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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995.
COMMISSION FILE NUMBER 1-8637
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TIME WARNER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 13-1388520
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
75 ROCKEFELLER PLAZA, YORK, N.Y. 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 484-8000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.00 par value New York Stock Exchange
Pacific Stock Exchange
Rights to Purchase Series A Participating Cumulative New York Stock Exchange
Preferred Stock Pacific Stock Exchange
6.85% Debentures due 2026 New York Stock Exchange
7.45% Notes due 1998 New York Stock Exchange
7.48% Debentures due 2008 New York Stock Exchange
7.75% Notes due 2005 New York Stock Exchange
7.95% Notes due 2000 New York Stock Exchange
7.975% Notes due 2004 New York Stock Exchange
8.05% Debentures due 2016 New York Stock Exchange
8.11% Debentures due 2006 New York Stock Exchange
8.18% Debentures due 2007 New York Stock Exchange
8.30% Discount Debentures due 2036 New York Stock Exchange
8 3/4% Debentures due 2017 New York Stock Exchange
9 1/8% Debentures due 2013 New York Stock Exchange
9.15% Debentures due 2023 New York Stock Exchange
Liquid Yield Option'tm' Notes due 2012 American Stock Exchange
Liquid Yield Option'tm' Notes due 2013 New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 20, 1996, there were 392,488,134 shares of registrant's Common
Stock outstanding and the aggregate market value of such shares held by
non-affiliates of the registrant (based upon the closing price of such shares on
the New York Stock Exchange Composite Tape on March 20, 1996) was approximately
$16.3 billion.
DOCUMENTS INCORPORATED BY REFERENCE:
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DESCRIPTION OF DOCUMENT PART OF THE FORM 10-K
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Portions of the Definitive Proxy Statement to be used in connection with Part III (Item 10 through Item 13)
the registrant's 1996 Annual Meeting of Stockholders.
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PART I
ITEM 1. BUSINESS
Time Warner Inc. (the 'Company') was incorporated in the State of Delaware
in August 1983 and is the successor to a New York corporation originally
organized in 1922. The Company changed its name from Time Incorporated 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 the Company in
January 1990 upon the completion of the merger of WCI and a subsidiary of the
Company. As used in this report, the terms 'Registrant,' the 'Company' and 'Time
Warner' refer to Time Warner Inc. and its subsidiaries and divisions, and
includes Time Warner Entertainment Company, L.P. ('TWE'), unless the context
otherwise requires. See below for a description of TWE and its relationship to
the Company.
The Company is the world's leading media company, and has interests in
three fundamental areas of business: Entertainment, consisting principally of
interests in recorded music and music publishing, filmed entertainment,
broadcasting, theme parks and cable television programming; News and
Information, consisting principally of interests in magazine publishing, book
publishing and direct marketing; and Telecommunications, consisting principally
of interests in cable television systems. Substantially all of the Company's
interests in filmed entertainment, broadcasting, theme parks and cable
television programming are held through TWE and most of its interests in cable
television systems are held through TWE.
In September 1995, the Company announced that it had agreed to merge with
Turner Broadcasting System, Inc. ('TBS'), a diversified information and
entertainment company, by acquiring the remaining approximately 80% interest in
TBS that the Company does not already own. The Company has entered into an
Amended and Restated Agreement and Plan of Merger dated as of September 22, 1995
(the 'Merger Agreement'), which provides for the merger of each of the Company
and TBS with separate subsidiaries of a holding company ('New Time Warner' and
collectively, the 'TBS Transaction'). In connection therewith, the issued and
outstanding shares of each class of the capital stock of the Company will be
converted into shares of a substantially identical class of capital stock of New
Time Warner. In addition, the Company has agreed to enter into certain
agreements and related transactions with certain shareholders of TBS, including
R.E. Turner and Liberty Media Corporation ('LMC'), an affiliate of
Tele-Communications, Inc. ('TCI'). The Merger Agreement and certain related
agreements provide for the issuance by New Time Warner of approximately 172.8
million shares of common stock, par value $.01 per share including 50.6 million
shares of a special class of non-redeemable common stock to be issued to LMC
(the 'LMC Class Common Stock'), in exchange for the outstanding TBS capital
stock, the issuance of approximately 13 million employee stock options to
replace all outstanding TBS employee stock options and the assumption of TBS'
indebtedness (which approximated $2.5 billion at December 31, 1995). As part of
the TBS Transaction, LMC will receive an additional five million shares of LMC
Class Common Stock pursuant to a separate option agreement which, together with
the 50.6 million shares it will receive pursuant to the TBS Transaction, will be
placed in a voting trust of which Gerald M. Levin, Chairman and Chief Executive
Officer of the Company, will be the trustee (the 'Liberty Voting Trust'), or, in
certain circumstances, exchanged for shares of another special class of
non-voting, non-redeemable common stock of New Time Warner that will be held by
LMC.
The TBS Transaction is subject to customary closing conditions, including
the approval of the shareholders of TBS and of the Company, all necessary
approvals of the Federal Communications Commission ('FCC') and appropriate
antitrust approvals. There can be no assurance that all these approvals can be
obtained or, in the case of governmental approvals, if obtained, will not be
conditioned upon changes to the terms of the Merger Agreement or the related
agreements.
In 1995 and early 1996, the Company completed its acquisition of three
significant cable television companies: Summit Communications Group, Inc.
('Summit'), KBLCOM Incorporated ('KBLCOM') and Cablevision Industries
Corporation ('CVI') and related companies and, through TWE, formed a cable
television joint venture (the 'TWE-A/N Partnership') with Advance/Newhouse
Partnership ('Advance/Newhouse'), in which TWE owns a 66 2/3% interest (these
transactions being collectively referred to hereinafter as the '1995
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Cable Transactions'). (See below for a more detailed discussion of each 1995
Cable Transaction.) Currently, Summit, KBLCOM (which has been renamed TWI Cable
Inc.) and CVI and related companies are wholly owned subsidiaries of the
Company, and the Company's interest in the TWE-A/N Partnership is held by TWE.
Time Warner Cable ('Time Warner Cable'), a division of TWE, operates and manages
substantially all of the cable television systems acquired through the 1995
Cable Transactions, as well as those systems held by TWE prior to the 1995 Cable
Transactions. Time Warner Cable does not manage those cable television systems
of the Company which are located within the 14-state telephone service area of U
S WEST, Inc., a Colorado corporation ('U S WEST'). See 'Entertainment -- Cable
Division -- Television.'
TWE was formed as a Delaware limited partnership in February 1992 pursuant
to an Agreement of Limited Partnership, dated as of October 29, 1991, as amended
(the 'TWE Partnership Agreement'), and has, since its capitalization on June 30,
1992 (the 'TWE Capitalization'), owned and operated substantially all of the
Filmed Entertainment, Programming-HBO and Cable businesses previously owned by
subsidiaries of the Company. Upon the TWE Capitalization, certain wholly owned
subsidiaries of the Company (the 'Time Warner General Partners'), contributed
such businesses, or assigned the net cash flow derived therefrom (or an amount
equal to the net cash flow derived therefrom), to TWE and became general
partners of TWE. Also upon the TWE Capitalization, wholly owned subsidiaries of
ITOCHU Corporation (formerly C. Itoh & Co., Ltd.), a corporation organized under
the laws of Japan ('ITOCHU'), and Toshiba Corporation, a corporation organized
under the laws of Japan ('Toshiba'), collectively contributed $1 billion to TWE
and became limited partners of TWE.
On September 15, 1993, TWE consummated the transactions contemplated by the
Admission Agreement, dated as of May 16, 1993, as amended (the 'Admission
Agreement'), between TWE and U S WEST. Pursuant to the Admission Agreement, a
wholly owned subsidiary of U S WEST made a capital contribution of $2.553
billion and became a limited partner of TWE (the 'U S WEST Transaction'). The
Admission Agreement provides that TWE will use its best efforts to upgrade a
substantial portion of its cable systems to 'Full Service Network'tm' capacity
by the end of 1998. As systems are designated for such upgrade and after any
required approvals are obtained, U S WEST and TWE will share joint control of
those systems through a 50-50 management committee. The 'Full Service Network'
business is expected to include substantially all of TWE's cable systems,
subject to obtaining necessary regulatory consents and approvals. See
'Entertainment -- Description of Certain Provisions of the TWE Partnership
Agreement.'
Following the admission of U S WEST into TWE, each of ITOCHU and Toshiba
owned a 5.61% pro rata priority capital and residual equity interest in TWE and
a 6.25% residual equity interest in TW Service Holding I, L.P. and TW Service
Holding II, L.P. (the 'Time Warner Service Partnerships'). The Time Warner
Service Partnerships owned certain assets related to the TWE businesses. (See
'Entertainment -- Other Entertainment Group Assets -- Time Warner Service
Partnerships'). On September 5, 1995, and October 2, 1995, ITOCHU and Toshiba,
respectively, each exchanged its interest in TWE and the Time Warner Service
Partnerships for, in the case of ITOCHU, a total of 8 million shares of two new
series of convertible preferred stock ('Series G Preferred Stock' and 'Series H
Preferred Stock') of the Company and, in the case of Toshiba, 7 million shares
of a new series of convertible preferred stock of the Company ('Series I
Preferred Stock') and $10 million in cash (the 'ITOCHU/Toshiba Transaction').
As a result of the ITOCHU/Toshiba Transaction and the U S WEST Transaction,
the Company and the Time Warner General Partners collectively own 74.49% of the
pro rata priority capital and residual equity partnership interests in TWE, and
certain priority capital interests senior and junior to the pro rata priority
capital interests. The remaining 25.51% pro rata priority capital and residual
equity limited partnership interests are held by a subsidiary of U S WEST.
On April 1, 1995, TWE formed the TWE-A/N Partnership, a cable television
joint venture with Advance/Newhouse to which Advance/Newhouse and TWE
contributed cable television systems (or interests therein) serving
approximately 4.5 million subscribers, as well as certain foreign cable
investments and programming investments. TWE owns a two-thirds equity interest
in the TWE-A/N Partnership and is the managing partner. In accordance with the
partnership agreement, Advance/Newhouse can require TWE to purchase its equity
interest for fair market value at specified intervals following the death of
both of its principal
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shareholders. Beginning in the third year, either partner can initiate a
dissolution in which TWE would receive two-thirds and Advance/Newhouse would
receive one-third of the TWE-A/N Partnership's net assets.
On May 2, 1995, the Company acquired Summit Communications Group, Inc.
('Summit'), which owned cable television systems serving approximately 162,000
subscribers in Winston-Salem, North Carolina and in certain suburbs of Atlanta,
Georgia. To acquire Summit, the Company issued approximately 1.6 million shares
of its common stock, par value $1.00 per share ('Common Stock'), and
approximately 3.3 million shares of a new series of convertible preferred stock
('Series C Preferred Stock') and assumed $140 million of indebtedness.
On July 6, 1995, the Company acquired KBLCOM Incorporated ('KBLCOM'), a
subsidiary of Houston Industries Incorporated, which owned cable television
systems serving approximately 700,000 subscribers and a 50% interest in Paragon
Communications ('Paragon'), which owns cable television systems serving an
additional 972,000 subscribers. The other 50% interest in Paragon was already
owned by TWE. To acquire KBLCOM, the Company issued one million shares of Common
Stock and 11 million shares of a new series of convertible preferred stock
('Series D Preferred Stock') and assumed or incurred approximately $1.2 billion
of indebtedness. KBLCOM's systems serve subscribers located in San Antonio and
Laredo, Texas, the Minneapolis metropolitan area, Portland, Oregon and Orange
County, California. Paragon's systems serve subscribers in Tampa, Florida and
northern Manhattan, as well as other locations.
On January 4, 1996, the Company acquired Cablevision Industries Corporation
('CVI') and related companies that owned cable television systems serving
approximately 1.3 million subscribers, in exchange for the issuance of
approximately 2.9 million shares of Common Stock and approximately 6.5 million
shares of a new series of convertible preferred stock ('Series E Preferred
Stock' and 'Series F Preferred Stock') and the assumption or incurrence of
approximately $2 billion of indebtedness. CVI's systems serve subscribers
principally located in New York, North Carolina, Florida, California's San
Fernando Valley and Columbia, South Carolina.
Along with internal growth, the 1995 Cable Transactions increased the total
number of subscribers under the management of Time Warner Cable to approximately
11.7 million, as compared to 7.5 million subscribers at the end of 1994.
For additional information regarding the 1995 Cable Transactions, see Note
4 'Cable Transactions' and Note 9 'Capital Stock,' to the Company's consolidated
financial statements at pages F-32 and F-40, respectively herein.
On June 23, 1995, TWE sold 51% of its interest in Six Flags Entertainment
Corporation ('SFEC') to an investment group led by Boston Ventures Management,
Inc., a private investment management firm, for $204 million and received $640
million in additional proceeds from SFEC, representing payment of certain
intercompany indebtedness and licensing fees. As a result of the transaction,
SFEC has been deconsolidated and TWE's remaining 49% interest in SFEC is
accounted for under the equity method of accounting.
For financial information about the Company's industry segments and
operations in different geographical areas with respect to each of the years in
the three-year period ended December 31, 1995, see Note 13 'Segment
Information,' to the Company's consolidated financial statements at pages F-46
through F-49 herein.
NEWS AND INFORMATION
The Company's News and Information business currently is conducted by Time
Inc., a wholly owned subsidiary of the Company. Time Inc. has one of the largest
portfolios of brand name franchises in the world. Development and distribution
of its brands are accomplished through the publishing, direct marketing and
sales of magazines, books, music and videos. Time Inc. also develops products
for the multimedia and television markets. It conducts these activities through
wholly owned subsidiaries, joint ventures, equity investments and partnerships.
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MAGAZINES
GENERAL
Time Inc. publishes TIME, PEOPLE, SPORTS ILLUSTRATED, FORTUNE, MONEY, LIFE,
SPORTS ILLUSTRATED FOR KIDS, ENTERTAINMENT WEEKLY and IN STYLE. In January 1995,
Time Inc. launched RETIRE WITH MONEY, a consumer newsletter from the editors of
MONEY magazine that provides guidance to individuals on their retirement
investments. In September 1995, Time Inc. launched TIME For Kids, a weekly news
magazine aimed at elementary school students in grades four through six.
Time Inc., either directly or through subsidiaries, has equity interests in
ASIAWEEK and American Family Publishers. In 1995, Time Inc. acquired an equity
interest in Emphasis, a provider of in-flight media and entertainment; purchased
Targeted Media, an organization dedicated to the creation and execution of
alternative media concepts and programs; and launched Independent Media
Distribution in Australia, a distributor of magazines published by Time Inc. and
certain other publishers.
Time Inc. Ventures ('TIV'), and its subsidiary Time Publishing Ventures,
Inc. ('TPV'), are responsible for regional and special interest publishing and
development activities, including Southern Progress Corporation ('Southern
Progress'), Sunset Publishing Corporation ('Sunset Publishing'), PARENTING, BABY
TALK, HEALTH, HIPPOCRATES, MARTHA STEWART LIVING, WHO WEEKLY, PRESIDENT and
DANCYU magazines, and various joint ventures. In 1995, TPV purchased HIN Inc., a
publisher of health information/patient education booklets and tested THIS OLD
HOUSE magazine, based on the popular home renovation television series. In 1996,
THIS OLD HOUSE magazine was launched under a licensing arrangement with public
television station WGBH.
Southern Progress publishes SOUTHERN LIVING, PROGRESSIVE FARMER, SOUTHERN
ACCENTS and COOKING LIGHT magazines as well as occasional special interest
publications. Sunset Publishing publishes SUNSET magazine.
Time Inc., through its TIV subsidiary, has management responsibility for
most of the American Express Publishing Corporation's operations, including
TRAVEL & LEISURE and FOOD & WINE magazines. TIV also operates an in-store
advertising and demonstration business, Time Inc. In-Store Marketing.
Each magazine published by the Company has an editorial staff under the
general supervision of a managing editor and a business staff under the
management of a president or publisher. Magazine manufacturing and distribution
activities are generally managed by centralized staffs at Time Inc. Fulfillment
activities for Time Inc.'s magazines are generally administered from a
centralized facility in Tampa, Florida. PARENTING, SUNSET, BABY TALK, HEALTH,
HIPPOCRATES, MARTHA STEWART LIVING, THIS OLD HOUSE, VIBE, and Time Inc.'s
overseas operations generally employ independent fulfillment services and
undertake their own manufacturing and distribution.
Magazine publishing follows a seasonal pattern with revenues being
generally higher in the second and fourth quarters and lower in the first and
third quarters. Advertising rate base is the guaranteed minimum paid circulation
level on which advertising rates are based.
