange Right
SECTION 10.01. Exchange Right. The Corporation shall have the
right (the "Exchange Right"), exercisable upon notice to the Holders of the
Notes as provided below, to require the Holders to exchange their Notes, in
whole or in part, for shares of Hasbro Common Stock or other Exchange Property.
SECTION 10.02. Maturity. (a) 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 following the Maturity Date,
in respect of all or any portion of the Notes.
(b) On the Maturity Date, each Minimum Denomination of Notes
in respect of which the Corporation shall have exercised the Exchange Right
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 the Maturity Date, (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 the
Maturity Date), and (iii) cash in an amount equal to all accrued and unpaid
interest on such Notes to
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31
and including the Maturity Date; provided that if the Exchange Valuation Price
as of the Trading Day immediately preceding the Maturity Date, 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 of Notes and (b) cash in an amount
equal to all accrued and unpaid distributions on such Notes, to and including
the Maturity Date.
SECTION 10.03. Optional Redemption and Special Event
Redemption. (a) 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 prior to any] Optional Redemption Date or Special Redemption
Date, in respect of all or any portion of the Notes to be redeemed on any
Optional Redemption Date or Special Event Redemption Date, as the case may be.
(b) On any Redemption Date, each Minimum Denomination of Notes
in respect of which the Corporation shall have exercised the Exchange Right
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 Redemption Price in effect for
each Minimum Denomination of Notes on such Redemption Date, and (ii) cash in an
amount equal to all accrued and unpaid interests on such Notes to and including
the applicable Redemption Date.
SECTION 10.04. Definitions. (a) The "Exchange Property" per
each Minimum Denomination of Notes on any date shall consist of (i) one share of
Hasbro Common Stock (the "Initial Shares"), (ii) any property (other than cash
dividends and other cash distributions paid by the Issuer thereof that do not
constitute Extraordinary Cash Dividends (as defined in the Declaration) and
other than interest, if any, paid in respect thereof) distributed in respect of
the Initial Shares or other Exchange Property and (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
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32
the Issuer of such Exchange Property[; 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 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. 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 Minimum Denomination of Notes, subject to adjustment 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 Hasbro Common Stock or other
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 any date means the closing per share sale
price for the applicable Exchange Property (or, if no closing 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
<PAGE>
33
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 United States
national or regional securities exchanges on which the Exchange Property is
listed or, if none, NASDAQ, is open for the transaction of business.
SECTION 10.05. Notice of Exercise. (a) Upon any election by
the Corporation to exercise the Exchange Right, the Corporation shall provide
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, in whole or in part, (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) The Corporation will 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.
(c) The Corporation shall deliver Exchange Property in respect
of Notes with respect to which the Corporation has elected to exercise the
Exchange Right no later than the applicable Redemption Payment Date or, if
later, the time of delivery or transfer of such Notes 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 to be
redeemed 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 Payment 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 will be delivered to each holder of
Notes to be redeemed no later
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than the later of (i) the applicable Redemption Payment 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 Payment Date, then at the close of
business on such Redemption Payment Date, whether or not such Notes are
delivered to the Trustee (1) the Corporation will become 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
that are redeemed or exchanged on any Redemption Payment 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
Hasbro Common Stock or such other Exchange Property deliverable upon such
redemption or maturity, determined as of the Trading Day immediately preceding
such Redemption Payment 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 to the Holders of
the Notes without creating fractional interests in the shares or units making up
such Exchange Property, the Depository Trust Company, or such other person who
may be acting in the capacity of depositary or [Paying Agent] (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
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35
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. 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 or share exchange. 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 or reclassification (provided that if the kind
or amount of Exchange Property receivable upon such dividend,
subdivision, combination, conversion or reclassification 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
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).
<PAGE>
36
(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), 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.
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
<PAGE>
37
other cash distributions giving rise to an
adjustment, all such cash distributed
concurrently).
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
<PAGE>
38
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 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).
<PAGE>
39
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(b).
(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 Exchange 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
<PAGE>
40
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); or
(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 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 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
<PAGE>
41
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 Exchange Agent 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 the Maturity
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
<PAGE>
42
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
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
<PAGE>
43
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 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.
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44
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,
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
<PAGE>
45
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 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 Maturity
Payment Amount of the Notes 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
<PAGE>
46
so aware), provide written notice to the Exchange Agent 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 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 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.
SECTION 10.09. Notice of Certain Events. In case
at any time the Corporation receives notice that:
(a) any Issuer shall declare a dividend (or any other
distribution) on or in respect of any Exchange Property to which
Sections 10.08(a) or (b) shall apply (other than any ordinary periodic
cash dividends and distributions, if any, paid from time to time by an
<PAGE>
47
Issuer that do not constitute Extraordinary Cash Dividends);
(b) any Issuer shall engage in or be a party to any
transaction which will result in any Exchange Property becoming in
whole or in part Non-Equity Securities; or
(c) there shall occur any conversion or reclassification of
Exchange Property (other than a subdivision or combination of
outstanding shares of any class of Capital Stock included in the
Exchange Property) or any consolidation, merger or reorganization to
which any Issuer is a party and for which approval of any stockholders
of such Issuer is required, or the sale or transfer of all or
substantially all of the assets of any Issuer; or
(d) there shall occur the voluntary or involuntary
dissolution, liquidation or winding up of any Issuer;
then the Corporation shall cause to be delivered to the Trustee, and shall
promptly cause to be mailed to the Holders of Notes at their last addresses as
they shall appear upon the books and records of the Corporation, a notice
stating (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or grant of rights, or, if a record is not to be taken,
the date as of which the holders of Exchange Property of record to be entitled
to such dividend, distribution or grant of rights are to be determined, or (ii)
the date, if known by the Corporation, on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is expected that
holders of Exchange Property of record shall be entitled to exchange their
Exchange Property for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
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 is hereby expressly subordinated in right of payment, to
the
<PAGE>
48
extent and in the manner provided in this Article XI, to the prior payment in
full in cash or cash equivalents of all Senior Debt, and that the subordination
is for the benefit of the holders of Senior Debt.
SECTION 11.02. Certain Definitions. "Representative" means any
Person whom the Corporation has, by written notice, identified as the indenture
trustee or other trustee, agent or representative for an issue of Senior Debt.
"Senior Debt" 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 guaranteed, directly or indirectly, by the Corporation
(a) for money borrowed, (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,
<PAGE>
49
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 Debt 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 Debt 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 Debt, so long as the rights of the holders of the Senior Debt
are not altered adversely by such reorganization or readjustment
("Equivalent Notes")), including a payment or distribution by way of
any claim against the Corporation or any of its Subsidiaries for
rescission of the purchase of Notes or for monetary damages from the
purchase of the 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 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 Debt or their Representatives (subject
to any subordination of any class of Senior Debt, by the provisions
thereof, to any other class or classes of Senior Debt) ratably
according to the aggregate amounts remaining unpaid on account of the
principal of, and the premium, if any, and interest on, the Senior Debt
held or represented by each, to the extent necessary to make payment in
full of all Senior Debt remaining
<PAGE>
50
unpaid, after giving effect to any concurrent payment or distribution,
or provision therefor, to the holders of such Senior Debt; 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 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 Debt 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
Debt 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 Debt remaining unpaid until all such Senior Debt shall have been
paid in full, after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior
Debt.