The individual magazines of the Company are summarized below:
TIME, a weekly magazine, summarizes the news and brings original
interpretation and insight to the week's events. In 1995, TIME launched Time
Digital, a wide-ranging, user-friendly, quarterly 'magazine within a magazine'
about the digital age. The domestic advertising rate base of TIME as of January
1996 was 4,000,000, which is unchanged from January 1995.
TIME For Kids, is a weekly news magazine aimed at elementary school
students from fourth through sixth grades. The advertising rate base as of
January 1996 was 720,000.
TIME Asia, TIME Atlantic, TIME Canada, TIME Latin America and TIME South
Pacific are weekly English-language editions of TIME which circulate outside the
United States. These editions had an aggregate worldwide advertising rate base
of 1,490,000 as of January 1996, compared to 1,460,000 in January 1995.
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SPORTS ILLUSTRATED is a weekly magazine which covers the activities of, and
is designed to appeal to, spectators and participants in virtually all forms of
recreational and competitive sports. The advertising rate base as of January
1996 was 3,150,000, the same as in January 1995.
SPORTS ILLUSTRATED FOR KIDS is a monthly sports-oriented magazine geared to
children ages eight through fourteen. Its advertising rate base as of January
1996 was 950,000, the same as in January 1995, including 225,000 copies
distributed free to over 1,700 schools.
PEOPLE is a weekly magazine which reports on celebrities and other notable
personalities. The advertising rate base as of January 1996 was 3,150,000, the
same as in January 1995.
ENTERTAINMENT WEEKLY is a weekly magazine which includes reviews and
reports on television, movies, video, music and books. The advertising rate base
as of January 1996 was 1,225,000, compared to 1,125,000 in January 1995.
FORTUNE is a biweekly magazine which reports on worldwide economic and
business developments. The worldwide advertising rate base as of January 1996,
was 860,000, the same as in January 1995.
MONEY is a monthly magazine which reports on personal finance. The
advertising rate base as of January 1996 was 1,900,000, the same as in January
1995.
LIFE is a monthly magazine which features photographic essays. The
advertising rate base as of January 1996 was 1,500,000, the same as in January
1995.
IN STYLE is a monthly magazine which focuses on celebrities' lives and
lifestyles. The advertising rate base as of January 1996 was 650,000, compared
to 550,000 in January 1995.
SOUTHERN LIVING is a monthly regional home, garden, food and travel
magazine focused on the South with an advertising rate base of 2,300,000 as of
January 1996, the same as in January 1995.
PROGRESSIVE FARMER is a monthly regional farming magazine with an
advertising rate base of 630,000 as of January 1996, compared to 640,000 in
January 1995.
SOUTHERN ACCENTS is published six times a year, and features architecture,
fine homes and gardens, arts and travel and is targeted to affluent Southerners.
Its advertising rate base as of January 1996 was 285,000, compared to 275,000 in
January 1995.
COOKING LIGHT is published nine times a year and promotes health and
fitness through active lifestyles and good nutrition. The advertising rate base
as of January 1996 was 1,300,000, compared to 1,200,000 in January 1995.
PARENTING is published ten times a year and is aimed at parents of children
under the age of ten. The advertising rate base as of January 1996 was
1,100,000, compared to 1,000,000 in January 1995.
SUNSET, The Magazine of Western Living, is a monthly regional magazine
focused on lifestyles in the West. The advertising rate base was 1,425,000 in
January 1996, the same as in January 1995.
HEALTH is a consumer health magazine published seven times a year, and
HIPPOCRATES is published ten times a year. Although similar in editorial
content, HEALTH is targeted at the consumer market, while HIPPOCRATES is a trade
magazine targeted at physicians and carries primarily trade advertising. HEALTH
had an advertising rate base of 900,000 in January 1996, the same as in January
1995. HIPPOCRATES had a controlled circulation of 125,000 primary care
physicians in January 1996, the same as in January 1995.
MARTHA STEWART LIVING is published ten times a year and presents Martha
Stewart's personal perspective on entertaining, cooking, decorating and
gardening. Its advertising rate base as of January 1996 was 1,200,000, compared
to 800,000 in January 1995. Effective with the February 1996 issue, the rate
base will increase to 1,425,000.
BABY TALK is published ten times a year and is targeted at expectant and
new mothers. In January 1996 its advertising rate base was 1,100,000, compared
to 1,000,000 in January 1995. BABY TALK's ancillary publication BABY ON THE WAY
is published semi-annually.
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VIBE is published ten times a year by a joint venture between a subsidiary
of TPV and affiliates of Quincy Jones Entertainment Company. It covers rap,
rhythm and blues, reggae and dance music, as well as politics and fashion. The
advertising rate base as of January 1996 was 400,000, compared to 250,000 in
January 1995.
THIS OLD HOUSE is published six times a year, pursuant to a licensing
arrangement with public television station WGBH, and is based on the popular
home renovation television series. The advertising rate base as of January 1996
was 300,000.
ASIAWEEK is a weekly English-language magazine which summarizes the news
events in the Asian region. In January 1996 its advertising rate base was
110,000, compared to 100,000 in January 1995.
WHO WEEKLY is an Australian version of PEOPLE which focuses on celebrities
and other notable personalities. The advertising rate base as of January 1996
was 227,000, compared to 220,000 in January 1995.
PRESIDENT is a monthly Japanese-language business/management magazine. The
advertising rate base as of January 1996 was 258,000, the same as in January
1995.
DANCYU is a monthly Japanese cooking magazine. The advertising rate base as
of January 1996 was 105,000, the same as in January 1995.
ANCILLARY BUSINESSES
Time Inc. has continued to expand on its core businesses through numerous
product extensions. Most notably: the publishing of newsstand specials including
LIFE's single-subject issues on Elvis Presley and the Beatles, MARTHA STEWART
LIVING WEDDINGS, PEOPLE's tribute issues to Selena, and Jerry Garcia,
ENTERTAINMENT WEEKLY's Academy Awards special, SPORTS ILLUSTRATED PRESENTS
publications which in 1995 included seven commemorative issues and four sport
preview issues, as well as, special interest publications including, Southern
Progress' HOME FOR THE HOLIDAYS, GARDEN GUIDE and SUMMER TIME. Other activities
include TIME's special issues on the Cyber Revolution and V-E Day, and MONEY's
newsletter for retirees and 401(k) plan participants, RETIRE WITH MONEY;
conferences and seminars sponsored by FORTUNE, PEOPLE and VIBE, and expanded
merchandising activities via the SPORTS ILLUSTRATED Insider Authentics catalog,
and the 1995 launch of ENTERTAINMENT WEEKLY's Studio Store and MARTHA STEWART's
Martha by Mail catalog.
CIRCULATION
The Company's publications are sold primarily by subscription. Subscription
copies are delivered to subscribers through the mail. Subscriptions are sold by
direct-mail solicitation, subscription sales agencies, television and telephone
solicitation and insert cards in the Company's magazines and other publications.
Single copies of magazines are sold through retail news dealers who are supplied
in turn by regional wholesalers.
ADVERTISING
Advertising carried in the Company's magazines is predominantly consumer
advertising. Many of the Company's magazines have numerous regional and
demographic editions which contain the same basic editorial material but permit
advertisers to concentrate their advertising in specific markets. Through the
use of selective binding and ink-jet technology, the Company creates special
custom editions targeted towards specific groups. This allows the Company to
deliver advertisers a more highly targeted audience by segmenting subscriber
lists to identify those subscribers advertisers desire most, as well as
providing the opportunity to personalize advertising messages.
PAPER AND PRINTING
Lightweight coated paper constitutes a significant component of physical
costs in the production of magazines. Time Inc. has contractual commitments to
ensure an adequate supply of paper, but periodic shortages may occur in the
event of strikes or other unexpected disruptions in the paper industry. During
1995,
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Time Inc. purchased paper principally from six independent manufacturers, in
each case under contracts that, for the most part, are either fixed-term or
open-ended at prices determined on a market price or formula price basis. Paper
costs were significantly higher in 1995 as a result of several consecutive
quarterly price increases from October 1994 through October 1995. These
significant price increases resulted in part from an increased demand for paper
relative to production capacity. Based upon the current marketplace, the Company
expects that paper prices will stabilize in 1996.
Printing and binding for the Company's magazines are accomplished primarily
by major domestic and international independent printing concerns in 20
locations. Magazine printing contracts are either fixed-term or open-ended at
fixed prices with, in some cases, adjustments based on certain criteria.
BOOKS
GENERAL
The Company's direct marketing and book operations include Time Life Inc.,
Book-of-the-Month Club, Inc., Warner Books, Inc. and Little, Brown and Company,
each of which is a wholly owned subsidiary of Time Inc., and the Oxmoor House
and Sunset Books divisions of Southern Progress and Sunset Publishing,
respectively. In 1995, the book operations distributed an aggregate of
approximately 163 million gross units.
TIME LIFE
Time Life is composed of several divisions including: Books, Music, Video,
Television, Education, Custom Publishing and International. Time Life is one of
the nation's largest direct marketers of books, music and videos. The products
are sold by direct response, including mail order, television and telephone,
through retail, institutional and licensing channels, and by door-to-door
independent distributors in some foreign markets. Time Life products are
currently sold in over 25 languages worldwide and approximately 40% of Time
Life's revenues are generated outside the United States. In January 1995, Time
Life licensed the name Time Life Medical to Patient Education Media Inc. to be
used in connection with the creation of patient education videos. Time Life also
holds a minority equity interest in Patient Education Media Inc.
Editorial material is created by in-house staffs as well as through outside
book packagers. A significant product in 1995 was Time Life Music's series 'Dick
Clark's Rock 'n' Roll Era.' Time Life's 1995 best sellers included 'Great
Taste-Low Fat' and 'Home Repair and Improvement' from Time Life Books, 'Century
of Warfare' and 'Zoo Life' from Time Life Video. In 1995, Time Life also aired
the television productions 'Lost Civilizations,' a ten-hour television
documentary series and 'The History of Rock 'n' Roll,' co-produced with TWE's
Telepictures Productions.
Time Life Books products are manufactured by several independent companies.
Manufacturing contracts are entered into on a series rather than a single title
basis and are fixed-price with provisions for cost of labor, material and
specification adjustments. These contracts, subject to certain limitations, may
be terminated by Time Life or the manufacturer. Time Life's fulfillment
activities, excluding international operations, are conducted from a centralized
facility in Richmond, Virginia.
BOOK-OF-THE-MONTH CLUB
Book-of-the-Month Club currently operates eight book clubs and two
continuity businesses with a combined membership of more than 3.5 million
members. Two of the clubs, Book-of-the-Month Club and Quality Paperback Book
Club, are general interest clubs, and the remaining clubs specialize in history,
cooking and crafts, business, children's books and the books of a particular
author. In addition, multimedia, audio and video products are offered through
the clubs. Book-of-the-Month Club's international businesses operate in over 50
countries worldwide. In December 1995, Book-of-the-Month Club acquired Meredith
Book Clubs, adding approximately 500,000 members to its book clubs. This
acquisition will significantly expand its presence in the women's lifestyle
franchise. In June 1995, the ONE SPIRIT book club was launched, targeting the
growing consumer interest in spiritual, self-help and health topics.
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Book-of-the-Month Club acquires the rights from publishers to manufacture
and distribute books and then has them printed by independent printing concerns.
Book-of-the-Month Club runs its own fulfillment and warehousing operations in
Mechanicsburg, Pennsylvania.
WARNER BOOKS
Warner Books primarily publishes hardcover, mass market and trade paperback
books. Among its best selling hardcover books in 1995 were Robert James Waller's
'The Bridges of Madison County,' which benefited from the success of the Warner
Bros. movie, and James Redfield's 'The Celestine Prophecy.' Best selling mass
market paperbacks in 1995 included 'Charade' by Sandra Brown, 'The Day After
Tomorrow' by Allan Folsom, 'Kiss the Girls' by James Patterson, 'Nothing Lasts
Forever' by Sidney Sheldon and 'Spencerville' by Nelson DeMille. Trade paperback
bestsellers included James Redfield's 'The Celestine Prophecy: An Experiential
Guide.'
Time Warner AudioBooks develops and markets audio versions of books and
other materials published by both Warner Books and Little, Brown. In addition,
through a joint venture with Little, Brown, Warner Books operates Time Warner
Electronic Publishing, which is engaged in on-line and multimedia publishing.
LITTLE, BROWN
Little, Brown publishes general and children's trade books, legal and
medical reference books and textbooks and journals. Through its subsidiary,
Little, Brown and Company (U.K.) Ltd., it also publishes general hardcover and
mass market paperback books in the United Kingdom. Among the trade hardcover
books published by Little, Brown in 1995 were: 'I Want to Tell You' by O.J.
Simpson, 'A Good Walk Spoiled' by John Feinstein, 'Garcia' by Rolling Stone
Magazine and 'Hide and Seek' by James Patterson.
Little, Brown handles book distribution for itself, Warner Books and Sunset
Books, as well as other publishers. The marketing of trade books is primarily to
retail stores and wholesalers throughout the United States, Canada and the
United Kingdom. Law and medical textbooks are sold primarily to university
retail stores. Professional reference books are sold to practitioners primarily
through direct marketing efforts. Through their combined United States and
United Kingdom operations, Little, Brown and Warner Books have the ability to
acquire English-language publishing rights for the distribution of hard and
softcover books throughout the world.
OXMOOR HOUSE AND LEISURE ARTS
Oxmoor House, the book publishing division of Southern Progress, markets
how-to books on a wide variety of topics including food and crafts, as well as
illustrated volumes on art and other subjects. Acquired in 1992 and integrated
into Oxmoor House, Leisure Arts is a well-established publisher and distributor
of instructional leaflets, continuity books series and magazines for the
needlework and crafts market.
SUNSET BOOKS
Sunset Books, the book publishing division of Sunset Publishing, markets
books on topics such as building and decorating, cooking, gardening and
landscaping, and travel. Sunset Books' unique marketing formula includes an
extensive distribution network of home repair and garden centers.
OTHER PUBLISHING OPERATIONS
MULTIMEDIA AND TELEVISION
Time Inc. continues to develop products for emerging technologies such as
on-line computer networks, the Full Service Network'tm', and the CD-ROM market.
In 1995, Time Inc. New Media, a company dedicated to the development and
enhancement of on-line services, launched two new startup products in addition
to its successful launch of Pathfinder in 1994. These launches were LineRunner,
a partnership with Time Warner
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Cable, to distribute internet content, local content and Pathfinder via high
speed cable modems, and TNX, the world's first and only switched broadband
interactive TV news service, which is distributed on Time Warner Cable's Full
Service Network. Time Inc. has also licensed its editorial content to various
other commercial on-line information services, and has produced CD-ROM products
internally, as well as through licensing arrangements with third party CD-ROM
developers.
Time Inc. has undertaken development efforts in various television
ventures, both in combination with other Company divisions and independently.
Sports Illustrated Productions Inc. completed its second year of television
production in 1995, producing two prime-time specials, weekly segments on Wide
World of Sports and two home video titles. The 'Martha Stewart Living'
television program, based on the popular magazine, entered its third season in
September and aired a one hour special 'Martha Stewart's Home For The Holidays'
in December 1995. PEOPLE magazine took a retrospective look at the people and
events of 1995 in a prime time broadcast aired in December 1995, and HEALTH
magazine presented 'Your Mind and Body,' a weekly television show focusing on
health, fitness and beauty which began airing in September 1995. TPV has
arrangements to syndicate episodes of the 'This Old House' television program
after such programs have run on public television and produce books based on
this popular series.
TIME INC. IN-STORE MARKETING
Time Inc. In-Store Marketing, an umbrella organization which is a
subsidiary of TIV, operates all of Time Inc.'s in-store advertising and
demonstration businesses, including Media Holdings, Inc. ('Media One') and
SmartDemo Inc. ('SmartDemo'). Media One's primary product is a two-sided backlit
advertising display unit that is installed in supermarket checkout lanes.
SmartDemo is an in-store demonstration, couponing, sampling and merchandising
business.
AMERICAN EXPRESS PUBLISHING
Time Inc., through its TIV subsidiary, has management responsibility for
most of American Express Publishing Corporation's operations, including its core
lifestyle magazines, TRAVEL & LEISURE and FOOD & WINE. TIV receives a fee for
managing these properties, as well as incentives for improving profitability.
AMERICAN FAMILY PUBLISHERS
Time Inc. is a 50% partner in American Family Publishers ('AFP'), a direct
mail magazine subscription sales agency. AFP sells magazine subscriptions for
approximately 200 major magazines in the United States, including many of the
Company's publications. AFP sells primarily through two heavily-promoted
nationwide sweepstakes mailings conducted each year.
TIME DISTRIBUTION SERVICES
Time Distribution Services ('TDS') is a national distribution company
responsible for the retail sales, distribution, marketing and merchandising of
single copies of periodicals for Time Inc. and other publishers. TDS distributes
periodicals through a magazine wholesaler network which services retail outlets
such as newsstands, supermarkets, convenience and drug stores.
WARNER PUBLISHER SERVICES
Warner Publisher Services ('WPS') is a major distributor of magazines and
paperback books sold through wholesalers in the United States and Canada, and
internationally. WPS is the sole national distributor for MAD magazine, the
publications of DC Comics and certain publications owned by other publishers,
including TEEN, VOGUE, WOMAN'S DAY, and the Dell Puzzle Books. WPS also
distributes the paperback books published by Warner Books as well as the
paperback lines of other publishers.
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POSTAL RATES
Postal costs represent a significant operating expense for the Company's
publishing activities. An increase of approximately 10% for first class and 14%
for second, third and fourth classes was implemented in January 1995, which
significantly increased Time Inc.'s postal costs. However, a recently issued
decision by The Postal Rate Commission has been accepted by the Postal Service
and will result in a reduction of Time Inc.'s current postage rates in July
1996. The new rates reflect an increased incentive for mailer worksharing
efforts that reduce costs to the Postal Service.
Publishing operations continue to minimize postal expense through the use
of certain cost-saving measures, including the utilization of contract carriers
to transport books and magazines to central postal centers. It has been the
Company's practice in selling books and other products by mail to include a
charge for postage and handling, which is adjusted from time to time to
partially offset any increased postage or handling costs.
COMPETITION
The Company's magazine operations compete for sales with numerous other
publishers and retailers, as well as other media. The general circulation
magazine industry is highly competitive both within itself and with other
advertising media which compete with the Company's magazines for audience and
advertising revenue.
The Company's book publishing operations compete for sales with numerous
other publishers and retailers as well as other media. In addition, the
acquisition of publication rights to important book titles is highly
competitive, and Warner Books and Little, Brown compete with numerous other book
publishers. WPS and TDS meet with direct competition from other distributors
operating throughout the United States and Canada in the distribution of
magazines and paperback books.
ENTERTAINMENT
The Company's Entertainment business is conducted through wholly or
partially owned subsidiaries and through TWE. The Company's wholly owned
worldwide recorded music and music publishing businesses are conducted under the
umbrella name Warner Music Group ('WMG'). Substantially all of the Company's
interests in filmed entertainment, broadcasting, theme parks, cable television
programming and most of its cable television systems are held through TWE.
MUSIC
GENERAL
The Company's domestic recorded music business is conducted principally
through WMG and its constituent companies, Warner Bros. Records, Inc. ('WBR'),
Atlantic Recording Corporation ('Atlantic'), Elektra Entertainment Group
('Elektra') and their affiliated labels, and through WEA Inc. ('WEA Inc.') and
its constituent companies, Warner-Elektra-Atlantic Corporation ('WEA'), WEA
Manufacturing Inc. ('WEA Mfg.') and Ivy Hill Corporation ('Ivy Hill'). Outside
of the United States, the Company's recorded music business is conducted in more
than 70 countries through WEA International Inc. and a division of WCI, Warner
Music International, and their subsidiaries and affiliates (collectively,
'WMI'), as well as through non-affiliated licensees.
The Company's music publishing business is conducted principally through
wholly owned subsidiaries of WCI (collectively, 'Warner/Chappell').
In 1995, more than 57% of WMG's recorded music revenues were derived from
sources outside of the United States.
In 1995, WMG closed Warner Music Enterprises Inc., one of the Company's
direct marketing businesses, and completed the transaction pursuant to which it
sold its 50% interest in the Interscope Records partnership.
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RECORDED MUSIC AND RELATED ACTIVITIES
WBR, Atlantic, Elektra and WMI produce, sell and license compact discs,
cassette tapes and music videos of the performances of recording artists under
contract to them or for whose recordings they have acquired rights. WMG's
recorded music and video product is marketed under various labels, including the
proprietary labels 'Warner Bros.,' 'Reprise,' 'Tommy Boy,' 'Warner Nashville,'
'Elektra,' 'Sire,' 'Asylum,' 'Atlantic,' 'EastWest America,' 'Big Beat,'
'Atlantic Nashville,' 'WEA,' 'Nonesuch,' 'EastWest,' 'Teldec,' 'CGD,' 'Carrere,'
'Erato,' 'MMG,' 'DRO,' 'Telegram,' 'D-Day,' 'Muser' and 'Fazer.'
In addition, WMG has entered into joint venture agreements pursuant to
which WMG companies manufacture, distribute and market (both domestically and,
in most cases, internationally) recordings owned by such joint ventures. The
terms of such agreements vary widely, but each agreement typically provides the
WMG record company with an equity interest and a profit participation in the
venture, with financing furnished either solely by WMG or by both parties.
Included among these arrangements are the labels 'American Recordings,' 'Giant,'
'Mammoth,' 'Maverick,' 'Qwest' and 'Rhino.'
WMG's record companies also acquire rights pursuant to agreements to
manufacture and distribute certain recordings that are marketed under the
owner's proprietary label. Included among the labels distributed by WMG under
such arrangements are 'Curb' and 'Scotti Brothers.'
Recording artists are engaged under arrangements that generally provide
that the artist is to receive a percentage of the suggested retail selling price
of compact discs, cassette tapes and music videos sold. Most artists receive
non-returnable advance payments against future royalties.
Among the artists whose albums resulted in significant sales for WMG's
record companies during 1995 were: AC/DC, Bush, Enya, Jeff Foxworthy, Green Day,
Hootie & The Blowfish, Madonna, Alanis Morissette, John Michael Montgomery,
Natalie Merchant, Red Hot Chili Peppers, Simply Red, Van Halen and Tatsuro
Yamashita. In 1996, WMG's record companies have released or expect to release
albums by the following artists: Tori Amos, Brandy, Jackson Browne, Tevin
Campbell, Jose Carreras, Collective Soul, Phil Collins, The Cure, Hootie & The
Blowfish, Aaron Kwok, Madonna, Noriyuri Makihara, Metallica, Luis Miguel,
Pantera, Laura Pausini, R.E.M., Linda Ronstadt, Rush, Keith Sweat, Seal, Stone
Temple Pilots, Travis Tritt, Van Halen and Westernhagen.
WMG's domestic manufacturing, packaging and distribution operations are
conducted through WEA Inc. and its constituent companies.
WEA Mfg. is engaged in the domestic manufacturing of audio and CD-ROM
compact discs, cassette tapes and videocassettes. WEA Mfg. conducts its
operations from facilities situated in Olyphant, Pennsylvania and in the greater
Los Angeles area. WEA Mfg. participated in the development of 'DVD,' the new
digital configuration developed by the Company and Toshiba, and expects to be
manufacturing DVDs in 1996. For additional information regarding DVDs, see
'Filmed Entertainment Division -- Home Video.'
Ivy Hill is engaged in the offset lithography and packaging business
through facilities situated in four states. Ivy Hill is a major supplier of
packaging to the recorded music industry (including WMG's record companies) and
also supplies packaging for a wide variety of other consumer products.
WMG's recorded music product is marketed and distributed in the continental
United States by WEA, which supplies, directly or indirectly through
sub-distributors and wholesalers, thousands of record stores, department stores,
discount centers and other retail outlets across the country. Alternative
Distribution Alliance, a distribution company specializing in alternative rock
music, with a focus on new artists, operates as a joint venture among WMG, its
labels, Restless Records and Sub Pop.
Warner Special Products Inc. produces, primarily for telemarketers,
compilations of music for which it has obtained rights from WMG's recorded music
companies, as well as from third parties.
In foreign markets, WMI produces, distributes, promotes and sells
recordings of local artists and, in most cases, distributes the recordings of
those artists for whom WMG's domestic recording companies have international
rights. In certain countries, WMI licenses to non-affiliated parties rights to
distribute recordings of WMG's labels. WMI strengthened its operations during
1995, establishing new affiliates in the Czech Republic
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and in Poland and forming a new WEA division in Brazil. WMI also operates two
plants in Germany that manufacture compact discs, cassette tapes and vinyl
records for WMI's European affiliates and licensees and for WMI companies
outside Europe, as well as for unrelated parties.
Through joint ventures, WMG and Sony Music Entertainment Inc. ('Sony
Music') operate The Columbia House Company, the leading direct marketer of
compact discs, cassette tapes and videocassettes in the United States and
Canada.
In March 1995, WMG entered into a joint venture with PolyGram International
Ltd. ('PolyGram') and Sony Music to market recorded music and videocassettes in
Europe through music clubs and video clubs.
WMG, with other partners, including another subsidiary of the Company, has
an equity interest in Music Choice, an audio programming service that delivers
multiple channels of CD-quality stereo music via cable television. In Europe,
where the service is known as Music Choice Europe, it is delivered via cable
television and direct-to-home satellite.
WMG, with other partners, has an equity interest in VIVA, a 24-hour German
language music video channel carried on cable television in Germany. WMG,
pursuant to separate joint ventures, has equity interests in two other music
video channels: Channel [V] in Asia and YA TV in Latin America.
WMG's computer-entertainment and video-game businesses -- including
investments in Inscape and Accolade in the United States and wholly owned
operations in Europe -- are operating in 1996 as part of a new company, Warner
Interactive.
MUSIC PUBLISHING
Time Warner's music publishing companies own or control the rights to over
one million standard and contemporary compositions, including numerous popular
hits, folk songs and music from the stage and motion pictures. Certain works of
the following artists, authors and composers are included in Warner/Chappell's
catalogues: John Bettis, Michael Bolton, The Black Crowes, Phil Collins, Comden
& Green, Dubin & Warren, Genesis, George and Ira Gershwin, Gin Blossoms, Victor
Herbert, Michael Jackson, Elton John, Leiber & Stoller, Lerner & Lowe, Madonna,
Henry Mancini, Johnny Mercer, George Michael, Midnight Oil, Cole Porter, the
artist formerly known as Prince, R.E.M., Rodgers & Hart, Soul Asylum, Jule
Styne, Bernie Taupin, Van Halen, John Williams and the foreign administration of
the works of Irving Berlin.
Warner/Chappell also administers the film music of several television and
motion picture companies, including Lucasfilm, Ltd., Samuel Goldwyn Productions,
Aaron Spelling Productions and New World.
Warner/Chappell's printed music division markets publications throughout
the world containing the works of Alabama, Phil Collins, The Eagles, The
Grateful Dead, Michael Jackson, Led Zeppelin, Madonna, the artist formerly known
as Prince, Rush, Bob Seger and many others. Warner/Chappell also owns
CPP/Belwin, Inc., one of the world's largest publishers of printed music.
Principal sources of revenues to Warner/Chappell are license fees for use
of its music copyrights on radio and television, in motion pictures and in other
public performances; royalties for use of its music copyrights on compact discs,
cassette tapes, vinyl records, music videos and in commercials; and sales of
published sheet music and song books for the home musician as well as the
professional and school markets, including methods for teaching musical
instruments.
LEGISLATION
With the enactment of P.L. 104-39 in late 1995, sound recording copyright
owners and performers are now, for the first time in the United States, able to
license and receive royalties for the public performance of digitized sound
recordings distributed through subscription music and interactive services. This
law was enacted in response to the advent of digital technology in broadcast,
cable and other means of distribution. Digitization creates the potential for
virtually flawless reception and copying, and the consequent displacement of the
sale of pre-recorded music product. Passage of this legislation favorably
impacts WMG's interests.
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In addition, bills introduced in Congress last year to extend the term of
ownership of copyrights for an additional 20 years (H.R. 989, S. 483) are still
pending. Passage of these bills would benefit all of the Company's copyright
businesses, including the businesses of WMG, but no assurance can be given that
they will become law.
COMPETITION
The recorded music business is highly competitive. The revenues and income
of a company in the recording industry depend upon the public acceptance of the
company's recording artists and the recordings released in a particular year.
Although WMG is one of the largest recorded music companies in the world, its
competitive position is dependent upon its continuing ability to attract and
develop talent that can achieve a high degree of public acceptance.
Overexpansion of retail outlets for music over the past several years led to the
closing of many such stores during 1995, which is expected to further increase
competition among recorded music companies for sales of music related product.
Competition also intensified during 1995 as a result of the start-up of a number
of new labels. The recorded music business continues to be adversely affected by
counterfeiting, piracy, parallel imports and, in particular, the home taping of
recorded music. In addition, the recorded music business also meets with
competition from other forms of entertainment, such as television, pre-recorded
videocassettes and video games. Competition in the music publishing business is
intense. Although WMG's music publishing business is the largest on a worldwide
basis, it competes with every other music publishing company in acquiring
musical compositions and in having them recorded and performed.
FILMED ENTERTAINMENT
GENERAL
The Company's principal interest in the filmed entertainment business is
conducted by Warner Bros. ('WB'), a division of TWE. The filmed entertainment
business includes the production, financing and distribution of feature motion
pictures, television series, made-for-television movies, mini-series for
television, first-run syndication programming and animated programming for
theatrical and television exhibition; the ownership and operation of a national
broadcast network, The WB; and the distribution of pre-recorded videocassettes
and videodiscs. WB also is engaged in product licensing and the ownership and
operation of retail stores, movie theaters, theme parks (including the
management of TWE's interest in Six Flags theme parks), a new international
cable channel and a new on-line service.
Feature motion pictures and television programs are produced at various
locations throughout the world, including The Warner Bros. Studio in Burbank,
California and The Warner Hollywood Studio in West Hollywood, California. For
additional information, see Item 2 'Properties.'
FEATURE FILMS
WB produces feature films either solely or under arrangements with other
producers, and is generally the principal source of financing for such films. In
addition, WB purchases outright, or licenses for distribution, completed films
produced by others. Acquired distribution rights may be limited to specified
territories, specified media and/or particular periods of time. The terms of
WB's agreements with independent motion picture producers and other entities
result from negotiations and vary depending upon the production, the amount and
type of financing by WB, the media covered, the territories covered, the period
of distribution and other factors. In some cases, producers, directors, actors,
writers and others participate in the proceeds generated by the motion pictures
in which they are involved.
WB operates a worldwide theatrical distribution organization through which
it distributes its own films, as well as films produced by others. During 1995,
50% of film rentals from WB theatrical distribution were generated in the United
States and Canada and 50% in international territories.
Feature films are licensed to exhibitors under contracts that provide for
the length of the engagement, rental fees, which may be either a percentage of
box office receipts, with or without a guarantee of a fixed minimum,
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or a flat sum, and other relevant terms. The number of feature films that a
particular theater exhibits depends upon its policy of program changes, the
competitive conditions in its area and the quality and appeal of the feature
films available to it. WB competes with all other distributors for playing time
in theaters.
WB has entered into distribution servicing agreements with Morgan Creek
Productions Inc. and its affiliates ('Morgan Creek'), pursuant to which, among
other things, WB provides domestic distribution services for all Morgan Creek
pictures through June 1998, and certain foreign distribution services for
selected pictures. In 1995, WB released 'Ace Ventura II: When Nature Calls,'
starring Jim Carrey, under this arrangement. Among the releases anticipated for
1996 is 'Diabolique,' starring Sharon Stone.
An affiliate of WB is a party to long-term distribution agreements with
Monarchy Enterprises C.V. and its affiliate, Regency Entertainment U.S.A.
(collectively 'Monarchy/Regency'), as well as with Le Studio Canal Plus and
Alcor Film for the distribution of major motion pictures involving an expected
total production outlay in excess of $200 million. Arnon Milchan produces the
pictures for Monarchy/Regency with funding provided primarily by
Monarchy/Regency. The WB affiliate makes a distribution advance (which it has
the right to recoup, together with its distribution fee) equal to a portion of
the production budget of each film, and it also advances all necessary marketing
and distribution costs for the films. WB has acquired all distribution rights in
the United States and Canada, and substantially all international theatrical and
home video rights to these motion pictures. In 1995, WB released 'Copycat,'
starring Sigourney Weaver and Holly Hunter, under this arrangement. Among the
releases anticipated for 1996 is 'Bogus,' starring Whoopi Goldberg and directed
by Norman Jewison. It is anticipated that four or five pictures per year will be
produced during the approximately five-year production term of the agreements.
During 1995, David Geffen and TWE agreed to wind-up the operations of
Geffen Pictures, a joint venture of TWE and The David Geffen Company. The final
two pictures produced by Geffen Pictures, 'Michael Collins,' starring Liam
Neeson and Julia Roberts, and 'Joe's Apartment,' will be released by WB in 1996.
WB has selected certain of Geffen Pictures' projects for continued development
by WB with David Geffen as producer.
During 1995, WB released 26 motion pictures for theatrical exhibition, of
which 12 were produced by others. Among these 26 motion pictures, the following
have produced substantial gross receipts: 'Batman Forever,' 'Outbreak,' 'The
Bridges of Madison County,' 'Ace Ventura II: When Nature Calls' and 'Under Seige
II: Dark Territory.' Significant revenues were also generated in 1995 by
pictures originally released in 1994, including 'Disclosure' and 'Interview with
the Vampire.'