Subject to the payment in full of all Senior Debt 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 Debt to receive
payments or distributions of cash, property or securities of the Corporation
payable or distributable to the holders of the Senior Debt, until the Maturity
Payment Amount of and interest on the Notes shall be paid in full. No payment or
distribution to the holders of the Senior Debt 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 Debt 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 Debt, and the
Holders of the Notes, be deemed to be a payment by the Corporation to or on
account of the Senior Debt, 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 Debt, 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 Debt, and the Holders of
<PAGE>
51
the Notes, be deemed to be a payment by the Company 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 Debt 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.
SECTION 11.04. Default on Senior Debt. 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 Debt beyond any
applicable period of grace, or in the event that any event of default with
respect to any Senior Debt 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 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 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 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.
<PAGE>
52
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 Debt or of any default or event of default with respect
to any Senior Debt 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 Debt who shall have been certified by the
Company or otherwise established to the reasonable satisfaction of the Trustee
to be such holder, or by a Representative of Senior Debt.
SECTION 11.05. Disputes with Holders of Certain Senior Debt.
Any failure by the Corporation to make any payment on or perform any other
obligation under Senior Debt, 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
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 Debt five days' prior written notice before
accelerating the Notes, which notice shall
<PAGE>
53
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 Debt 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 Debt (or their
Representatives) of the acceleration.
SECTION 11.07. When Distribution Must Be Paid Over. If a
distribution is made to Noteholders that because 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 Debt 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 Debt. 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 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 Debt; 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 Debt to receive
distributions otherwise payable to Noteholders.
If the Corporation fails because of this Article XI to pay the
Maturity Payment Amount 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 Debt 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
<PAGE>
54
notice given to holders of Senior Debt, 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
Corporation, the Registrar or coregistrar, the Paying Agent, the Exchange Agent,
a Representative or a holder of Senior Debt may give the notice; provided,
however, that if an issue of Senior Debt has a Representative, only the
Representative may give the notice on behalf of the holders of Senior Debt.
The Trustee in its individual or any other capacity may hold
Senior Debt with the same rights it would have if it were not Trustee. The
Registrar and coregistrar, the Paying Agent and the Exchange 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. Notwithstanding the provisions of this Article XI or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee in respect of the Notes, unless and until the Trustee shall have
received written notice thereof from the Corporation or a holder of Senior Debt
or from any trustee therefor, and, prior to the receipt of any such written
notice, the Trustee, subject to the provisions of Section 7.01, shall be
entitled in all respects to assume that no such facts exist; provided, however,
that if the Trustee shall not have received the notice provided for in this
Section at least three Business Days prior to the date upon which by the terms
hereof any money may become payable for any purpose (including, without
limitation, the payment of the Maturity Payment Amount of (and premium, if any)
or interest on any Note), then, anything herein contained to the contrary
notwithstanding, the Trustee shall have full power and authority to receive such
money and to apply the same to the purpose for which such money was received and
shall not be affected by any notice to the contrary which may be received by it
during or after such three Business Day period.
<PAGE>
55
SECTION 11.13. Trustee Not a Fiduciary. The Trustee shall not
be deemed to owe any fiduciary duty to the holders of Senior Debt 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 Debt shall be entitled by virtue of this Article XI or
otherwise.
ARTICLE XII
Miscellaneous
SECTION 12.0l. 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. Any notice or
communication shall be sufficiently given if in writing and
delivered in person or 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.
<PAGE>
56
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 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
<PAGE>
57
(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 stated principal amount of Notes have
concurred in any 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
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, the Paying Agent or
the Exchange 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 day that is a Business Day;
and no interest shall accrue for the intervening period.
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
<PAGE>
58
successor. All agreements of the Trustee in this Indenture shall bind its
successor.
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.
TIME WARNER INC.,
by
-----------------------------
Name:
Title:
[Seal]
Attest:
- -------------------------------
Title: Assistant
Secretary
[CHEMICAL BANK],
by
-----------------------------
Name:
Title:
[Seal]
Attest:
- ------------------------------
Title: Trust Officer
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
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>
2
[CHEMICAL BANK], as Trustee,
certifies that this is one
of the Notes referred
to in the Indenture.
by
--------------------------
Authorized Signature
[Seal]
<PAGE>
3
[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, which
is equivalent to the annual distribution payments that are due with respect to
the Preferred Securities). 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 June , 1995. Interest will be computed on the basis
of a 360-day year of 12 30-day months.
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. 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.
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 June , 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
<PAGE>
4
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
Optional Redemption Price together in each case with an amount equal to accrued
and unpaid interest to the Optional Redemption Date.
If, at any time, a Special Event shall occur and be
continuing, the Corporation may elect, within 90 days following the occurrence
of such Special Event, (a) to redeem all of the outstanding Notes at the Special
Event Redemption Price, together with an amount equal to accrued and unpaid
interest to the Special Event Redemption Date, (b) in the case of a Tax Event,
not to redeem the Notes but to indemnify the Trust for all taxes payable by it
as a result of such Tax Event; or (c) to cause the Notes held by the Property
Trustee to be distributed to the Holders of the Preferred Securities and Common
Securities on a pro rata basis in liquidation of such holders' interest in the
Trust.
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
Redemption Price without interest) 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 the
Corporation shall default in the payment of the 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 Redemption Price. 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
<PAGE>
5
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 Redemption Price without
interest.
6. Exchange Right. The Corporation shall have the right in
respect of the maturity or any redemption of the Notes, exercisable upon notice
to the Holders of the Notes in accordance with the Indenture, to require the
Holders to exchange their Notes, in whole or in part, for shares of Hasbro
Common Stock or other Exchange Property. 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 Debt
(as defined in Section 11.02 of the Indenture). To the extent provided in the
Indenture, Senior Debt 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 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.
<PAGE>
6
10. Unclaimed Money. If money for the payment of principal 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 stated principal amount of the
Notes, and any past default or noncompliance with any provision may be waived
with the written consent of the holders of a majority in stated principal amount
of the Notes. 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 materially
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 materially 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
for a period of five days in payment of the Maturity Payment Amount 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 stated principal amount of the Notes to comply
with any of its other agreements or covenants in the Indenture or the Notes;
<PAGE>
7
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 stated
principal amount of the Notes may declare the Maturity Payment Amount of and
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 stated principal amount of the Notes 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
principal 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 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).
<PAGE>
8
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>
[Draft--6/4/95]
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 Trust
Warner Financing Trust, a Delaware statutory business
trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of
Trust (the "Declaration"), dated as of June , 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 liquidation amount of its $[ ]
Preferred Exchangeable Redemption Cumulative Securities (the "Preferred
Securities") representing undivided beneficial interests in the assets of the
Trust and 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.
"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 set forth in Exhibit B to the Declaration.