During 1996, WB currently expects to release domestically 24 motion
pictures, of which nine will be produced by others. In addition to those
previously mentioned, such motion pictures include: 'Eraser,' starring Arnold
Schwarzenegger, 'Mars Attacks,' directed by Tim Burton, 'Space Jam,' starring
Michael Jordan, 'A Time to Kill,' starring Sandra Bullock and Samuel L. Jackson,
'Tin Cup,' starring Kevin Costner, 'The Glimmer Man,' starring Steven Seagal and
Keenan Ivory Wayans, 'Sleepers,' directed by Barry Levinson and starring Brad
Pitt, Robert DeNiro and Dustin Hoffman, 'Rosewood,' directed by John Singleton,
'My Fellow Americans,' starring Jack Lemmon and James Garner and 'Twister,' a
co-production with MCA.
Warner Bros. Feature Animation operates two animation studios, one in
Glendale, California, and the other in London, England, and plans to produce its
first fully animated feature film for release in November 1997. Additionally,
the division is providing animation services on 'Space Jam,' a combination live
action/animated film scheduled for release in November 1996. The division has
numerous projects in development for production and release in subsequent years.
Warner Digital Studios is a recently formed division that oversees the
creation and control of Warner Bros.' digital visual effects, which effects are
an integral part of the production of feature films.
TELEVISION
WB, through its television production and distribution divisions and
various contractual arrangements, is the leading supplier of television
programming in the world. These WB divisions and suppliers produce and
distribute filmed entertainment for television (including comedy and drama
series, animation shows,
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made-for-television movies, mini-series and first-run syndication programming)
for initial exhibition on networks, local stations or cable systems. They
include the wholly owned Warner Bros. Television Productions ('Warner Bros.
Television'), Telepictures Productions ('Telepictures'), Warner Bros. Television
Animation, Warner Bros. Domestic Television Distribution ('WBDTD'), Telepictures
Distribution, Warner Bros. International Television Distribution ('WBITD') and
Warner Bros. International Channels divisions, the joint ventures Time
Telepictures Television and Quincy Jones/David Salzman Entertainment Company,
and contractual arrangements with the Prime Time Entertainment Network ('PTEN')
and Witt-Thomas-Harris Productions ('Witt-Thomas').
WB Television series for the 1995-96 broadcast season include: the
highly-rated 'ER' and 'Friends' (each in its second season), 'Murphy Brown' (in
its eighth season), 'Family Matters' (in its seventh season), 'Sisters' (in its
sixth season), 'Step by Step' (in its fifth season), 'Hangin' with Mr. Cooper'
(in its fourth season), 'Kung Fu: The Legend Continues' (in its fourth season),
'Living Single' and 'Lois & Clark: The New Adventures of Superman' (each in its
third season), 'Hope & Gloria,' 'The Parent 'Hood' and 'The Wayans Bros.' (each
in its second season) and 'The Drew Carey Show,' 'John Grisham's The Client,'
'Kirk,' 'High Society' and 'Too Something' (each in its first season). During
1996, Warner Bros. Television will also present numerous movies and mini-series
including, 'Stephen King's The Shining' (a 6-hour mini-series) and 'The Thorn
Birds: The Missing Years,' from the Wolper Organization.
Telepictures specializes in reality and reality-based series and specials
for the first-run syndication market. For the 1995-96 television season,
Telepictures returned the nationally syndicated 'Jenny Jones' for a fifth season
and, on June 10, 1996, will launch a talk/variety series hosted by
actress/comedian Rosie O'Donnell. Through a joint venture, Time Telepictures
Television produced the second season of the six-day-a-week pop culture news
magazine 'EXTRA.'
Warner Bros. Television Animation is responsible for the creation,
development and production of contemporary animation as well as for the creative
use and production of WB's classic animation properties for all television media
worldwide. Warner Bros. Television Animation currently supplies animated
programming to the Fox Children's Network, ABC Television Network, Nickelodeon,
as well as providing five series to The WB's new children's programming service,
Kids' WB!, which debuted in September 1995. Commencing in September 1996, Warner
Bros. Television Animation will supply eight series to Kids' WB!.
PTEN, a consortium of leading television stations, offers primetime
first-run programs that are exclusively supplied by WBDTD. The 1995-96 season of
PTEN includes the fourth season of 'Kung Fu: The Legend Continues' and the third
season of 'Babylon 5.'
WB and Witt-Thomas have an exclusive, long-term feature film and television
production and distribution agreement. The agreement provides for Witt-Thomas to
exclusively create, develop and produce all forms of television for all media.
For the 1995-96 season, the team produced the third season of 'The John
Larroquette Show' and three new comedies 'Minor Adjustments,' 'Local Heroes' and
'My Guys' (the latter two for mid-season debuts).
WBDTD is one of the industry's leading domestic distributors of television
programming. The division has over 3,800 hours in active domestic syndication; a
substantial portion of this programming is produced by WB's television divisions
and ventures. The primary focus of WBDTD is to launch and support major
off-network series and high profile first-run syndication strips.
Telepictures Distribution was created in June 1995 as a television
syndication operation that distributes original, general interest programs for
the first-run syndication market, as well as the second licensing cycle of
selected off-network product from WBDTD's library.
WBITD is responsible for expanding WB's global presence in television,
handling the full breadth of distribution services to the international
television marketplace, establishing and managing strategic global alliances
that include co-producing and distributing programs that qualify for European
Community (EC) content. WBITD is the world's largest distributor of television
programming. It licenses more than 25,000 hours of television programming and
feature films, dubbed or subtitled in more than 40 languages, to telecasters in
more than 175 countries. The division handles the distribution to the
international television marketplace
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(including, broadcast, pay cable, basic cable, satellite, pay-per-view,
video-on-demand and digital platforms) of all of the product produced by the WB
television divisions and ventures and WB feature films, among others.
Warner Bros. International Channels oversees the programming, development
and operation of branded satellite-delivered cable programming services in both
mature and emerging broadcast markets throughout the world. The first, WBTV-The
Warner Channel, debuted on September 30, 1995 in Latin America and the Caribbean
Basin to more than 800,000 subscribers, with Brazil added in early 1996. The
24-hour-a-day, family-oriented service is a joint venture of WB and HBO Ole
Partners, and utilizes the cable distribution expertise and facilities of HBO
Ole. In alliance with Home Box Office and other major motion picture studios, WB
participates as a partner in five other 24-hour pay television services: HBO
Asia, HBO Brasil, HBO Ole, Sony Entertainment Television and the music channel,
YA TV.
WB's backlog, representing the amount of future revenue not yet recorded
from cash contracts for the licensing of theatrical and television product for
pay cable, network, basic cable and syndicated television exhibition, amounted
to $1.056 billion at December 31, 1995 compared to $852 million at December 31,
1994 (including amounts relating to Programming-HBO of $175 million at each
date). The backlog excludes advertising barter contracts.
THE WB TELEVISION NETWORK
The WB Television Network completed its first full year of broadcast
operations in January 1996. Combining the WB's current broadcast affiliate
line-up of 95 stations with the reach of Tribune Broadcasting Company's ('TBC')
WGN Superstation, The WB's national coverage is more than 80% of all United
States television households. In addition to a Wednesday night primetime line-up
that includes four half-hour comedies: 'Sister, Sister,' 'The Parent 'Hood,'
'The Wayans Bros.' and 'Unhappily Ever After,' The WB launched a three hour
Sunday night slate of prime time programming in September 1995 that currently
includes four half-hour comedies: 'Steven Spielberg Presents Pinky & the Brain,'
'Simon,' 'Sister, Sister,' 'Kirk' and a one hour drama entitled 'Savannah.' A
third night of prime time programming is scheduled to be added in September
1996, and it is currently planned that an additional night of programming will
be added each year thereafter. The WB prime time program philosophy is to
deliver family-oriented programming that appeals to the greatest number of
household viewers.
Kids' WB! children's programming premiered in September 1995 with six half
hours on Saturday morning and two half-hour weekday strips. The Saturday morning
program block includes 'Freakazoid,' a new animated series from Steven
Spielberg, and new episodes of 'Steven Spielberg Presents Animaniacs' and
'Steven Spielberg Presents Pinky & the Brain.' In addition, the morning block
includes new episodes of 'Sylvester & Tweety Mysteries' and 'Earthworm Jim.' On
weekdays, Kids' WB! continues to offer Warner Bros. classic animation as well as
previously produced episodes of 'Animaniacs.' In September 1996, an additional
hour of animated programming will be added to the weekend line-up. Included in
this new hour of programming is a new version of 'Superman,' currently in
production with Warner Bros. Television Animation.
In August 1995, TBC exercised an option to obtain an ownership interest in
The WB. TBC now owns 11.125% of The WB and has options that are exercisable over
the next several years and that could increase TBC's ownership to 22.25% of the
network. Key employees of The WB hold an 11% interest in the network.
HOME VIDEO
Through its Warner Home Video division ('WHV'), WB distributes for home
video use pre-recorded videocassettes and laser optical videodiscs containing
the filmed entertainment product of WB. In addition, WHV distributes (or
services the distribution of) the entertainment product of other companies from
which it has acquired home video distribution or servicing rights. Such
companies include Metro Goldwyn Mayer/United Artists, TBS, Regency Pictures and
Morgan Creek Productions (in the United States and in selected international
markets). In 1996, WHV began distributing the entertainment product of
WarnerVision, a WMG company that specializes in children's and fitness videos.
During 1995, WHV released seven titles into the North American rental
market whose sales exceeded 300,000 units each: 'Disclosure,' 'Interview with
the Vampire,' 'Outbreak,' 'The Specialist,' 'Species,' 'Just
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Cause' and 'Natural Born Killers.' Internationally, the following titles
generated substantial home video revenue in 1995: 'Interview with the Vampire,'
'Maverick,' 'Disclosure,' 'The Specialist,' 'The Client' and 'Outbreak.'
Additionally, the Warner Bros. Family Entertainment label was enhanced through
the affordably-priced North American video releases of 'Free Willy 2: The
Adventure Home,' 'Richie Rich,' 'Little Giants,' 'A Little Princess,' 'Born to
be Wild' and 'A Troll in Central Park,' which generated combined videocassette
sales in excess of 17 million units. Also, WHV released 'Batman Forever,' and,
under the MGM/UA family entertainment label, 'Pebble and the Penguin' at
affordable prices, generating combined sales of over 10 million units. Based on
this experience, WHV will continue the video release of certain 'blockbuster'
theatrical releases and family entertainment programming on a direct to
sell-through basis.
WHV sells its product in the United States and in major international
territories through its own sales force, with warehousing and fulfillment
handled by divisions of WMG and third parties. In some international markets,
WHV's product is distributed through licensees. All product is manufactured
under contract with independent duplicators and replicators.
In December 1995, a consortium of nine major consumer electronics
manufacturers, including Sony Corp. and Philips Electronics NV, who had
previously announced that they were developing a similar product based on a
separate competing format, announced agreement on a unified standard for a high
density digital optical technology that is capable of storing large volumes of
digitized information -- enough storage capacity for two full-length feature
films on a double-sided 0.6mm bonded disc. The unified standard has been named
the 'digital versatile disc' or 'DVD'. Certain members of the consortium,
including Toshiba, have announced their intention to introduce in late summer of
1996 a new generation of digital video disc players utilizing DVD for home
viewing by consumers of motion pictures. The DVD technology offers picture
quality significantly superior to existing technology, as well as premium
features such as multiple language soundtracks. If the new DVD delivery medium
is adopted by consumers, and there can be no assurance at this time that it will
be, WHV anticipates being able to benefit by releasing first-run feature motion
pictures in the new format, as well as re-releasing the extensive WHV catalogue
of feature motion pictures.
CONSUMER PRODUCTS
Warner Bros. Consumer Products, another division of WB, through its
licensing division ('WBCP Licensing'), acts as an agent for owners of copyrights
and trademarks in the consumer products marketplace. WBCP Licensing licenses
rights to names, photographs, likenesses, logos and similar representations or
endorsements with respect to the theatrical motion pictures and television
series produced or distributed by WB, including those featuring the cartoon
characters owned by DC Comics. WBCP Licensing operates in both domestic and
international markets, and meets with active competition in all phases of its
activities. In 1995, WBCP Licensing continued its major licensing programs for
'Looney Tunes,' Steven Spielberg's 'Tiny Toon Adventures,' 'Animaniacs' and the
animated television series 'Adventures of Batman and Robin.' In addition, WBCP
Licensing conducted a major licensing program for the new theatrical motion
picture 'Batman Forever,' and began a licensing program for the 1996 theatrical
license of the motion picture 'Space Jam.'
WARNER BROS. INTERACTIVE ENTERTAINMENT
Warner Bros. Interactive Entertainment ('WBIE') is a new division that
licenses, develops and produces interactive entertainment and educational
programming based on WB-owned or controlled properties. During 1995, WBIE
entered into a number of licensing agreements for interactive entertainment
products (e.g., video games, pinball games and handheld games), and initiated a
major interactive game licensing program for 'Space Jam.' WBIE has also formed
an alliance with Acclaim Entertainment, Inc. to jointly publish interactive
entertainment software based on three WB feature films, including 'Space Jam.'
WARNER BROS. STUDIO STORES
In 1995, the retail division of Warner Bros. Consumer Products ('WBCP
Retail') continued its expansion with the opening of 22 additional outlets in
the United States. By the end of 1995, WBCP Retail had opened a total of 133
Warner Bros. Studio Stores, 122 of which are located in select shopping
locations throughout the
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United States, 10 of which are located in the United Kingdom and one of which is
located in Germany. In 1996, WBCP Retail plans to open 10-15 additional stores
in the United States. Two franchised Warner Bros. Studio Stores were opened in
each of Hong Kong and Singapore during 1995. During 1996, WBCP Retail currently
plans to open two franchised stores in Hong Kong, three franchised stores in
Japan and two franchised stores in Australia. Additional agreements to franchise
Warner Bros. Studio Stores throughout countries in the Asia Pacific and European
regions are scheduled to be completed during 1996.
WARNER BROS. ONLINE
Warner Bros. Online ('WBOL'), a new division created in 1995, produces
informational, promotional and entertainment programming for online services and
sites accessible through the World Wide Web on the Internet. In January 1996,
WBOL began providing a new multiplex entertainment center on the World Wide Web,
which includes a wide variety of original, made-for-online entertainment
activities for children and adults. The site offers entertainment and
information based on popular Warner Bros. movies and television shows, WMG
recording artists and Warner Bros. cartoon and DC Comics characters. WBOL, in
consultation with WBCP Retail, has created and launched the Warner Bros. Studio
Store site on the World Wide Web. Internet shoppers visiting this site can
select and purchase Warner Bros. and DC Comics products by placing orders while
online. WBOL is continuing its affiliation with America Online to provide a wide
range of programming, including original online content specifically designed
for America Online.
THEATERS
Through its Warner Bros. International Theatres division, WB operates 45
multiplex cinema complexes with 363 screens in seven foreign countries. WB
operates 12 theaters in the United Kingdom, two in Germany and, through joint
ventures, 18 theaters in Australia, two in Denmark, three in Portugal, one in
Spain and seven in Japan. Directly and through joint ventures, WB plans to open
18 new multiplex cinemas in 1996: five in the United Kingdom, five in Australia,
two in Italy, two in Germany, three in Japan and one in Spain.
WARNER BROS. THEME PARKS
WB, through joint ventures with certain Australian entities (including one
which is 34.25% owned by WB), owns and operates Sea World of Australia and a
400-acre movie studio and movie-related theme park named 'Warner Bros. Movie
World' as well as a water park complex, all near Brisbane, Australia. In
addition, WB and a German partner are completing construction of a new regional
theme park and studio complex in the Rhine/Ruhr area of Germany, which is
scheduled to open in the summer of 1996. The park and studio complex is modeled
after Warner Bros. Movie World in Australia. WB has also recently announced a
joint venture with MAI plc. ('MAI'), a United Kingdom media company, to study
the feasibility of the development and construction of a theme park and studio
complex near London.
SIX FLAGS THEME PARKS
In June 1995, TWE sold 51% of its ownership interest in Six Flags
Entertainment Corporation ('SFEC') to a group of investors led by Boston
Ventures Management, Inc., a private investment management firm. Prior to the
sale, TWE's ownership interest in SFEC was 100%. SFEC indirectly owns all of the
outstanding stock of Six Flags Theme Parks Inc. ('Six Flags').