"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 the Declaration.
"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 and (B)
subject to the exercise of the Time Warner Exchange
<PAGE>
4
Right, the Mandatory Redemption Price, the Call Price and the Special Redemption
Price (in each case the "Redemption Payment Amount"), including in each case all
accrued and unpaid Distributions to the date of redemption, 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 the Guarantor has
made a payment to the Property Trustee of interest or principal 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 aggregate of the Liquidation Amount
and all accrued and unpaid Distributions on the Preferred Securities to the date
of payment, to the extent the Trust has funds available therefor, and (y) the
amount of assets of the Trust remaining available for distribution to Holders in
liquidation of the Trust (in either case, the "Liquidation Distribution").
"Guarantee Trustee" means [ ] 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 that shares of common stock, par
value $.50 per share, of Hasbro as it exists on the date of this First
Supplemental Indenture 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.
<PAGE>
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 [ ], 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.
"Liquidation Amount" means, with respect to each
Preferred Security, [ ].1/
"Majority in Liquidation 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 Liquidation Amount (including the
stated amount that would be paid on liquidation, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined)
represents more than 50% of the Liquidation Amount of all outstanding Preferred
Securities.
"Mandatory Redemption Date" means December 30,
1997.
"Mandatory Redemption Price" means the amount payable upon
mandatory redemption of the Preferred Securities on December 30, 1997, in
accordance with Paragraph 4(a) of the terms of the Preferred Securities.
"Optional Redemption Date" has the meaning set
forth in Paragraph 4(a) 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.
- --------
1/ Insert issue price.
<PAGE>
6
"Property Trustee" means the Person acting as
Property Trustee under the Declaration.
"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.
"66-23% in Liquidation 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 Liquidation Amount (including the
stated amount that would be paid on liquidation, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined)
represents 66-2/3% or more of the Liquidation Amount of all Preferred
Securities.
"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.
"Subordinated Notes" means the series of
Subordinated Notes issued by the Guarantor under the
<PAGE>
7
Indenture to the Property Trustee and entitled the " % Subordinated Notes due
December 30, 1997".
"Successor Guarantee Trustee" means a successor Guarantee
Trustee possessing the qualifications to act as a Guarantee Trustee under
Section 4.01.
"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 [ ] 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
<PAGE>
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 Liquidation 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 by 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.
<PAGE>
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
<PAGE>
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 not resign as a Trustee unless
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 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.
(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:
<PAGE>
11
(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 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;
( 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 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
<PAGE>
12
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 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
<PAGE>
13
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.
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
<PAGE>
14
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
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,
<PAGE>
15
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 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:
<PAGE>
16
(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
(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
<PAGE>
17
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 Liquidation 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; and (iv) if the Guarantee Trustee fails to enforce
this Guarantee Agreement, any Holder of Preferred Securities may, 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.
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
<PAGE>
18
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.
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
<PAGE>
19
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
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 negligence 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
<PAGE>
20
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 negligence 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 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 [Ten] of the Indenture, of the Guarantor 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 [Ten] 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 66-2/3% in Liquidation Amount of
the Preferred Securities. 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
<PAGE>
21
hereunder shall be in writing, duly signed by the party giving such notice, and
delivered, telecopied or mailed by first class mail as follows:
(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) [ ]
Attention:
(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:
[ ]
[Address]
Facsimile No.:
Attention:
(c) if given to any Holder of Preferred
Securities, at the address set forth on the books and
records of the Trust.
All notices hereunder shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or 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 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.
<PAGE>
22
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 the Holders to
exchange their Preferred Securities, in whole or in part, for shares of Hasbro
Common Stock or other Exchange Property.
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 [ ] Business Day following December 17, 1997, in respect of all or any
portion of the Preferred Securities to be redeemed on the Mandatory Redemption
Date.
(b) On the Mandatory Redemption Date, each Preferred Security
in respect of which Time Warner shall have exercised the Time Warner Exchange
Right 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 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.
<PAGE>
23
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 prior to any] Optional
Redemption Date or Special Redemption Date, in respect of all or any portion of
the Preferred Securities to be redeemed on any Optional Redemption Date or
Special Redemption Date, as the case may be.
(b) On any Optional Redemption Date or Special Redemption
Date, each Preferred Security in respect of which Time Warner shall have
exercised the Time Warner Exchange Right 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.
SECTION 10.04. Definitions. (a) The "Exchange Property" per
each Preferred Security on any date shall consist of (i) one share of Hasbro
Common Stock (the "Initial Shares"), (ii) any property (other than cash
dividends and other cash distributions paid by the Trust thereof that do not
constitute Extraordinary Cash Dividends (as defined in the Declaration) and
other than interest, if any, paid in respect thereof) distributed in respect of
the Initial Shares or other Exchange Property and (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[;
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
<PAGE>
24
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 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. 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 adjustment 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 Hasbro Common Stock or other 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 any date means the closing per share sale
price for the applicable Exchange Property (or, if no closing 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.
<PAGE>
25
(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 United States
national or regional securities exchanges on which the Exchange Property is
listed or, if none, NASDAQ, is open for the transaction of business.
SECTION 10.05. Notice of Exercise. (a) Upon any election by
Time Warner to exercise the Time Warner Exchange Right, Time Warner shall
provide 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 whole
or in part, (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 will 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.
(c) Time Warner shall deliver Exchange Property in respect of
Preferred Securities with respect to which Time Warner has elected to exercise
the Time Warner Exchange Right no later than the applicable Redemption Payment
Date or, if later, the time of delivery or transfer of such Preferred Securities
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 will 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. 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
<PAGE>
26
portion of the Preferred Securities that are not to be exchanged for Exchange
Property, (B) cash in respect of the portion, if any, of the Preferred
Securities 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 holders 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 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
Hasbro Common Stock or such other 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 to
the Holders of the Preferred Securities without creating fractional interests in
the shares or units making up such Exchange Property, the Depository Trust
Company, or such other person who may be acting in the capacity of depositary or
[Paying Agent] (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 record holders that would otherwise have received such
fractional interests. The amount
<PAGE>
27
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. 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 or share exchange. 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 or reclassification (provided that if the kind
or amount of Exchange Property receivable upon such dividend,
subdivision, combination, conversion or reclassification 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
for each
<PAGE>
28
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), 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.
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
<PAGE>
29
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 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
<PAGE>
30
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 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
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31
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(b).
(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 Exchange 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
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32
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); or
(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 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.
<PAGE>
33
"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 Exchange Agent 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>
34
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
<PAGE>
35
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 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>
36
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
<PAGE>
37
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 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 Liquidation
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
<PAGE>
38
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 Exchange Agent of (i)
the occurrence of such event, (ii) if applicable, whether Time Warner
has elected 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.
SECTION 10.09. Notice of Certain Events. In case
at any time Time Warner receives notice that:
<PAGE>
39
(a) any Issuer shall declare a dividend (or any other
distribution) on or in respect of any Exchange Property to which
Sections 10.08(a) or (b) shall apply (other than any ordinary periodic
cash dividends and distributions, if any, paid from time to time by an
Issuer that do not constitute Extraordinary Cash Dividends);
(b) any Issuer shall engage in or be a party to any
transaction which will result in any Exchange Property becoming in
whole or in part Non-Equity Securities; or
(c) there shall occur any conversion or reclassification of
Exchange Property (other than a subdivision or combination of
outstanding shares of any class of Capital Stock included in the
Exchange Property) or any consolidation, merger or reorganization to
which any Issuer is a party and for which approval of any stockholders
of such Issuer is required, or the sale or transfer of all or
substantially all of the assets of any Issuer; or
(d) there shall occur the voluntary or involuntary
dissolution, liquidation or winding up of any Issuer;
then Time Warner shall be delivered to the Property Trustee and filed at the
office [of the Property Trustee], and shall promptly cause to be mailed to the
Holders of LYONs at their last addresses as they shall appear upon the books and
records of the Trust, a notice stating (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or grant of rights, or, if
a record is not to be taken, the date as of which the holders of Exchange
Property of record to be entitled to such dividend, distribution or grant of
rights are to be determined, or (ii) the date, if known by Time Warner, on which
such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Exchange Property of record shall be
entitled to exchange their Exchange Property for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up.
<PAGE>
40
THIS GUARANTEE AGREEMENT is executed as of the day and year
first above written.
TIME WARNER INC.,
By
---------------------------
Name:
Title:
[ ],
As Guarantee Trustee
By
---------------------------
Name:
Title:
<PAGE>
EXHIBIT 12.1
TIME WARNER
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------
PRO FORMA
---------------------------- THREE MONTHS
THREE MONTHS YEAR ENDED YEARS ENDED DECEMBER 31,
ENDED ENDED MARCH 31, --------------------------------------
MARCH 31, DECEMBER 31, --------------- RESTATED
1995 1994 1995 1994 1994 1993 1992 1992
------------ ------------ ---- ---- ------ ------ -------- ------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) before income
taxes and extraordinary
item......................... $(35) $ (152) $(15) $(19) $ 89 $ 81 $ 323 $ 320
Interest expense............... 275 983 210 182 769 698 287 729
Amortization of capitalized
interest..................... -- 2 -- -- 2 -- 1 19
Portion of rents representative
of an interest factor........ 13 52 13 13 52 54 52 85
Adjustment for partially owned
subsidiaries and 50% owned
companies.................... 158 603 180 159 665 663 590 97
Undistributed losses of less
than 50% owned companies..... 17 82 17 25 82 47 56 56
----- ------ ---- ---- ------ ------ -------- ------
Total earnings............. $428 $1,570 $405 $360 $1,659 $1,543 $1,309 $1,306
----- ------ ---- ---- ------ ------ -------- ------
----- ------ ---- ---- ------ ------ -------- ------
Fixed Charges:
Interest expense............... $275 $ 983 $210 $182 $ 769 $ 698 $ 287 $ 729
Capitalized interest........... -- 2 -- -- 2 -- -- 15
Portion of rents representative
of an interest factor........ 13 52 13 13 52 54 52 85
Adjustment for partially owned
subsidiaries and 50% owned
companies.................... 158 606 180 159 668 664 571 81
----- ------ ---- ---- ------ ------ -------- ------
Total fixed charges........ $446 $1,643 $403 $354 $1,491 $1,416 $ 910 $ 910
----- ------ ---- ---- ------ ------ -------- ------
----- ------ ---- ---- ------ ------ -------- ------
Ratio of earnings to fixed charges
(deficiency in the coverage of
fixed charges by earnings before
fixed charges)................... $(18) $ (73) 1.0x 1.0x 1.1x 1.1x 1.4x 1.4x
----- ------ ---- ---- ------ ------ -------- ------
----- ------ ---- ---- ------ ------ -------- ------
<CAPTION>
1991 1990
------ ------
<S> <C> <C>
Earnings:
Net income (loss) before income
taxes and extraordinary
item......................... $ 52 $ (145)
Interest expense............... 912 1,096
Amortization of capitalized
interest..................... 23 22
Portion of rents representative
of an interest factor........ 78 74
Adjustment for partially owned
subsidiaries and 50% owned
companies.................... 73 57
Undistributed losses of less
than 50% owned companies..... 56 17
------ ------
Total earnings............. $1,194 $1,121
------ ------
------ ------
Fixed Charges:
Interest expense............... $ 912 $1,096
Capitalized interest........... 17 19
Portion of rents representative
of an interest factor........ 78 74
Adjustment for partially owned
subsidiaries and 50% owned
companies.................... 45 33
------ ------
Total fixed charges........ $1,052 $1,222
------ ------
------ ------
Ratio of earnings to fixed charges
(deficiency in the coverage of
fixed charges by earnings before
fixed charges)................... 1.1x $ (101)
------ ------
------ ------
</TABLE>
<PAGE>
EXHIBIT 12.2
TIME WARNER
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------
PRO FORMA
---------------------------- THREE MONTHS
THREE MONTHS YEAR ENDED YEARS ENDED DECEMBER 31,
ENDED ENDED MARCH 31, --------------------------------------
MARCH 31, DECEMBER 31, --------------- RESTATED
1995 1994 1995 1994 1994 1993 1992 1992
------------ ------------ ---- ---- ------ ------ -------- ------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) before
income taxes and
extraordinary item.......... $(35) $ (152) $(15) $(19) $ 89 $ 81 $ 323 $ 320
Interest expense.............. 275 983 210 182 769 698 287 729
Amortization of capitalized
interest.................... -- 2 -- -- 2 -- 1 19
Portion of rents
representative of an
interest factor............. 13 52 13 13 52 54 52 85
Adjustment for partially owned
subsidiaries and 50% owned
companies................... 158 603 180 159 665 663 590 97
Undistributed losses of less
than 50% owned companies.... 17 82 17 25 82 47 56 56
----- ------ ---- ---- ------ ------ -------- ------
Total earnings............ $428 $1,570 $405 $360 $1,659 $1,543 $1,309 $1,306
----- ------ ---- ---- ------ ------ -------- ------
----- ------ ---- ---- ------ ------ -------- ------
Combined Fixed Charges and
Preferred Stock Dividends:
Interest expense.............. $275 $ 983 $210 $182 $ 769 $ 698 $ 287 $ 729
Capitalized interest.......... -- 2 -- -- 2 -- -- 15
Portion of rents
representative of an
interest factor............. 13 52 13 13 52 54 52 85
Adjustment for partially owned
subsidiaries and 50% owned
companies................... 158 606 180 159 668 664 571 81
Pretax income necessary to
cover preferred stock
dividend requirements....... 37 136 5 5 20 218 905 905
----- ------ ---- ---- ------ ------ -------- ------
Total combined fixed
charges and preferred
stock dividends......... $483 $1,779 $408 $359 $1,511 $1,634 $1,815 $1,815
----- ------ ---- ---- ------ ------ -------- ------
----- ------ ---- ---- ------ ------ -------- ------
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements
(deficiency in the coverage of
combined fixed charges and
preferred stock dividends by
earnings before fixed charges
and preferred stock
dividends)...................... $(55) $ (209) $ (3) 1.0x 1.1x $ (91) $ (506) $ (509)
----- ------ ---- ---- ------ ------ -------- ------
----- ------ ---- ---- ------ ------ -------- ------
<CAPTION>
1991 1990
------- -------
<S> <C> <C>
Earnings:
Net income (loss) before
income taxes and
extraordinary item.......... $ 52 $ (145)
Interest expense.............. 912 1,096
Amortization of capitalized
interest.................... 23 22
Portion of rents
representative of an
interest factor............. 78 74
Adjustment for partially owned
subsidiaries and 50% owned
companies................... 73 57