Six Flags operates 11 theme parks in seven locations, making it the second
largest operator of theme parks in the United States and the leading operator of
national system regional theme parks. Six Flags's theme parks include seven
major ride-based theme parks, as well as three separately-gated water parks and
one wildlife safari park. Each of the theme parks is located in or near a major
metropolitan area. All of the theme parks operated by Six Flags are owned by Six
Flags, except Six Flags Over Texas and Six Flags Over Georgia (the 'Co-Venture
Parks'). The Co-Venture Parks are owned by limited partnerships, the limited
partners of which are unaffiliated limited partnerships and the general partners
of which are wholly owned subsidiaries of Six Flags (the 'Managing
Subsidiaries'). The Managing Subsidiaries have sole responsibility for the
operation and management of the Co-Venture Parks pursuant to partnership
agreements. The partnership agreements provide that Six Flags will operate the
Co-Venture Parks through 1997.
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In March 1996, Six Flags completed arrangements to manage the Fiesta Texas
theme park located in San Antonio, Texas, commencing in the 1996 season. The
park is owned by an affiliate of United Service Automobile Association ('USAA')
and leased to a partnership owned by Six Flags and USAA. In connection with
these arrangements, Six Flags also acquired an option to purchase the park and
USAA's interest in the partnership.
REGULATION AND LEGISLATION
On February 8, 1996, President Clinton signed into law a comprehensive
reform of the nation's communications laws, entitled the Telecommunications
Competition and Deregulation Act of 1996 (the '1996 Telecommunications Act'),
which substantially revises the Communications Act of 1934, as amended by the
Cable Television Consumer Protection and Competition Act of 1992 (the '1992
Cable Act'). The new law contains certain provisions relating to violent and
sexually explicit programming. First, the statute requires manufacturers to
build television sets with the capability of blocking certain coded programming
(the so-called 'V-chip'). The effective date for any FCC rule regarding the
manufacture of such sets may not occur before March 8, 1998 and may occur at a
later date if, after consultation with the manufacturing industry, the FCC
determines that more time is needed. Second, the 1996 Telecommunications Act
gives the cable and broadcasting industries one year to develop voluntary
ratings for video programming containing violence, sex and indecent content and
to agree voluntarily to transmit signals containing such ratings. Principal
representatives from both industries have announced that they will meet this
timetable. However, if the industries fail to reach a consensus, the statute
gives the FCC the authority to establish an advisory committee to recommend a
ratings system and to prescribe rules requiring transmission of a rating if a
distributor has decided to rate a program.
The 1996 Telecommunications Act eliminates the numerical restrictions on
the number of television stations that one entity may own and increases from 25%
to 35% the percentage of the national audience that one entity is allowed to
reach. In addition, the FCC is directed to revise its dual network rule which
prohibits a TV station from affiliating with an entity maintaining two or more
networks of television broadcast stations. The FCC must now permit such
affiliations unless certain limited circumstances pertain. The FCC must also
amend its rules to permit common ownership or control of a broadcast network and
cable systems.
During 1993, the FCC revised its rules to allow the three major television
networks to acquire financial interests and syndication rights in programs
produced for a network by outside producers such as WB and to engage in the
syndication of such programs abroad. The FCC continued to prohibit the networks
from actively syndicating any programs domestically -- both 'off-network'
(produced initially for network distribution) and 'first-run' (produced directly
for syndication). By the terms of the FCC's 1993 decision, however, those
remaining restrictions expired in 1995.
An FCC regulation also limits to three the number of hours of network
(including off-network) programs that television stations that are affiliated
with the networks and located in the top 50 markets may broadcast during the
four-hour prime time period. In such markets, the fourth hour of prime time
programming currently consists largely of first-run syndication programming. In
July 1995, the FCC issued a decision to eliminate the rule after a one-year
transition period, which ends on August 30, 1996. During this transition period,
network affiliates are permitted to purchase off-network programming for the
fall 1996 television season.
WB cannot at this time predict the effect on its television businesses of
the passage of the 1996 Telecommunications Act and the changes, or proposed
changes, to the FCC rules discussed above.
COMPETITION
The production and distribution of theatrical motion pictures, television
and animation product and videocassettes/videodiscs are highly competitive
businesses, as each competes with the other, as well as with other forms of
entertainment and leisure time activities (including video games and online
services such as the Internet). Furthermore, there is increased competition in
the television industry evidenced by the increasing number and variety of basic
cable and pay television services now available. There is active competition
among
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all production companies in these industries for the services of producers,
directors, actors and others and for the acquisition of literary properties.
With respect to the distribution of television product, there is significant
competition from independent producers and distributors as well as major
studios. Revenues for filmed entertainment product depend in part upon general
economic conditions, but the competitive position of a producer or distributor
is still greatly affected by the quality of, and public response to, the
entertainment product it makes available to the marketplace. The television
network industry is extremely competitive as networks seek to attract audience
share and television stations for affiliation, and obtain advertising revenue
and distribution rights to television programming. There is strong competition
throughout the home video industry, both from home video subsidiaries of several
major motion picture studios and from independent companies. WB competes in its
character merchandising and other licensing and retail activities with other
licensors and retailers of character, brand and celebrity names. WB's operation
of theaters is subject to varying degrees of competition with respect to
obtaining new theater sites and attracting patrons, including competition from a
number of motion picture distribution methods, such as pay television and home
video systems. Competition within the theme park industry exists on a regional
rather than a national basis. Principal factors relating to competition within
the theme park industry generally include the uniqueness and perceived quality
of the rides and attractions in a particular park, ease of access to the park
from major metropolitan areas, the atmosphere and cleanliness of a park, and the
quality of its food and entertainment.
PROGRAMMING -- HBO DIVISION
GENERAL
The Company's interest in the programming business is principally conducted
through TWE's Home Box Office division ('Home Box Office'). The principal
businesses of Home Box Office are the programming and marketing of two pay
television programming services, HBO and Cinemax. HBO's programming includes
commercial-free, uncut feature motion pictures, sporting events, special
entertainment events (such as concerts, comedy shows and documentaries) and
motion pictures produced by or for HBO. Cinemax offers a broad range of motion
pictures, including classic, family, action-adventure, foreign and recently
released feature films, as well as documentaries.
At December 31, 1995, there were approximately 20.8 million subscriptions
to HBO, compared to 19.2 million subscriptions at year-end 1994, approximately
8.9 million subscriptions to Cinemax, compared to 7.8 million subscriptions at
year-end 1994. The overall gain of 2.7 million subscriptions for the two
services represents the largest annual increase in Home Box Office subscriptions
since 1983.
AFFILIATES
Home Box Office's pay television services are principally distributed
through cable television systems with which Home Box Office has a contractual
relationship. The HBO and Cinemax services are transmitted via C-Band
communications satellites to these cable television systems, as well as to
multi-point microwave systems with which HBO also has a contractual relationship
(both, 'affiliates'). These affiliates are generally charged a monthly fee on a
per subscription basis for each of the services carried. Subscribers to HBO and
Cinemax are then billed monthly by their local affiliate for each service
purchased and are free to cancel a service at any time. Individual dish owners
wishing to subscribe to HBO or Cinemax as delivered by one of the C-Band
satellites must purchase a consumer decoder and arrange for its activation.
Subscriptions for such direct broadcast satellite ('DBS') viewing are available
through cable television system operators, HBO Direct Inc., a subsidiary of TWE,
satellite equipment dealers or unaffiliated program packagers. Home Box Office,
through its affiliation agreements with United States Satellite Broadcasting,
Inc. ('USSB') and Primestar Partners L.P. (in which TWE holds a 31% interest),
also makes the HBO and Cinemax services available by means of high-powered and
mid-powered Ku-Band frequency satellites, respectively, to DBS viewers who
obtain subscriptions from such distributors. In 1995, Home Box Office entered
into an affiliation agreement with Echostar Satellite Corp., another provider of
high-powered Ku-Band DBS distribution for HBO and Cinemax.
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Home Box Office formally introduced in 1993 a new 'multichannel' format for
the delivery of HBO and Cinemax over multiple channels providing differing
schedules of HBO and Cinemax programming. As of year-end 1995, the new
multi-channel format was received by approximately 8.7 million HBO subscribers
and 3.4 million Cinemax subscribers, including all DBS subscribers.
As a result of acquisitions and mergers in the cable television industry in
recent years, the percentage of Home Box Office's revenue from affiliates that
are large multiple system cable operators has increased and Home Box Office
anticipates that the consolidation among cable television operators will
continue. As of December 31, 1995, the largest single multiple system cable
operator with which Home Box Office does business is TCI. Home Box Office's
affiliation with TCI accounted for approximately 20% of HBO and Cinemax combined
subscriptions. As of December 31, 1995, Time Warner Cable (see 'Cable Division
Video') accounted for an additional 14%. Home Box Office attempts to assure
itself of continuity in its relationships with affiliates and has entered into
multi-year contracts with certain of such operators, including TCI. Home Box
Office's agreements with its cable affiliates are typically for terms of five
years. Affiliation agreements with some larger multiple system operators,
including TCI, are for terms in excess of five years. Although Home Box Office
believes the prospects of continued carriage and marketing of its pay
programming services by the large cable operators are good, the loss of one or
more of them as distributors or effective marketers of Home Box Office's pay
cable television services could have a material adverse effect on Home Box
Office's business.
PROGRAMMING
A majority of HBO's programming and a large portion of that on Cinemax
consists of recently released, uncut and uncensored feature motion pictures.
Home Box Office's practice has been to negotiate licensing agreements of varying
duration for such programming with major motion picture studios and independent
producers and distributors. These agreements typically grant pay television
exhibition rights to recently released and certain older films owned by the
particular studio, producer or distributor in exchange for a negotiated fee
which is a function of, among other things, HBO and Cinemax subscription levels
and the films' box office performances. Home Box Office competes with other pay
cable, basic cable and broadcast networks, among others, for the acquisition of
programming product.
Home Box Office attempts to ensure access to future movies in a number of
ways. In addition to its exhibition of movies distributed by WB and its regular
licensing agreements with numerous distributors, it has entered into agreements
with Sony Pictures Entertainment, Inc. ('Sony Pictures'), Paramount Pictures
Corporation ('Paramount') and Twentieth Century Fox Film Corporation ('Fox')
pursuant to which Home Box Office has acquired exclusive and non-exclusive
rights to exhibit on its pay television services all or a substantial portion of
the films produced, acquired and/or released by these entities during the term
of each agreement. Home Box Office has also entered into non-exclusive license
agreements with Fox, Paramount, Sony Pictures and MGM/UA for older, library
films.
In 1995, Home Box Office entered into an agreement with DreamWorks SKG
pursuant to which Home Box Office acquired exclusive rights to exhibit on its
pay television services films from this new entertainment company, as well as an
agreement with Orion Pictures Corporation for exclusive rights to certain of its
library films.
HBO also exhibits made-for-pay television motion pictures that are produced
by or for Home Box Office or one of its divisions or by outside production
companies from which Home Box Office licenses certain exclusive pay television
and other rights (frequently including domestic home video) for a negotiated
fee. Besides motion pictures, a significant portion of HBO's programming
consists of dramatic and comedy specials, television series, family shows,
documentaries and other programs that are produced specifically for HBO. Home
Box Office either negotiates a license to these programs with an outside
production company or produces the programs itself, or through a production
services entity, in which case all rights are generally retained and exploited
by Home Box Office. Home Box Office also acquires exclusive pay television
rights to show certain live and delayed-broadcast sporting events, such as
boxing matches and Wimbledon, and may also acquire additional rights to these
programs. Cinemax's programming composition has recently been expanded to
include documentaries as well as motion pictures. In 1995, the excellence of
HBO's original programming was
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recognized by, among other honors, 19 Emmy Awards, 27 CableACE Awards, 4 Golden
Globe Awards and a Peabody Award.
OTHER INTERESTS
Home Box Office acquires home videocassette distribution rights for the
United States and Canada for a number of theatrical and made-for-pay television
motion pictures, concerts and comedy shows that it has produced or licensed for
pay television. HBO Video, a division of Home Box Office, exploits these rights.
Certain aspects of the distribution of videocassettes by HBO Video are carried
out pursuant to a service arrangement with WHV. In late 1995, Savoy Pictures
Entertainment, Inc., a major supplier of theatrical motion pictures for home
videocassette distribution by HBO Video, announced that it was withdrawing from
the production and distribution of theatrical motion pictures.
Time Warner Sports ('TWS'), a division of Home Box Office, operates TVKO,
an entity that distributes pay-per-view prize fights and other pay-per-view
programming. In October 1995, TWS closed down the operations of its sports
licensing division pursuant to the sale of that division's assets to DelWilber
Associates, Inc.
In 1995, HBO Independent Productions ('HBOIP'), a division of Home Box
Office, produced three series for broadcast by the Fox network, 'Martin,' 'The
Last Frontier' and 'House of Buggin,' and entered into a 'first look' production
agreement for series with CBS. A division of Home Box Office owns a 50% interest
in, and is the managing general partner of, a limited partnership that
indirectly acquired the assets of Citadel Entertainment, Inc. and its
affiliates. The remaining interest is held by MAI. The limited partnership
produces motion pictures and other programs for broadcast, basic cable and pay
television networks, including HBO.
Home Box Office and MAI are also co-owners of both a U.K. production
company that develops and produces television programming principally designed
for the U.K. market and a joint venture, ITEL, for the foreign distribution of
programming produced by Home Box Office and MAI.
HBO Enterprises, a division of Home Box Office, distributes certain feature
length theatrical films and made-for-pay television programming to other cable
television or pay-per-view services. In addition, HBO Enterprises distributes
Home Box Office original programming in domestic syndication and foreign
television and home videocassettes when it controls such rights. WBITD
distributes in foreign markets certain television programming of HBO.
HBO Ole, a partnership comprised of TWE, acting through its Home Box Office
and WB divisions, a Sony Pictures subsidiary and a Venezuelan company, operates
two Spanish-language pay television motion picture services, HBO Ole and
Cinemax, which are currently distributed in Central and South America, Mexico
and the Caribbean. HBO Ole, in partnership with a Brazilian company, also
distributes a Portuguese-language pay television movie service in Brazil.
Home Box Office, through a subsidiary of TWE, also operates HBO Asia,
together with its partner, a subsidiary of Paramount. HBO Asia, an
English-language, movie-based pay television service is currently distributed to
countries in Southeast Asia, including Singapore, Thailand, the Philippines,
Taiwan, Indonesia, Malaysia, Hong Kong, Macau, China, Bangladesh, Brunei and
Papua New Guinea.
In addition to its Latin American and Asian ventures, Home Box Office,
together with a partner, operates a Czech-language pay television motion picture
service in the Czech Republic. Home Box Office also either operates or has
licensing arrangements with pay television services in Hungary and New Zealand.
See 'Cable Division -- Television -- Other Interests.'
TWE holds an 8% interest in Crystal Dynamics, Inc., a developer and
distributor of video games.
TWE holds a 50% interest in Comedy Central, an advertiser-supported basic
cable television service, which features comedy programming. Comedy Central
launched in April 1991 and was available in approximately 37 million homes at
year-end 1995. HBO Downtown Productions, a division of Home Box Office, produces
comedy programming for exhibition on Comedy Central.
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TWE holds a 58% interest in E! Entertainment Television, a Los
Angeles-based advertiser-supported basic cable channel specializing in promoting
the entertainment industry and serving approximately 37 million subscribers as
of year-end 1995.
COMPETITION
Home Box Office's businesses face strong competition. HBO and Cinemax
compete both for programming product and for the attention of television viewers
with commercial television networks and independent commercial television
stations, pay-per-view services and home video, as well as other basic and pay
cable television services, some of which have exclusive contracts with motion
picture studios and independent motion picture distributors.
In 1993, an entity affiliated with TCI, the multiple system cable operator
accounting for 20% of HBO and Cinemax combined subscribers, launched STARZ!, a
pay cable television service having exclusive contracts with several motion
picture studios. In February 1994, Viacom Inc., the parent company of the pay
cable television movie services Showtime and The Movie Channel, acquired a
controlling interest in the parent company of Paramount, with which Home Box
Office currently has an exclusive license agreement covering Paramount
theatrical releases through December 31, 1997.
Home Box Office's production divisions compete with other producers of
programs for broadcast networks, independent commercial television stations, and
basic cable and pay television networks. Home Box Office also competes with
other companies engaged in the distribution or exhibition of motion pictures and
with other communications media and entertainment and information sources. See
'Regulation and Legislation.'
REGULATION AND LEGISLATION
The 1992 Cable Act, among other things, imposes certain requirements
concerning the wholesale rates that Home Box Office may charge its affiliates
and the means by which Home Box Office may make its programming services
available for subscription through distribution technologies other than cable
television. In April 1993, the FCC released regulations designed to implement
these provisions of the 1992 Cable Act, generally prohibiting vertically
integrated programmers in which cable companies hold a 5% or greater
attributable interest, which include the program services owned by Home Box
Office, from offering different price, terms, or conditions to competing
multichannel video programming distributors (which includes, but is not limited
to, cable, multichannel multipoint distribution services ('MMDS' or 'wireless
cable'), and DBS satellite distributors) in the geographic areas in which they
compete, unless the differential is justified by certain permissible factors set
forth in the regulations. These permissible justifications include the different
costs of delivering the programming to the distributor, creditworthiness,
financial stability, character, technical factors, differences related to
volume, penetration, channel positioning, promotional advertising, prepayment
discounts, retail pricing, and contract duration. The rules also place certain
restrictions on the ability of vertically integrated programmers such as Home
Box Office to enter into exclusive distribution arrangements with cable
operators (although exclusive arrangements with non-cable distributors are
permissible). Although subscriptions to HBO and Cinemax services are currently
provided by means of a number of different technologies including cable, MMDS
and DBS, the 1992 Cable Act and the FCC's implementing regulations could have a
material adverse effect on Home Box Office's business. In December 1994, the FCC
substantially affirmed these rules on reconsideration, and determined that it
has authority to award monetary damages for violations, but that no such remedy
is necessary at this time. See 'Cable Division Regulation and Legislation.'
The 1996 Telecommunications Act contains provisions concerning manufacturer
insertion of a 'V-chip' into television sets and industry implementation of a
ratings system for violent, sexually explicit and indecent programming. (See
'Filmed Entertainment Division -- Television.') Home Box Office cannot predict
at this time the effect of this legislation on its business.
In November 1994, the FCC, in its Telephone Company-Cable Television
Cross-Ownership proceeding, permitted telephone companies to own programmers
such as Home Box Office. Thus, telephone companies are free to produce, package
and distribute video programming to unaffiliated cable operators or other
multichannel
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video programming distributors. Such telephone company programming services
might compete with Home Box Office. Certain telephone companies have already
formed such ventures with individuals or entities with experience in program
production. In addition, the 1996 Telecommunications Act permits telephone
companies to provide video programming services (whether programmed by such
telephone companies or by third parties such as HBO) directly to customers both
within and outside their telephone service areas. Such distribution may be on a
common carrier basis, which would be regulated under Title II of the
Communications Act; as a cable television service, which would be regulated
under Title VI; or under a new hybrid service called an 'Open Video System,' for
which the FCC must develop a regulatory regime by August 8, 1996.
In November 1994, the FCC also released a decision in its Sixth
Reconsideration, Fifth Report and Order, and Seventh Notice of Proposed
Rulemaking concluding that it had jurisdiction to regulate the rates of
discounted packages of pay services that were also offered on a per channel
basis. The FCC, however, ruled that the rates for such a collective offering of
pay services carried on cable systems as of April 1, 1993 would be presumed
reasonable and would not be regulated by the FCC. The FCC, at the same time,
reiterated its longstanding position that the 1992 Cable Act prohibited rate
regulation of pay services, such as HBO and other cable programming, when they
were offered on a per channel basis. Home Box Office has asked the FCC to
reconsider that portion of its decision that would subject pay services, such as
HBO, to rate regulation when made part of a discounted package.
TELECOMMUNICATIONS
The Company's Telecommunications business consists principally of interests
in cable television systems that are substantially managed by Time Warner Cable,
a division of TWE, and wireline telephony operations that are conducted through
Time Warner Communications, a partnership wholly owned and controlled by TWE.
CABLE DIVISION -- TELEVISION
GENERAL
The cable television operations of the Company, including the operations of
the TWE-A/N Partnership as well as the cable television systems acquired by the
Company in 1995 and early 1996, are substantially conducted and managed by Time
Warner Cable, a division of TWE.
In January 1996, following the Company's acquisition of CVI and related
companies, the number of cable subscribers managed by Time Warner Cable
increased to approximately 11.7 million, geographically concentrated in 35
groupings of more than 100,000 subscribers each. More than 55% of Time Warner's
Cable's subscribers are located in five states: Florida, New York, North
Carolina, Ohio and Texas. Time Warner Cable is the second-largest multiple
system cable operator in the United States. Of the approximately 11.7 million
subscribers, approximately 9.5 million are in systems owned by or through TWE,
including approximately 4.5 million in the TWE-A/N Partnership, and
approximately 2.2 million in systems owned by subsidiaries of the Company. Time
Warner Cable manages or provides certain services to substantially all such
systems and receives a fee from the Company for management of, or services
provided to, such systems owned by subsidiaries of the Company.
Through a network of coaxial and fiber-optic cables, the Company's cable
television system subscribers generally receive 36 or more channels of video
programming, including local broadcast television signals, locally produced or
originated video programming, distant broadcast television signals (such as
WTBS, WWOR or WGN), advertiser-supported video programming (such as ESPN and
CNN) and premium programming services (such as HBO, Cinemax, Showtime and The
Movie Channel). In most systems, Time Warner Cable also offers movies and other
events on a pay-per-view basis, as well as audio and other entertainment
services.
In December 1995, Time Warner Cable's Full Service Network'tm' in its
suburban Orlando, Florida cable system was connected to 4,000 customers. The
Full Service Network, which began servicing customers in late 1994, utilizes
fiber optics, digital compression, digital switching and storage devices, and is
currently providing
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video-on-demand including movies, interactive games and interactive shopping.
Additional services continue to be developed and added.
Pursuant to the Admission Agreement with U S WEST, TWE has agreed to use
its best efforts to complete upgrades to a substantial portion of its cable
systems by the end of 1998. Such upgrades include the broad deployment of fiber,
electronics and switching equipment. It is anticipated that substantial capital
expenditures will be required to complete these upgrades.
Time Warner Cable has grown recently primarily as a result of the 1995
Cable Transactions, increases in the number of subscribers to its pre-existing
cable television systems and the development of geographically-clustered systems
through the exchange or purchase of existing cable television systems. Future
growth in subscribers is expected to come from the exchange of certain of its
unclustered cable television systems for geographically strategic systems,
increased penetration of existing homes passed (through rebuilds and the
introduction of new services), population growth, and extensions of existing
systems. During 1995 and early 1996, the Company acquired systems in Alabama,
California, Florida, Georgia, Hawaii, Illinois, Indiana, Kentucky, Louisiana,
Maryland, Michigan, Minnesota, Nebraska, New York, North Carolina, Ohio, Oregon,
Pennsylvania, South Carolina, Texas, Wisconsin and Wyoming. These acquisitions
were funded principally through the issuance of equity securities of the
Company, the proceeds from Time Warner Cable's disposition of systems in
Arkansas, Colorado, Louisiana and Mississippi and by the exchange of cable
television system assets. These transactions resulted in a net increase of
approximately 3.7 million basic subscribers under the management of Time Warner
Cable. For information about the Company's most recent acquisitions of cable
television systems in 1995 and early 1996, see pages I-1 through I-3.
Most of the Company's cable television revenue is derived from monthly fees
paid by subscribers for cable video programming services. Additional revenue is
generated by selling time on cable television systems for commercial
advertisements to local, regional and, in some cases, national advertisers.
Advertising time is sold as inserts into certain non-broadcast cable programming
and local origination programming shown on the Company's cable television
systems. In addition, pay-per-view service is offered in certain cable
television systems, which allows subscribers to choose to view specific movies
and events, such as concerts and sporting events, and to pay on a per-event
basis. Certain cable television systems also sell DBS video services such as
Primestar, for a monthly fee.
PROGRAMMING
Time Warner Cable provides certain video programming to its subscribers
pursuant to multi-year contracts with program suppliers who are paid a monthly
fee per subscriber. Many of these contracts contain price escalation provisions;
however, in most cases the cable operator has a right to cancel the contract if
the supplier raises its price beyond agreed limits. The loss of any one supplier
would not have a material adverse effect on Time Warner Cable's operations.
SERVICE AND PROGRAMMING CHARGES
Subscribers to the Company's cable systems generally are charged monthly
fees based on the level of service selected. The monthly prices for various
levels of cable television services (excluding services offered on a per-channel
or per-program basis) range generally from $5 to $25 for residential customers.
Other services offered include equipment rentals, usually for an additional
monthly fee. Systems offering pay-per-view movies generally charge between $4
and $6 per movie, and systems offering pay-per-view events generally charge
between $6 and $50, depending on the event. A one-time installation fee is
generally charged for connecting subscribers to the cable television system.
Subscribers may purchase premium programming services, and in certain
systems, other per-channel services, for an additional monthly fee for each such
service, with discounts generally available for the purchase of more than one
service.
Commercial subscribers are charged rates for cable programming services
that vary depending on the nature of the contract.
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REGULATION AND LEGISLATION
The cable television industry is regulated by the FCC, some states and
substantially all local governments. In addition, various legislative and
regulatory proposals under consideration from time to time by the Congress and
various federal agencies may in the future materially affect the cable
television industry. The following discussion summarizes certain federal, state
and local laws and regulations affecting cable television.
Federal Laws. The Cable Communications Policy Act of 1984 ('1984 Cable
Act'), the 1992 Cable Act and the 1996 Telecommunications Act are the principal
federal statutes governing the cable industry. These statutes regulate the cable
industry, among other things, with respect to: (i) cable system rates for both
basic and certain nonbasic services; (ii) programming access and exclusivity
arrangements; (iii) access to cable channels by unaffiliated programming
services; (iv) leased access terms and conditions; (v) horizontal and vertical
ownership of cable systems; (vi) consumer protection and customer service
requirements; (vii) franchise renewals; (viii) television broadcast signal
carriage and retransmission consent; (ix) technical standards; (x) privacy of
customer information; (xi) equal employment opportunity; (xii) consumer
electronics equipment compatibility; (xiii) obscene or indecent programming; and
(xiv) requiring subscribers to subscribe to tiers of service other than basic
service as a condition of purchasing premium services. The provisions of the
1992 Cable Act continue to have an adverse effect on the operations of Time
Warner Cable. The recently enacted 1996 Telecommunications Act, however, is
expected to have a favorable impact on Time Warner Cable's business, e.g.,
through establishment of criteria and a timetable for the ultimate elimination
of regulation of certain cable rates. The 1996 Telecommunications Act also opens
up the cable television and telephone markets to additional competition.
Federal Regulations. The FCC, the principal federal regulatory agency with
jurisdiction over cable television, has promulgated regulations covering a
number of areas. The FCC has the authority to enforce these regulations through
the imposition of substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the revocation
of FCC licenses needed to operate certain transmission facilities often used in
connection with cable operations. A brief summary of the most significant of
these federal regulations as adopted to date follows.
Rate Regulation. Under the 1992 Cable Act, nearly all cable television
systems are subject to local rate regulation of basic service, pursuant to a
formula established by the FCC and enforced by local franchising authorities.
Additionally, the legislation requires the FCC to review rates for nonbasic
service tiers (other than per-channel or per-program services) in response to
complaints filed by franchising authorities and/or cable customers; prohibits
cable television systems from requiring subscribers to purchase service tiers
above basic service in order to purchase premium service if the system is
technically capable of doing so; requires the FCC to adopt regulations to
establish, on the basis of actual costs, the price for installation of cable
service and rental of cable equipment; and allows the FCC to impose restrictions
on the retiring and rearrangement of basic services under certain limited
circumstances.
Under the 1996 Telecommunications Act, regulation of nonbasic tier rates is
scheduled to terminate on March 31, 1999. The 1996 Telecommunications Act also
expands the definition of 'effective competition' to cover situations where a
local telephone company or its affiliate, or any multichannel video provider
using telephone company facilities, offers comparable video service by any means
except DBS. Regulation of both basic and nonbasic tier cable rates ceases for
any cable system subject to 'effective competition.'
The FCC's rate regulations employ a benchmark system for measuring the
reasonableness of existing basic and nonbasic service rates, and a price cap
formula for calculating future rate increases. Alternatively, cable operators
have the opportunity to make cost-of-service showings which, in some cases, may
justify rates above the applicable benchmarks. The rules also require that
charges for cable-related equipment (e.g., converter boxes and remote control
devices) and installation be unbundled from the provision of cable service and
based upon actual costs plus a reasonable profit. The 1996 Telecommunications
Act allows cable operators to aggregate most cable equipment costs on a
franchise, system, regional or company level.
Local franchising authorities and/or the FCC are empowered to order a
reduction of existing rates which exceed the maximum permitted level for either
basic and/or nonbasic cable services and associated equipment,
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and refunds can be required. The regulations also provide that future rate
increases may not exceed an inflation-indexed amount, plus increases in certain
costs beyond the cable operator's control, such as taxes, franchise fees and
increased programming costs. Cost-based adjustments to these capped rates can
also be made in the event a cable operator adds or deletes channels or
significantly upgrades its system. The FCC has continued to modify the processes
by which these adjustments can be made in a fashion that has made them more
beneficial for cable operators generally. In addition, new product tiers
consisting of services new to the cable system can be created free of rate
regulation as long as certain conditions are met, e.g., services may not be
moved from existing tiers to the new product tier.
On November 30, 1995, the FCC adopted a Social Contract which resolves
cable television rate complaints pending against Time Warner Cable and requires
Time Warner Cable to upgrade its domestic cable television systems. The Social
Contract was negotiated in accordance with the FCC's authority to consider and
adopt 'social contracts' as alternatives to other regulatory approaches
applicable to cable television rates. The Social Contract is intended to ensure
fair and reasonable rates for Time Warner Cable customers, reduce the
administrative burden and cost of regulation for local governments, the FCC and
Time Warner Cable and resolve 946 cable programming service tier rate complaints
on file with the FCC. Specifically, the Social Contract provides for an
estimated $4.7 million plus interest in subscriber refunds in the form of
subscriber bill credits to certain designated Time Warner Cable systems, a
commitment by Time Warner Cable to establish a lifeline basic service priced at
10% below Time Warner Cable's benchmark regulated rates with an adjustment to
the nonbasic tier to recoup the reduced basic service tier revenue; and a
commitment by Time Warner Cable to upgrade its domestic systems to a minimum of
550 MHz, or existing 550 MHz systems to 750 MHz, over the next five years. On
January 29, 1996, a Petition for Judicial Review was filed by the cities of New
York, New York; Austin, Texas and the Intercommunity Cable Regulatory Commission
(which represents 28 Cincinnati suburbs served by Time Warner Cable) seeking
review of the FCC decision adopting the Social Contract as well as certain FCC
staff decisions implementing the Social Contract. The Petition contends, among
other things, that the terms of the Social Contract and the process by which it
was negotiated and implemented are contrary to the 1992 Cable Act, and are
inconsistent with the FCC's own rules. A petition for reconsideration of the
Social Contract is also pending before the FCC.
One purported class-action brought in a Florida state court and one action
by the Wisconsin Attorney General have been brought alleging that the retiering
and a la carte pricing implementation by Time Warner Cable in response to the
FCC's new rate regulation rules violate those rules and/or state consumer
protection laws. A purported nationwide class action has also been brought in a
federal court in New York alleging that any charges imposed by Time Warner Cable
for additional outlet connections violate the 1992 Cable Act and the FCC's rate
regulation rules to the extent those charges exceed Time Warner Cable's costs.
Time Warner Cable has opposed each of these claims on the grounds that any state
law claims regarding cable rates are preempted by the 1992 Cable Act and rules,
that any federal claims regarding cable rates must be brought before the FCC in
the first instance and that rates for premium services cannot be regulated at
all pursuant to the 1984 Cable Act and the 1992 Cable Act. The underlying claim
brought by the Wisconsin Attorney General has been settled and on September 25,
1995 the Court of Appeals reversed the District Court ruling and held that Time
Warner's service and rate restructuring complied with FCC rate regulations and
that such regulations preempted Wisconsin law. The United States Supreme Court
recently rejected a request filed by the Wisconsin Attorney General for
certiorari.
Carriage of Broadcast Television Signals. The 1992 Cable Act allows
commercial television broadcast stations which are 'local' to a cable system to
elect every three years either to require the cable system to carry the station,
subject to certain exceptions, or to negotiate for 'retransmission consent' to
carry the station. Broadcast stations typically seek monetary compensation or
the carriage of additional programming in return for granting retransmission
consent. Local non-commercial television stations are also given mandatory
carriage rights, subject to certain exceptions. Unlike commercial stations,
noncommercial stations are not given the option to require negotiation of
retransmission consent. In addition, cable systems must obtain retransmission
consent for the carriage of all 'distant' commercial broadcast stations, except
for certain 'superstations,' i.e., commercial satellite-delivered independent
stations such as WTBS, WGN and WWOR-TV. As of February 6, 1996, Time Warner
Cable has obtained any necessary retransmission consents from all stations
currently carried.
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The next election between mandatory carriage and retransmission consent for
local commercial television stations will occur on October 1, 1996. The
mandatory carriage rule is presently under review by the United States Supreme
Court.
Time Warner Cable has been sued in Connecticut state court by Bridgeways
Communications Corporation for, among other things, an alleged violation of the
state antitrust law. Central to the plaintiff's case is its allegation that Time
Warner Cable illegally failed to comply with plaintiff's mandatory carriage
request. The FCC has made no such finding and Time Warner Cable has argued to
the court that the FCC is the only body with the authority to make such a
determination.