Undistributed losses of less
than 50% owned companies.... 56 17
------- -------
Total earnings............ $ 1,194 $ 1,121
------- -------
------- -------
Combined Fixed Charges and
Preferred Stock Dividends:
Interest expense.............. $ 912 $ 1,096
Capitalized interest.......... 17 19
Portion of rents
representative of an
interest factor............. 78 74
Adjustment for partially owned
subsidiaries and 50% owned
companies................... 45 33
Pretax income necessary to
cover preferred stock
dividend requirements....... 1,382 1,234
------- -------
Total combined fixed
charges and preferred
stock dividends......... $ 2,434 $ 2,456
------- -------
------- -------
Ratio of earnings to combined
fixed charges and preferred
stock dividend requirements
(deficiency in the coverage of
combined fixed charges and
preferred stock dividends by
earnings before fixed charges
and preferred stock
dividends)...................... $(1,240) $(1,335)
------- -------
------- -------
</TABLE>
<PAGE>
EXHIBIT 12.3
TWE
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------
PRO FORMA
---------------------------- THREE MONTHS
THREE MONTHS YEAR ENDED YEARS ENDED DECEMBER 31,
ENDED ENDED MARCH 31, --------------------------------
MARCH 31, DECEMBER 31, --------------- RESTATED
1995 1994 1995 1994 1994 1993 1992 1992
------------ ------------ ---- ---- ---- ---- -------- ----
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net income (loss) before income taxes
and extraordinary item.............. $ 49 $242 $ 15 $ 52 $201 272 $210 $210
Interest expense...................... 127 499 150 135 563 573 486 436
Amortization of capitalized
interest............................ 7 25 7 6 25 19 18 18
Position of rents representative of an
interest factor..................... 13 47 13 10 47 39 36 33
Adjustment for partially owned
subsidiaries and 50% owned
companies........................... 32 115 7 5 24 22 27 80
Undistributed losses of less than 50%
owned companies..................... 8 89 8 5 58 14 40 40
----- ----- ---- ---- ---- ---- -------- ----
Total earnings.................... $236 $998 $200 $213 $918 $939 $817 $817
----- ----- ---- ---- ---- ---- -------- ----
----- ----- ---- ---- ---- ---- -------- ----
Fixed Charges:
Interest expense...................... $127 $499 $150 $135 $563 $573 $486 $436
Capitalized interest.................. 7 25 7 6 25 20 15 15
Portion of rents representative of an
interest factor..................... 13 47 13 10 47 39 36 33
Adjustment for partially owned
subsidiaries and 50% owned
companies........................... 5 17 7 5 24 22 27 80
----- ----- ---- ---- ---- ---- -------- ----
Total fixed charges............... $152 $588 $177 $156 $659 $654 $564 $564
----- ----- ---- ---- ---- ---- -------- ----
----- ----- ---- ---- ---- ---- -------- ----
Ratio of earnings to fixed charges
(deficiency in the coverage of fixed
charges by earnings before fixed
charges)................................ 1.6x 1.7x 1.1x 1.4x 1.4x 1.4x 1.4x 1.4x
----- ----- ---- ---- ---- ---- -------- ----
----- ----- ---- ---- ---- ---- -------- ----
<CAPTION>
1991 1990
---- -----
<S> <C> <C>
Earnings:
Net income (loss) before income taxes
and extraordinary item.............. $132 $(159)
Interest expense...................... 479 639
Amortization of capitalized
interest............................ 22 22
Position of rents representative of an
interest factor..................... 27 30
Adjustment for partially owned
subsidiaries and 50% owned
companies........................... 30 31
Undistributed losses of less than 50%
owned companies..................... 58 19
---- -----
Total earnings.................... $748 $ 582
---- -----
---- -----
Fixed Charges:
Interest expense...................... $479 $ 639
Capitalized interest.................. 17 19
Portion of rents representative of an
interest factor..................... 27 30
Adjustment for partially owned
subsidiaries and 50% owned
companies........................... 31 32
---- -----
Total fixed charges............... $554 $ 720
---- -----
---- -----
Ratio of earnings to fixed charges
(deficiency in the coverage of fixed
charges by earnings before fixed
charges)................................ 1.4x $(138)
---- -----
---- -----
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in the
Registration Statement 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, 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 Annual Report on Form
10-K for the year ended December 31, 1994, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
June 8, 1995
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Time Warner Inc. and Time Warner Financing Trust on Form S-3 of our report
dated March 10, 1995, appearing in the Annual Report on Form 10-K of Summit
Communications Group, Inc. for the year ended December 31, 1994 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
June 9, 1995
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption 'Experts' in the
Registration Statement 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
June 8, 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 this
Registration Statement on Form S-3 relating to the 12,057,561 Preferred
Exchangeable Redemption Cumulative Securities.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Stamford, Connecticut
June 9, 1995
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Registration Statement
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 31,
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
June 9, 1995
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 of Time Warner Inc.
and Time Warner Financing Trust relating to the 12,057,561 Preferred
Exchangeable Redemption Cumulative Securities of our report dated January 10,
1995, except as to Note 6, which is as of January 27, 1995, on the Paragon
Communications financial statements and schedule. We also consent to the
reference to us under the heading 'Experts' in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
June 9, 1995
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers and
directors of TIME WARNER INC., a Delaware corporation (the 'Corporation'),
hereby constitutes and appoints RICHARD J. BRESSLER, PETER R. HAJE, GERALD M.
LEVIN and PHILIP R. LOCHNER, JR., and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power to act without the others, for him
or her and in his or her name, place and stead, in any and all capacities, to
sign a Registration Statement on Form S-3 or other appropriate form and any and
all amendments to any such Registration Statement (including post-effective
amendments) and any subsequent Registration Statements filed by the Corporation
pursuant to Rule 462(b) of the Securities Act of 1933, as amended (the
'Securities Act'), to be filed with the Securities and Exchange Commission in
connection with the registration under the provisions of the Securities Act of
one or more of the following (i) 12,057,561 Preferred Exchangeable Redemption
Cumulative Securities ('PERCS') of Time Warner Financing Trust, a Delaware
business trust, all of the common securities of which are owned by the
Corporation, (ii) Guarantees of the PERCS by the Corporation, (iii) Exchange
Rights of the Corporation with respect to the PERCS, (iv) up to $500 million
aggregate principal amount of Subordinated Notes of the Corporation and (v)
other securities of the Corporation, in any combination thereof, with power
where appropriate to affix thereto the corporate seal of the Corporation and to
attest said seal, and to file any such Registration Statement, including a form
of prospectus, and any and all amendments and post-effective amendments to any
such Registration Statement, and any subsequent Registration Statements filed by
the Corporation pursuant to Rule 462(b) of the Securities Act, with all exhibits
thereto, and any and all documents in connection therewith, with the Securities
and Exchange Commission, hereby granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to do and perform any and all acts
and things requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her
name as of the 7th day of June, 1995.