Deletion of Certain Programming. Cable television systems that serve 1,000
or more customers must delete the simultaneous or nonsimultaneous network
programming of a distant station upon the appropriate request of a local
television station holding local exclusive rights to such programming. FCC
regulations also enable television broadcast stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable system to delete or 'black out' such programming from other
television stations which are carried by the cable system.
Cable Programming Agreements. The 1992 Cable Act and FCC regulations
adopted in April 1993 require vertically integrated programmers in which cable
companies hold a 5% or greater attributable interest to make their programming
services available to competing video technologies such as MMDS, satellite
master antenna television ('SMATV') and DBS on terms and conditions that do not
discriminate against such competing technologies. The 1992 Cable Act and FCC
regulations preclude most exclusive programming contracts and limit to some
degree the 'volume discounts' currently available to larger cable operators such
as Time Warner Cable. The 1992 Cable Act also regulates certain aspects of
program carriage agreements between cable operators and cable programming
networks. Cable operators are prohibited from requiring a financial interest in
a program service as a condition to carriage of such service, coercing exclusive
rights in a programming service, or favoring affiliated programmers so as to
unreasonably restrain the ability of unaffiliated programmers to compete.
Public and Leased Access Channels. The 1984 Cable Act permits local
franchising authorities to require operators to set aside certain channels for
public, educational and governmental access programming. The 1984 Cable Act
further requires cable television systems with thirty-six or more activated
channels to designate a portion of their channel capacity for commercial leased
access by unaffiliated third parties. The 1992 Cable Act requires leased access
rates to be set according to a formula determined by the FCC. The FCC is
currently reevaluating its leased channel rate formula, which could lead to
leased channel rates which are substantially more favorable to channel lessees.
Ownership. The 1996 Telecommunications Act repealed the restrictions on
local exchange telephone companies ('LECs') from providing video programming
directly to customers within their local exchange telephone service areas,
except in rural areas or by specific waiver of FCC rules. On February 27, 1996,
the Supreme Court vacated a Fourth Judicial Circuit decision which had held the
1984 Cable Act's cable telephone cross-ownership prohibition unconstitutional.
The Supreme Court remanded for the Court of Appeals to consider whether the case
is moot in light of the repeal of the statutory cross-ownership ban. The 1996
Telecommunications Act also authorized LECs to operate 'open video systems'
without obtaining a local cable franchise, although LECs operating such systems
can be required to make payments to local governmental bodies in lieu of cable
franchise fees. Where demand exceeds channel capacity, up to two-thirds of the
channels on an 'open video system' must be available to programmers unaffiliated
with the LEC.
The 1996 Telecommunications Act eliminated the FCC rule prohibiting common
ownership between a cable system and a national broadcast television network.
The 1996 Telecommunications Act also eliminated the statutory ban covering
certain common ownership interests, operation or control between a television
station and cable system within the station's Grade B signal coverage area.
However, the parallel FCC rule against cable/television station cross-ownership
remains in place, subject to review by the FCC within two years. Finally, the
1992 Cable Act prohibits common ownership, control or interest in cable
television systems and MMDS facilities or SMATV systems having overlapping
service areas, except in limited circumstances. The 1996 Telecommunications Act
exempts cable systems facing 'effective competition' from the MMDS and SMATV
cross-ownership restrictions.
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Pursuant to the 1992 Cable Act, the FCC has adopted rules which, with
certain exceptions, preclude a cable television system from devoting more than
40% of its first 75 activated channels to national video programming services in
which the cable system owner has an attributable interest. The FCC also has set
a limit of 30% of total nationwide cable homes that can be served by any
multiple cable system operator. The FCC has stayed the effectiveness of this
rule pending the outcome of its appeal from the U.S. District Court decision
holding the multiple ownership limit provision of the 1992 Cable Act
unconstitutional.
Technical Requirements. The FCC has imposed technical standards applicable
to all channels on which downstream video programming is carried, and has
prohibited franchising authorities from adopting standards which conflict with
or are more restrictive than those established by the FCC. The FCC also has
adopted additional standards applicable to cable television systems using
frequencies in the 108-137 MHz and 225-400 MHz bands in order to prevent harmful
interference with aeronautical navigation and safety radio services and has also
established limits on cable system signal leakage. Periodic testing by cable
operators for compliance with these technical standards and signal leakage
limits is required.
The FCC has continued to adopt and consider regulations to implement the
requirements of the 1992 Cable Act designed to improve the compatibility of
cable systems and consumer electronics equipment. These regulations generally
prohibit cable operators from scrambling their basic service tier and from
changing the infrared codes used in their existing customer premises equipment.
The 1996 Telecommunications Act directs the FCC to set only minimal standards to
assure compatibility between television sets, VCRs and cable systems, and to
rely on the marketplace. The FCC must adopt rules to assure the competitive
availability to consumers of customer premises equipment, such as converters,
used to access the services offered by cable systems and other multichannel
video programming distributors.
Other FCC Regulations. Additional FCC regulations relate to a cable
system's carriage of local sports programming; privacy of customer information;
franchise fees; equal employment opportunity; pole attachments; restrictions on
origination and cablecasting by cable system operators; application of the
fairness doctrine and rules governing political broadcasts; customer service;
home wiring and limitations on advertising contained in nonbroadcast children's
programming. The 1996 Telecommunications Act changes the formula for pole
attachment fees which could result in substantial increases in payments by cable
operators to utilities for pole attachment rights when services other than cable
services are delivered by cable systems.
Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on the
amount of system revenues from certain sources, the number of distant signals
carried, and the location of the cable system with respect to over-the-air
television stations.
The Copyright Act of 1976 was recently amended to extend the availability
of the cable statutory copyright license to microwave video service providers,
such as MMDS. This legislation also extended through 1999 the separate statutory
license provisions applicable to DBS and other satellite video distribution
systems. The compulsory license status of SMATV systems is not covered by this
legislation. The availability of compulsory copyright licensing to other
multichannel video service providers enhances their competitiveness with
traditional cable systems.
State and Local Regulation. Because a cable television system uses local
streets and rights-of-way, cable television systems are subject to local
regulation, typically imposed through the franchising process, and certain
states have also adopted cable television legislation and regulations. Cable
franchises are nonexclusive, granted for fixed terms and usually terminable if
the cable operator fails to comply with material provisions. No Time Warner
Cable franchise has been terminated due to breach. Franchises usually call for
the payment of fees (which are limited under the 1984 Cable Act to 5% of the
system's gross revenues from cable service) to the granting authority.
Franchises generally contain provisions governing charges for basic cable
television services, channel capacity, support for public, educational and
government access channels, length of the franchise term, renewal, sale or
transfer of the franchise, territory of the franchise, design and technical
performance of the system, use and occupancy of public streets and number and
types of cable services provided. The terms and
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conditions of cable franchises vary materially from jurisdiction to
jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome.
The 1992 Cable Act prohibits exclusive franchises and allows franchising
authorities to operate their own multichannel video distribution system without
having to obtain a franchise. Moreover, franchising authorities are immunized
from monetary damage awards arising from regulation of cable television systems
or decisions made on franchise grants, renewals, transfers and amendments.
The 1996 Telecommunications Act provides that local franchising authorities
may not condition the grant or renewal of a cable franchise on the provision of
telecommunications service or facilities (other than institutional networks) and
clarifies that the calculation of franchise fees is to be based solely on
revenues derived from the provision of cable services, not revenues derived from
telecommunications services.
Renewal of Franchises. The 1984 Cable Act established renewal procedures
and criteria designed to protect incumbent franchisees against arbitrary denials
of renewal. While these formal procedures are not mandatory unless timely
invoked by either the cable operator or the franchising authority, they can
provide substantial protection to incumbent franchisees. The 1992 Cable Act
makes several changes to the renewal process which could make it easier in some
cases for a franchising authority to deny renewal.
In the renewal process, a franchising authority may seek to impose new and
more onerous requirements, such as upgraded facilities, increased channel
capacity or enhanced services, although the municipality must take into account
the cost of meeting such requirements. Time Warner Cable may be required to make
significant additional investments in its cable television systems as part of
the franchise renewal process. Of Time Warner Cable's franchises, as of January
1, 1996, 790 franchises serving approximately 3,644,000 subscribers expire
during the period ending December 31, 1998. Although Time Warner Cable has been
successful in the past in negotiating new franchise agreements, there can be no
assurance as to the renewal of franchises in the future.
The United States District Court of the Western District of Kentucky
recently held that the 1984 Cable Act does not authorize it to review a
franchising authority's assessment of local community needs to determine if they
are reasonable or supported by any evidence. This federal district court
decision is under appeal. If upheld and adopted by other federal courts, this
test might allow local franchising authorities to establish unrealistic
franchise renewal demands designed to oust an incumbent cable franchisee.
Franchise Transfers. The 1992 Cable Act requires franchising authorities
to act on any franchise transfer request within 120 days after receipt of all
required information. Approval is deemed to be granted if the franchising
authority fails to act within such period. The 1996 Telecommunications Act
repeals the restriction against a cable operator selling or otherwise
transferring ownership of a cable television system within 36 months after
acquisition or initial construction.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry or Time
Warner Cable can be predicted at this time.
COMPETITION
Cable television systems face strong competition for viewer attention from
a wide variety of established providers and new entrants, including broadcast
television, DBS, MMDS, SMATV systems and telephone companies. Cable television
systems also compete with these and other media for advertising dollars.
DBS. The FCC has awarded conditional permits to several companies for
orbital slots from which high-power Ku-Band DBS service can be provided. DBS
services offer pre-packaged programming that can be received by relatively small
and inexpensive receiving dishes. Two high-power DBS services sharing common
satellites, DirecTV and USSB, were reported to have a total of approximately 1.3
million subscribers nationwide
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as of December 31, 1995. Primestar, a medium-power DBS service partially owned
by TWE, was reported to have approximately 1.0 million subscribers as of that
date. In addition to DBS, most cable programming is available to owners of
larger, more expensive C-Band satellite dishes ('TVROs'), either directly from
the programmers or through third-party packagers.
MMDS/Wireless Cable. Wireless cable operators use microwave technology to
distribute video programming. In recent years, wireless cable has grown rapidly,
serving 800,000 subscribers via 121 systems as of June 1995 according to the
FCC. Wireless cable is now available in 19 of the nation's top 20 television
markets. In recent years, the FCC has adopted rules to facilitate the use of
greater numbers of channels by wireless cable operators.
SMATV. Additional competition may come from private cable television
systems servicing condominiums, apartment complexes and certain other multiple
unit residential developments. The operators of these private systems, known as
SMATV systems, often enter into exclusive agreements with apartment building
owners or homeowners' associations which preclude franchised cable television
operators from serving residents of such private complexes. Under the 1996
Telecommunications Act, a SMATV system is not a cable system as long as it uses
no public right-of-way. SMATV systems offer both improved reception of local
television stations and many of the same satellite-delivered program services as
offered by franchised cable television systems.
Overbuilds. Under the 1992 Cable Act, franchising authorities are
prohibited from unreasonably refusing to award additional franchises. There are
currently an insignificant number of overlapping cable systems operating in Time
Warner Cable franchise areas. Municipalities themselves are authorized to
operate cable systems without a franchise. No such municipally-owned systems are
presently in operation in Time Warner Cable franchise areas, although several
municipalities have indicated an interest in doing so.
Telephone Companies. The 1996 Telecommunications Act eliminated the
restriction against ownership and operation of cable systems by local telephone
companies within their local exchange service areas. Telephone companies are now
free to enter the retail video distribution business through any means, such as
DBS, MMDS, SMATV or as traditional franchised cable system operators.
Alternatively, the 1996 Telecommunications Act authorizes local telephone
companies to operate 'open video systems' without obtaining a local cable
franchise, although telephone companies operating such systems can be required
to make payments to local governmental bodies in lieu of cable franchise fees.
Where demand exceeds available channel capacity, up to two-thirds of the
channels on an 'open video system' must be available to programmers unaffiliated
with the local telephone company. The open video system concept replaces the
FCC's video dialtone rules. The 1996 Telecommunications Act also includes
numerous provisions designed to make it easier for cable operators and others to
compete directly with local exchange telephone carriers. With certain limited
exceptions, neither a local exchange carrier nor a cable operator can acquire
more than a 10% equity interest in the other entity operating within its own
service area.
Other Competition. Cable television systems compete with other
communications and entertainment media, including off-air television broadcast
signals which a viewer is able to receive directly using the viewer's own
television set and antenna. Cable systems also face competition from alternative
methods of distributing and receiving television signals and from other sources
of entertainment such as live sporting events, movie theaters and home video
products, including videocassette recorders and, in the future, DVDs, as well
as, the Internet. In recent years, the FCC has adopted policies providing for
authorization of new technologies and a more favorable operating environment for
certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which cable
television service is competitive depends in significant part upon the cable
system's ability to provide an even greater variety of programming than is
available off-air or through competitive alternative delivery sources. Premium
programming provided by cable systems is subject to the same competitive factors
which exist for other programming discussed above. The continued profitability
of premium services may depend largely upon the continued availability of
attractive programming at competitive prices. The cable television industry also
competes with radio, television, print and other media for advertising revenues.
As the cable television industry continues to develop programming designed
specifically for distribution by cable, advertising revenues may increase.
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OTHER INTERESTS
TWE has a 54% interest in a joint venture established in 1991 to invest in,
and further develop, cable television systems in Hungary. TWE also has a 20%
interest in TV-1000, a pay television service operating in Scandinavia; a 31%
interest in N-TV, a German language news and information channel distributed in
Germany in which TBS also has a 33% interest; and a 25% interest in IA, a
general-interest regional television broadcaster serving the Berlin and
Brandenburg areas of Germany (all of which interests are under the management
responsibility of Home Box Office). TWE also owns indirectly 13% of a New
Zealand over-the-air subscription television service -- Sky Network Television,
as well as 20% of Kablevision, Sweden's second largest cable television company.
CABLE DIVISION -- TELEPHONY
Time Warner Cable's wireline telephony operations are conducted through
Time Warner Communications, a partnership wholly owned and controlled by TWE,
which has formed separate business entities to provide telephony services in
various geographic areas. Time Warner Communications seeks to take advantage of
Time Warner Cable's geographically clustered cable systems to efficiently
develop its telecommunications business.
The initial focus of Time Warner Communications following its formation in
1993 was the development of 'alternative access' telephone operations in
metropolitan areas where Time Warner Cable operates cable systems. These
operations generally provide connections between large businesses and their long
distance telephone providers, between multiple business locations of a large
business, and between long distance telephone company locations. The connections
are marketed primarily to long distance telephone carriers and large business
customers, and are used for high volume voice and data communications. The
networks on which these connections are made are comprised of dedicated fiber
optic strands within the affiliated cable systems' backbone fiber networks,
together with specially constructed high volume building entrance facilities and
specialized electronic equipment for transmission of digital signals.
Alternative access services do not require Time Warner Communications to operate
switching equipment.
As of March 1, 1996, Time Warner Communications had wholly or partially
owned alternative access businesses in operation in 21 cities. Similar
businesses are in development in several additional Time Warner Cable cities.
Revenues to date from these operations have been insignificant. Time Warner
Communications also has an advanced network management center in Denver to
monitor and manage operation of its geographically dispersed networks.
One of the major business objectives of TWE is the entry of Time Warner
Communications into the switched 'local exchange' telephone business. This
business would provide telephone service that is presently provided by LECs. The
service would be marketed both to residential and business customers. Local
exchange service will require significant upgrades to, and usage of, the fiber
optic and coaxial cable networks of Time Warner Cable, together with high
capacity switching equipment similar to that employed by the LECs, and certain
other specialized equipment. Expenditures for such upgrades and equipment are
expected to be significant.
The required qualifications for providers of local exchange services are
generally regulated by each state. As of March 1, 1996, Time Warner
Communications has received certificates to provide local exchange services in
Florida, New York, Ohio and Tennessee, and is proceeding with applications to
obtain such certification in Hawaii, North Carolina, Texas and Wisconsin. All
these states have already adopted legislation that supports competition in
telecommunications services. Further, the 1996 Telecommunications Act will in
the future preempt state and local barriers to entry into competitive
telecommunications service (although competitively neutral state and local
regulations will continue to be permitted). Time Warner Communications will
continue to seek local exchange service authorization in states where Time
Warner Cable has major cable systems.
In order for Time Warner Communications to actually enter into the local
exchange service business, Time Warner Communications must obtain rights to
connect its local exchange service customers to the incumbent LECs customers in
an area. Time Warner Communications has been in active negotiations throughout
1995 with incumbent LECs in Florida, New York, Ohio, Tennessee, Texas and
Wisconsin. Even where procompetitive state
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legislation has existed or state-level regulatory mediation has been available,
the incumbent LECs have, in Time Warner Communications' view, been extremely
reluctant to concede appropriate terms for competitive entrants to facilitate
interconnection.