<TABLE>
<S> <C> <C> <C>
(i) Principal Executive Officers:
/s/ Gerald M. Levin /s/ Richard D. Parsons
............................................... ...............................................
Gerald M. Levin Richard D. Parsons
Director, Chairman of the Board Director and President
and Chief Executive Officer
(ii) Principal Financial: (iii) Principal Accounting Officer:
Officer:
/s/ Richard J. Bressler /s/ John A. LaBarca
............................................... ...............................................
Richard J. Bressler, John A. LaBarca,
Senior Vice President and Chief Financial Vice President and Controller
Officer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
(iv) Directors:
/s/ Merv Adelson /s/ Reuben Mark
............................................... ...............................................
Merv Adelson, Reuben Mark,
Director Director
/s/ Lawrence B. Buttenwieser /s/ Michael A. Miles
............................................... ...............................................
Lawrence B. Buttenwieser, Michael A. Miles,
Director Director
/s/ Edward S. Finkelstein /s/ J. Richard Munro
............................................... ...............................................
Edward S. Finkelstein, J. Richard Munro,
Director Director
/s/ Beverly Sills Greenough /s/ Donald S. Perkins
............................................... ...............................................
Beverly Sills Greenough, Donald S. Perkins,
Director Director
/s/ Carla A. Hills /s/ Raymond S. Troubh
............................................... ...............................................
Carla A. Hills, Raymond S. Troubh,
Director Director
/s/ David T. Kearns /s/ Francis T. Vincent, Jr.
............................................... ...............................................
David T. Kearns, Francis T. Vincent, Jr.,
Director Director
/s/ Henry Luce III
...............................................
Henry Luce III,
Director
</TABLE>
<PAGE>
-------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2) ________
----------------------------------------
CHEMICAL BANK
(Exact name of trustee as specified in its charter)
New York 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 Park Avenue
New York, New York 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
---------------------------------------------
TIME WARNER INC.
(Exact name of obligor as specified in its charter)
Delaware 13-1388520
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
75 Rockefeller Plaza
New York, New York 10019
(Address of principal executive offices) (Zip Code)
-------------------------------------------
Subordinated Notes due December 23, 1997
(Title of the indenture securities)
-----------------------------------------------------
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject. New York State Banking Department, State
House, Albany, New York 12110. Board of Governors of the Federal
Reserve System, Washington, D.C., 20551 Federal Reserve Bank of
New York, District No. 2, 33 Liberty Street, New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
2
<PAGE>
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of Amendment
dated February 17, 1969, August 31, 1977, December 31, 1980, September 9, 1982,
February 28, 1985 and December 2, 1991 (see Exhibit 1 to Form T-1 filed in
connection with Registration Statement No. 33-50010, which is incorporated by
reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 33-84460, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee, published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Chemical Bank, a corporation organized and existing under the laws of
the State of New York, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York and State of New York, on the 8th day of June, 1995.
CHEMICAL BANK
By /s/ R. Lorenzen
___________________________________
R. Lorenzen
Senior Trust Officer
3
<PAGE>
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
Chemical Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business March 31, 1995, in accordance
with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Millions
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin ................................. $ 5,797
Interest-bearing balances ......................... 5,523
Securities: ..........................................
Held to maturity securities............................ 6,195
Available for sale securities.......................... 17,785
Federal Funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold ................................ 2,493
Securities purchased under agreements to resell ... 50
Loans and lease financing receivables:
Loans and leases, net of unearned income $68,937
Less: Allowance for loan and lease losses 1,898
Less: Allocated transfer risk reserve ... 113
Loans and leases, net of unearned income, -------
allowance, and reserve ............................ 66,926
Trading Assets ....................................... 37,294
Premises and fixed assets (including capitalized
leases)............................................ 1,402
Other real estate owned ............................... 99
Investments in unconsolidated subsidiaries and
associated companies............................... 148
Customer's liability to this bank on acceptances
outstanding ....................................... 1,051
Intangible assets ..................................... 512
Other assets .......................................... 6,759
---------
TOTAL ASSETS .......................................... $149,034
=========
</TABLE>
4
<PAGE>
LIABILITIES
<TABLE>
<S> <C>
Deposits
In domestic offices ................................ $44,882
Noninterest-bearing .........................$14,690
Interest-bearing ............................ 30,192
-------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's .......................................... 32,537
Noninterest-bearing .........................$ 146
Interest-bearing ............................ 32,391
-------
Federal funds purchased and securities sold under agree-
ments to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBF's
Federal funds purchased ............................ 10,587
Securities sold under agreements to repurchase ..... 3,083
Demand notes issued to the U.S. Treasury .............. 464
Trading liabilities ................................... 31,358
Other Borrowed money:
With original maturity of one year or less ......... 7,527
With original maturity of more than one year ....... 914
Mortgage indebtedness and obligations under capitalized
leases ............................................. 20
Bank's liability on acceptances executed and outstanding 1,054
Subordinated notes and debentures ..................... 3,410
Other liabilities ..................................... 5,986
TOTAL LIABILITIES ..................................... 141,822
-------
EQUITY CAPITAL
Common stock .......................................... 620
Surplus ............................................... 4,501
Undivided profits and capital reserves ................ 2,558
Net unrealized holding gains (Losses)
on available-for-sale securities ...................... (476)
Cumulative foreign currency translation adjustments ... 9
TOTAL EQUITY CAPITAL .................................. 7,212
-----------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED
STOCK AND EQUITY CAPITAL .......................... $149,034
==========
</TABLE>
I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
in- structions issued by the appropriate Federal regulatory authority and is
true to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the in- structions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
EDWARD D. MILLER )DIRECTORS
WILLIAM B. HARRISON )
5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)______
-----------------
THE FIRST NATIONAL BANK OF CHICAGO
(Exact name of trustee as specified in its charter)
A National Banking Association 36-0899825
(I.R.S. employer
identification number)
One First National Plaza, Chicago, Illinois 60670-0126
(Address of principal executive offices) (Zip Code)
The First National Bank of Chicago
One First National Plaza, Suite 0286
Chicago, Illinois 60670-0286
Attn: Lynn A. Goldstein, Law Department (312) 732-6919
(Name, address and telephone number of agent for service)
TIME WARNER FINANCING TRUST
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of To be applied for
incorporation or organization) (IRS Employer Identification No.)
75 Rockefeller Plaza
New York, New York 10019
(Address of Principal Executive Offices) (Zip Code)
Preferred Exchangeable Redemption Cumulative Securities
(Title of the indenture securities)
<PAGE>
Item 1. General Information. Furnish the following Information as to the
trustee:
(a) Name and address of each examining or supervision authority to
which it is subject.
Comptroller of Currency, Washington, D. C., Federal Deposit
Insurance Corporation, Washington, D. C., The Board of Governors
of the Federal Reserve System, Washington, D. C..
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
Item 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE
TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
No such affiliation exists with the trustee.
Item 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS
STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the trustee now in effect.*
2. A copy of the certificates of authority of the trustee to commence
business.*
3. A copy of the authorization of the trustee to exercise corporate
trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not applicable.
6. The consent of the trustee required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
* EXHIBIT 1, 2, 3, AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS
BEARING IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK
OF CHICAGO, FILED AS EXHIBIT 26 TO THE REGISTRATION STATEMENT ON FORM S-3 OF THE
CIT GROUP HOLDINGS, INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
FEBRUARY 16, 1993 (REGISTRATION NO. 33-58418).
<PAGE>
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, The First National Bank of Chicago, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this Statement of Eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York in the State
of New York, on the 9th day of June, 1995.
The First National Bank of Chicago,
Trustee
By: SUZANNE MAUER
-------------------------------
Suzanne Mauer, Trust Officer
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
June 9, 1995
Securities and Exchange Commission
Washington, D.C. 20549
Gentleman:
In connection with the qualification of an Amended and Restated Declaration of
Trust of Time Warner Financing Trust, the undersigned, in accordance with
Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents
that the reports of examinations of the undersigned, made by Federal or State
Authorities authorized to make such examinations, may be furnished by such
authorities to the Securities and Exchange Commission upon its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By: SUZANNE MAUER
-------------------------------
Suzanne Mauer, Trust Officer
<PAGE>
EXHIBIT 7
A copy of the latest report of condition of the trustee published pursuant to
law or the requirements of its supervising or examining authority.
<PAGE>
SCHEDULE RC -- BALANCE SHEET
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1995
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
<TABLE>
<CAPTION>
C400
Dollar Amounts in ------------
Thousands RCFD BIL MIL THOU < -
----------------------- ---- ------------ -----
<C> <S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule
RC-A):
a. Noninterest-bearing balances and currency and coin(1)............ 0081 2,948,128 1.a.
b. Interest-bearing balances(2)..................................... 0071 8,482,108 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A)........ 1754 167,911 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)..... 1773 540,011 2.b.
3. Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its Edge and Agreement
subsidiaries, and in IBFs:
a. Federal Funds sold............................................... 0276 2,508,883 3.a.
b. Securities purchased under agreements to resell.................. 0277 1,422,695 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C).... RCFD 2122 16,238,310 4.a.
b. LESS: Allowance for loan and lease losses........................ RCFD 3123 358,207 4.b.
c. LESS: Allocated transfer risk reserve............................ RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b and 4.c)..................................... 2125 15,880,103 4.d.
5. Assets held in trading accounts..................................... 3545 13,257,798 5.
6. Premises and fixed assets (including capitalized leases)............ 2145 516,827 6.
7. Other real estate owned (from Schedule RC-M)........................ 2150 13,166 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)................................................ 2130 10,363 8.
9. Customers' liability to this bank on acceptances outstanding........ 2155 463,961 9.
10. Intangible assets (from Schedule RC-M).............................. 2143 119,715 10.
11. Other assets (from Schedule RC-F)................................... 2160 1,346,941 11.
12. Total assets (sum of items 1 through 11)............................ 2170 47,678,610 12.
</TABLE>
- ------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE>
SCHEDULE RC -- CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in
Thousands BIL MIL THOU
---------------------- ------------
<C> <S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E, part 1)....................................... RCON 2200 14,675,401 13.a.
(1) Noninterest-bearing(1)...................................... RCON 6631 5,498,690 13.a.(1)
(2) Interest-bearing............................................ RCON 6636 9,176,711 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(from Schedule RC-E, part II)................................ RCFN 2200 11,809,645 13.b.
(1) Noninterest bearing......................................... RCFN 6631 304,669 13.b.(1)
(2) Interest-bearing............................................ RCFN 6636 11,504,976 13.b.(2)
14. Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
a. Federal funds purchased...................................... RCFD 0278 2,072,830 14.a.
b. Securities sold under agreements to repurchase............... RCFD 0279 1,484,164 14.b.
15. a. Demand notes issued to the U.S. Treasury..................... RCON 2840 103,138 15.a.
b. Trading Liabilities.......................................... RCFD 3548 9,101,186 15.b.
16. Other borrowed money:
a. With original maturity of one year or less................... RCFD 2332 2,307,860 16.a.
b. With original maturity of more than one year................. RCFD 2333 506,476 16.b.
17. Mortgage indebtedness and obligations under capitalized
leases.......................................................... RCFD 2910 278,108 17.
18. Bank's liability on acceptance executed and outstanding......... RCFD 2920 463,961 18.
19. Subordinated notes and debentures............................... RCFD 3200 1,225,000 19.
20. Other liabilities (from Schedule RC-G).......................... RCFD 2930 699,375 20.
21. Total liabilities (sum of items 13 through 20).................. RCFD 2948 44,727,144 21.
22. Limited-Life preferred stock and related surplus................ RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus................... RCFD 3838 0 23.
24. Common stock.................................................... RCFD 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock)........ RCFD 3839 2,304,657 25.
26. a. Undivided profits and capital reserves....................... RCFD 3632 447,916 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities................................................... RCFD 8434 (2,165) 26.b.
27. Cumulative foreign currency translation adjustments............. RCFD 3284 200 27.
28. Total equity capital (sum of items 23 through 27)............... RCFD 3210 2,951,466 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28)........................... RCFD 3300 47,678,610 29.
</TABLE>
<TABLE>
<CAPTION>
Memorandum
<C> <S> <C> <C>
To be reported only with the March Report of Condition.
<CAPTION>
Number
<C> <S> <C> <C> <C>
1. Indicate in the box at the right the number of the statement below that best describes the most
comprehensive level of auditing work performed for the bank by independent external auditors as
of any date during 1993......................................................................... RCFD 6724 N/A M.1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1 = Independent audit of the bank conducted in accordance with
generally accepted auditing standards by a certified public
accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company
conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which submits
a report on the consolidated holding company (but not on the
bank separately)
3 = Directors' examination of the bank conducted in accordance
with generally accepted auditing standards by a certified
public accounting firm (may be required by state chartering
authority)
4 = Directors' examination of the bank performed by other
external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external
auditors
6 = Compilation of the bank's financial statements by external
auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
</TABLE>
- ------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)_______
------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
(Exact name of trustee as specified in its charter)
A National Banking Association 36-0899825
(I.R.S. employer
identification number)
One First National Plaza, Chicago, Illinois 60670-0126
(Address of principal executive offices) (Zip Code)
The First National Bank of Chicago
One First National Plaza, Suite 0286
Chicago, Illinois 60670-0286
Attn: Lynn A. Goldstein, Law Department (312) 732-6919
(Name, address and telephone number of agent for service)
------------------------------
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of 13-1388520
incorporation or organization) (IRS Employer Identification No.)
75 Rockefeller Plaza
New York, New York 10019
(Address of Principal Executive Offices) (Zip Code)
Guarantee by Time Warner Inc. of Preferred Exchangeable Redemption Cumulative
Securities of Time Warner Financing Trust
(Title of the indenture securities)
<PAGE>
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervision authority to which it is
subject.
Comptroller of Currency, Washington, D. C., Federal Deposit Insurance
Corporation, Washington, D. C., The Board of Governors of the Federal Reserve
System, Washington, D. C..
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE
TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS
STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the trustee now in effect.*
2. A copy of the certificates of authority of the trustee to commence business.*
3. A copy of the authorization of the trustee to exercise corporate trust
powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not applicable.
6. The consent of the trustee required by Section 321(b) of the Act.
7. A copy of the latest report of condition of the trustee published pursuant to
law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
* EXHIBIT 1,2,3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING
IDENTICAL NUMBERS IN ITEM 12 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF
CHICAGO, FILED AS EXHIBIT 26 TO THE REGISTRATION STATEMENT ON FORM S-3 OF THE
CIT GROUP HOLDINGS, INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
FEBRUARY 16, 1993 (REGISTRATION NO. 33-58418).
<PAGE>
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, The First National Bank of Chicago, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this Statement of Eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of New York, and State
of New York, on the 9th day of June, 1995.
The First National Bank of Chicago,
Trustee,
By: SUZANNE MAUER
--------------------------------
Suzanne Mauer, Trust Officer
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
June 9, 1995
Securities and Exchange Commission
Washington, D. C. 20549
Gentlemen:
In connection with the qualification of a Guarantee Agreement of Time Warner
Inc., the undersigned, in accordance with Section 321(b) of the Trust Indenture
Act of 1939, as amended, hereby consents that the reports of examinations of the
undersigned, made by Federal or State Authorities authorized to make such
examinations, may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By: SUZANNE MAUER
----------------------------------
Suzanne Mauer, Trust Officer
<PAGE>
EXHIBIT 7
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
<PAGE>
SCHEDULE RC -- BALANCE SHEET
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1995
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
<TABLE>
<CAPTION>
C400
Dollar Amounts in ------------
Thousands RCFD BIL MIL THOU < -
----------------------- ---- ------------ -----
<C> <S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule
RC-A):
a. Noninterest-bearing balances and currency and coin(1)............ 0081 2,948,128 1.a.
b. Interest-bearing balances(2)..................................... 0071 8,482,108 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A)........ 1754 167,911 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)..... 1773 540,011 2.b.
3. Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and its Edge and Agreement
subsidiaries, and in IBFs:
a. Federal Funds sold............................................... 0276 2,508,883 3.a.
b. Securities purchased under agreements to resell.................. 0277 1,422,695 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C).... RCFD 2122 16,238,310 4.a.
b. LESS: Allowance for loan and lease losses........................ RCFD 3123 358,207 4.b.
c. LESS: Allocated transfer risk reserve............................ RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b and 4.c)..................................... 2125 15,880,103 4.d.
5. Assets held in trading accounts..................................... 3545 13,257,798 5.
6. Premises and fixed assets (including capitalized leases)............ 2145 516,827 6.
7. Other real estate owned (from Schedule RC-M)........................ 2150 13,166 7.
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)................................................ 2130 10,363 8.
9. Customers' liability to this bank on acceptances outstanding........ 2155 463,961 9.
10. Intangible assets (from Schedule RC-M).............................. 2143 119,715 10.
11. Other assets (from Schedule RC-F)................................... 2160 1,346,941 11.
12. Total assets (sum of items 1 through 11)............................ 2170 47,678,610 12.
</TABLE>
- ------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held in trading accounts.
<PAGE>
SCHEDULE RC -- CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in
Thousands BIL MIL THOU
---------------------- ------------
<C> <S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E, part 1)....................................... RCON 2200 14,675,401 13.a.
(1) Noninterest-bearing(1)...................................... RCON 6631 5,498,690 13.a.(1)
(2) Interest-bearing............................................ RCON 6636 9,176,711 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(from Schedule RC-E, part II)................................ RCFN 2200 11,809,645 13.b.
(1) Noninterest bearing......................................... RCFN 6631 304,669 13.b.(1)
(2) Interest-bearing............................................ RCFN 6636 11,504,976 13.b.(2)
14. Federal funds purchased and securities sold under agreements to
repurchase in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
a. Federal funds purchased...................................... RCFD 0278 2,072,830 14.a.
b. Securities sold under agreements to repurchase............... RCFD 0279 1,484,164 14.b.
15. a. Demand notes issued to the U.S. Treasury..................... RCON 2840 103,138 15.a.
b. Trading Liabilities.......................................... RCFD 3548 9,101,186 15.b.
16. Other borrowed money:
a. With original maturity of one year or less................... RCFD 2332 2,307,860 16.a.
b. With original maturity of more than one year................. RCFD 2333 506,476 16.b.
17. Mortgage indebtedness and obligations under capitalized
leases.......................................................... RCFD 2910 278,108 17.
18. Bank's liability on acceptance executed and outstanding......... RCFD 2920 463,961 18.
19. Subordinated notes and debentures............................... RCFD 3200 1,225,000 19.
20. Other liabilities (from Schedule RC-G).......................... RCFD 2930 699,375 20.
21. Total liabilities (sum of items 13 through 20).................. RCFD 2948 44,727,144 21.
22. Limited-Life preferred stock and related surplus................ RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus................... RCFD 3838 0 23.
24. Common stock.................................................... RCFD 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock)........ RCFD 3839 2,304,657 25.
26. a. Undivided profits and capital reserves....................... RCFD 3632 447,916 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities................................................... RCFD 8434 (2,165) 26.b.
27. Cumulative foreign currency translation adjustments............. RCFD 3284 200 27.
28. Total equity capital (sum of items 23 through 27)............... RCFD 3210 2,951,466 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28)........................... RCFD 3300 47,678,610 29.
</TABLE>
<TABLE>
<CAPTION>
Memorandum
<C> <S> <C> <C>
To be reported only with the March Report of Condition.
<CAPTION>
Number
<C> <S> <C> <C> <C>
1. Indicate in the box at the right the number of the statement below that best describes the most
comprehensive level of auditing work performed for the bank by independent external auditors as
of any date during 1993......................................................................... RCFD 6724 N/A M.1.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1 = Independent audit of the bank conducted in accordance with
generally accepted auditing standards by a certified public
accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company
conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which submits
a report on the consolidated holding company (but not on the
bank separately)
3 = Directors' examination of the bank conducted in accordance
with generally accepted auditing standards by a certified
public accounting firm (may be required by state chartering
authority)
4 = Directors' examination of the bank performed by other
external auditors (may be required by state chartering
authority)
5 = Review of the bank's financial statements by external
auditors
6 = Compilation of the bank's financial statements by external
auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
</TABLE>
- ------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