The 1996 Telecommunications Act mandates that incumbent LECs provide
reasonable and nondiscriminatory rates, terms and conditions for interconnection
(including reciprocal compensation for transport and termination of calls), and
that incumbent LECs enter into good faith negotiations with requesting carriers
to facilitate such interconnection. In addition, incumbent LECs must provide
nondiscriminatory access to unbundled network elements, functions and services
on reasonable terms. Number portability is treated as a network element and
local dialing parity is addressed. While the 1996 Telecommunications Act should
improve the outlook for Time Warner Communications, the exact timetable for and
terms of mandated interconnection arrangements, and other incumbent LEC
compliance, cannot be predicted. The FCC is required to issue implementing
regulations for interconnection requirements by August 8, 1996.
Currently, Time Warner Communications is providing local exchange service
on a limited basis in Rochester, New York.
Time Warner Cable also offers (as a 're-seller') cellular telephone and
paging services to business and residential customers in Rochester, New York.
DESCRIPTION OF CERTAIN PROVISIONS OF THE TWE PARTNERSHIP AGREEMENT
The following description summarizes certain provisions of the TWE
Partnership Agreement relating to the ongoing operations of TWE. Such
description does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the provisions of the TWE Partnership
Agreement.
MANAGEMENT AND OPERATIONS OF TWE
Board of Representatives. Subject to certain authority of the Management
Committee (as described below) with respect to the Cable division, the business
and affairs of TWE are managed under the direction of a board of representatives
(the 'Board of Representatives' or the 'Board') that is comprised of
representatives appointed by the Time Warner General Partners (the 'Class B
Representatives') and representatives appointed by the Class A Partners (the
'Class A Representatives').
The Class B Representatives control all Board decisions except for certain
matters including (i) the merger or consolidation of TWE; (ii) the sale or other
disposition of assets of TWE generating in excess of 10% of the consolidated
revenues of TWE during the previous fiscal year or representing in excess of 10%
of the fair market value of the total assets of TWE (in each case, other than in
connection with certain joint ventures and 'cable asset swaps' as to which the
thresholds are greater); (iii) any acquisition by TWE, other than in the
ordinary course of business, if the consideration paid by TWE in connection with
such acquisition would exceed the greater of (1) $750 million and (2) 10% of the
consolidated revenues of TWE for the most recently ended fiscal year of TWE;
(iv) the engagement by TWE in any business other than the businesses then being
conducted by TWE, as they may evolve from time to time and any business related
to such businesses (provided that TWE may not engage in the manufacturing, sale
or servicing of hardware, other than as may be incidental to TWE's businesses);
(v) the incurrence by TWE of indebtedness for money borrowed if, after giving
effect to such incurrence, the ratio of total indebtedness for money borrowed to
cash flow would exceed the greater of (x) 5.00 to 1.00 and (y) .5 over the
analogous ratio in the TWE credit agreement as in effect from time to time; (vi)
cash distributions other than as provided in the TWE Partnership Agreement;
(vii) the dissolution or voluntary bankruptcy of TWE; and (viii) any amendment
to the TWE Partnership Agreement.
Each of the matters described in clauses (i) through (v) requires the
approval of a majority vote of the Class A Representatives who were appointed by
partners that have a residual equity interest of at least 5% and a majority vote
of the Class B Representatives; and each of the matters described in clauses
(vi) through (viii) requires the unanimous approval of all representatives. Each
partner's representatives collectively have voting power in proportion to the
residual equity interest of the partner that designated such representative.
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The managing general partners, both of which are wholly owned subsidiaries
of the Company, may take any action without the approval or consent of the Board
if such action may be authorized by the Class B Representatives without the
approval of the Class A Representatives. However, see 'Full Service Network
Management Committee,' below.
Full Service Network Management Committee. In connection with the U S WEST
Transaction, the Board established the Full Service Network business, which,
subject to obtaining necessary franchise and other approvals, is comprised of
the businesses and operations of the cable television systems of TWE and TWE-A/N
that have been from time to time designated to become a part thereof. Subject to
obtaining necessary franchise and other approvals relating to the designated
systems, the business and affairs of the Full Service Network business will be
governed by a Full Service Network Management Committee (the 'Management
Committee'). The Management Committee is comprised of six voting members, three
designated by U S WEST and three designated by TWE. If U S WEST at any time owns
less than 50% of the partnership interest which it owned, directly or
indirectly, as of September 15, 1993 or if a 'change in control' of U S WEST
occurs, U S WEST's right to designate any members of the Management Committee
will terminate. The Full Service Network business is managed on a day-to-day
basis by the officers of Time Warner Cable. The approval of a majority of the
members of the Management Committee is required for certain significant
transactions relating to the Full Service Network business, including, among
other things, the sale, pledge or encumbrance of assets of the Full Service
Network business, the acquisition of cable assets, the making of commitments or
expenditures relating to the Full Service Network business, in each case subject
to agreed upon thresholds, certain decisions with respect to design,
architecture and designation of cable systems for upgrade and the adoption of
the annual business plan.
Non-Voting Representatives and Committee Members. Each of ITOCHU and
Toshiba have the right to designate non-voting members to the Board of
Representatives and the Management Committee. In addition, Advance/Newhouse has
the right to designate a non-voting member to the Management Committee.
Day-to-Day Operations. TWE is managed on a day-to-day basis by the officers
of TWE, and each of TWE's three principal partnership divisions is managed on a
day-to-day basis by the officers of such division. Upon the TWE Capitalization,
the officers of Time Warner also became officers of TWE and the officers of the
Time Warner General Partners became the officers of the corresponding
partnership divisions and the subdivisions thereof.
CERTAIN COVENANTS
Covenant Not to Compete. For so long as any partner (or affiliate of any
partner) owns in excess of 5% of TWE or 15% of TWE Japan and in the case of any
Time Warner General Partner, for one year thereafter, such partner (including
its affiliates) is generally prohibited from competing or owning an interest in
the three principal lines of business of TWE -- cable, cable programming and
filmed entertainment (including the ownership and operation of theme
parks) -- as such businesses may evolve, subject to certain agreed upon
exceptions, limited passive investments and inadvertent violations. The covenant
not to compete does not prohibit (i) U S WEST from conducting cable and certain
regional programming businesses in the 14-state region in which it provides
telephone service, (ii) any party from engaging in the cable business in a
region in which TWE is not then engaging in the cable business, subject to TWE's
right of first refusal with respect to such cable business, or (iii) any party
from engaging in the telephone or information services business. ITOCHU and
Toshiba continue to be bound by and benefit from the non-compete provisions but
only as they relate to Japan.
Transactions with Affiliates. Subject to agreed upon exceptions for
existing arrangements, TWE will not enter into any transaction with any partner
or any of its affiliates other than on an arm's-length basis.
REGISTRATION RIGHTS
Beginning on June 30, 2002 (or as early as June 30, 1999 if certain
threshold cash distributions are not made to the Class A Partners), the Class A
Partners holding, individually or in the aggregate, at least 10% of the
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residual equity of TWE will have the right to request that TWE reconstitute
itself as a corporation and register for sale in a public offering an amount of
partnership interests held by such Class A Partners determined by an investment
banking firm so as to maximize trading liquidity and minimize the initial public
offering discount, if any. Upon any such request, the parties will cause an
investment banker to determine the price at which the interests sought to be
registered could be sold in a public offering (the 'Appraised Value'). Upon
determination of the Appraised Value, TWE may elect either to register such
interests or purchase such interests at the Appraised Value, subject to certain
adjustments. If TWE elects to register the interests and the proposed public
offering price (as determined immediately prior to the time the public offering
is to be declared effective) is less than 92.5% of the Appraised Value, TWE will
have a second option to purchase such interests immediately prior to the time
such public offering would otherwise have been declared effective by the
Securities and Exchange Commission at the proposed public offering price less
underwriting fees and discounts. If TWE exercises its purchase option, it will
be required to pay the fees and expenses of the underwriters. Upon exercise of
either purchase option, TWE may also elect to purchase the entire partnership
interests of the Class A Partners requesting registration at the relevant price,
subject to certain adjustments.
In addition to the foregoing, U S WEST will have the right to exercise an
additional demand registration right (in which the other Class A Partners would
be entitled to participate) beginning 18 months following the date on which TWE
reconstitutes itself as a corporation and registers the sale of securities
pursuant to a previously exercised demand registration right.
Beginning on June 30, 1995, at the request of any Time Warner General
Partner, TWE will effect a public offering of the partnership interests of the
Time Warner General Partners or reconstitute TWE as a corporation and register
the shares held by the Time Warner General Partners. In any such case, the Class
A Partners will have standard 'piggy-back' registration rights.
Upon any reconstitution of TWE into a corporation, each partner will
acquire preferred and common equity in the corporation corresponding in both
relative value, rate of return and priority to the partnership interests it held
prior to such reconstitution, subject to certain adjustments to compensate the
partners for the effects of converting their partnership interests into capital
stock.
CERTAIN PUT RIGHTS OF THE CLASS A PARTNERS
Change in Control Put. Upon the occurrence of a change in control of the
Company, at the request of any Class A Partner, TWE will be required to elect
either to liquidate TWE within a two-year period or to purchase the interest of
such partner at fair market value (without any minority discount) as determined
by investment bankers. A 'change in control' of the Company shall be deemed to
have occurred:
(x) whenever, in any three-year period, a majority of the members of
the Board of Directors of the Company elected during such three-year period
shall have been so elected against the recommendation of the management of
the Company or the Board of Directors shall be deemed to have been elected
against the recommendation of such Board of Directors of the Company in
office immediately prior to such election; provided, however, that for
purposes of this clause (x) a member of such Board of Directors shall be
deemed to have been elected against the recommendation of such Board of
Directors if his or her initial election occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than such Board of Directors; or
(y) whenever any person shall acquire (whether by merger,
consolidation, sale, assignment, lease, transfer or otherwise, in one
transaction or any related series of transactions), or otherwise
beneficially own voting securities of the Company that represent in excess
of 50% of the voting power of all outstanding voting securities of the
Company generally entitled to vote for the election of directors, if such
person acquires or publicly announces its intention to initially acquire
ten percent or more of such voting securities in a transaction that has not
been approved by the management of the Company within 30 days after the
date of such acquisition or public announcement.
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Assignment of Put Rights, etc. TWE, with the consent of such assignee, may
assign to the Company, any general partner or any third party, the obligation to
pay the applicable put price in connection with the exercise of a change in
control put right by a Class A Partner and the right to receive the partnership
interests in payment therefor.
With respect to any of the put rights of the Class A Partners, TWE may pay
the applicable put price in cash or Marketable Securities (defined as any debt
or equity securities that are listed on a national securities exchange or quoted
on NASDAQ) issued by TWE (or if TWE assigns its obligation to pay the put price
to the Company by the Company). The amount of any Marketable Securities
comprising the applicable put price shall be determined based on the market
price of such securities during the seven months following the closing of such
put transaction. In the case of a change in government regulation put, up to 33%
of the applicable put price may be paid in notes issued by TWE (or if TWE
assigns its obligations to pay the put price to the Company by the Company).
U S WEST CHANGE IN GOVERNMENT REGULATION REMEDIES
Upon a change in law or government regulation prior to September 15, 1996
that prohibits U S WEST from owning, or materially adversely affects the value
(relative to the value of the interests of all other partners) of, U S WEST's
partnership interest, U S WEST will have the right to request that TWE either
remedy such problem (provided such remedy would not have a significant impact on
the business and operation of TWE or any of its divisions) or assist U S WEST in
selling its interest to a third party. Upon any such sale to a third party, TWE
will share 20% of the loss or gain experienced by U S WEST upon such sale.
RESTRICTIONS ON TRANSFER BY TIME WARNER GENERAL PARTNERS
Time Warner General Partners. Any Time Warner General Partner is permitted
to dispose of any partnership interest (and any Time Warner General Partner and
any parent of any Time Warner General Partner may issue or sell equity) at any
time so long as, immediately after giving effect thereto, (i) the Company would
not own, directly or indirectly, less than (a) 43.75% of the residual equity of
TWE, if such disposition occurs prior to the later of December 31, 1997 and the
date on which the Class A Partners have received cash distributions of $500
million per $1 billion of investment, and (b) 35% of the residual equity of TWE
if such disposition occurs after such date, (ii) no person or entity would own,
directly or indirectly, a partnership interest greater than that owned, directly
or indirectly, by the Company, and (iii) a subsidiary of the Company would be a
managing general partner of TWE.
No other dispositions are permitted, except that the Company may sell its
entire partnership interest subject to the Class A Partners' rights of first
refusal and 'tag-along' rights pursuant to which the Company must provide for
the concurrent sale of the partnership interests of the Class A Partners so
requesting.
OTHER ENTERTAINMENT GROUP ASSETS
TIME WARNER SERVICE PARTNERSHIPS
In September 1993, certain assets of TWE were distributed to the Time
Warner General Partners and were owned and operated by other partnerships (the
'Time Warner Service Partnerships') in order to ensure compliance with the
Modification of Final Judgment entered on August 24, 1982 by the United States
District Court for the District of Columbia applicable to U S WEST and its
affiliated companies, which may have included TWE. In 1994, U S WEST received a
judicial order that TWE was no longer prohibited from owning or operating
substantially all of such assets. Accordingly, in September 1995, TWE reacquired
substantially all of the assets of the Time Warner Service Partnerships, subject
to the liabilities relating thereto, in exchange for junior priority capital
interests in TWE equal to approximately $400 million.
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COURTROOM TELEVISION NETWORK ('COURT TV')
Each of TWE and affiliates of each of NBC and TCI holds a 33 1/3% interest
in Court TV, subject to adjustment in accordance with the terms of the Court TV
partnership agreement. Court TV is a 24-hour basic cable network covering actual
courtroom trials from around the United States and abroad. Since 1991, Court TV
has brought daytime viewers live and taped coverage of more than 400 trials,
including: Weeks v. Baker & McKenzie, O.J. Simpson, Rodney King, Dr. Kevorkian,
Reginald Denny, the Menendez brothers, the Paramount/QVC hearing and Zion v. New
York Hospital. During prime time, Court TV features live analyses of the day's
coverage as well as a variety of programs that explore all aspects of the legal
system. On the weekend, Court TV airs highlights of the week's courtroom
coverage and presents Continuing Legal Education (CLE) for lawyers and Cable in
the Classroom programming for teachers.
TWE JAPAN
The Company owns a 37.25% interest in, U S WEST owns a 12.75% interest in,
and each of Toshiba and ITOCHU owns a 25% interest in, Time Warner Entertainment
Japan Inc. ('TWE Japan'). TWE Japan was organized to conduct TWE's businesses in
Japan, including home video distribution, theatrical film and television
distribution and merchandising businesses, and to expand and develop new
business opportunities. Pursuant to distribution and merchandising agreements
entered into between TWE and TWE Japan, TWE Japan receives distribution fees
generally comparable to those currently received by TWE for performing
distribution services for unaffiliated third parties.
In 1995, the Company, TWE Japan, U S WEST, Toshiba and ITOCHU agreed
jointly to establish TITUS Communications Corp. ('TITUS'), a multiple system
operator that will develop new CATV operations in selected locations throughout
Japan. The agreement also contemplates that TITUS eventually will provide
telephone service as well as video services in its operating areas.
DC COMICS
TWE and WCI each owns a 50% interest in DC Comics, a New York general
partnership, formed in June 1992 to continue the business previously conducted
by DC Comics Inc., a New York corporation. DC Comics publishes more than 60
regularly issued comics magazines, among the most popular of which are
'Superman,' 'Batman,' 'Wonder Woman' and 'The Sandman,' as well as story
collections sold as books. DC Comics also derives revenues from motion pictures,
television syndication, product licensing, books for juvenile and adult markets
and foreign publishing. Trademarks in DC Comics' principal characters have been
registered in the United States Patent and Trademark Office and in certain
foreign countries.
CINAMERICA THEATRES, L.P.
WCI owns a 50% interest in Cinamerica Theatres, L.P., an unconsolidated
joint venture with Paramount Communications Inc., which owns and operates two
theater circuits: Mann Theatres and Festival Cinemas. The joint venture operates
371 screens in 66 theaters, principally located in California and Colorado.
E.C. PUBLICATIONS
E.C. Publications, Inc. is the publisher of MAD, a magazine featuring
articles of humorous and satirical interest, which is regularly published nine
times a year and also in periodic special editions. E.C. Publications is wholly
owned by the Company.
OTHER INTERESTS
TURNER BROADCASTING SYSTEM, INC.
In September 1995, the Company agreed to merge with TBS by acquiring the
remaining approximately 80% interest in TBS not already owned by the Company.
For information about the pending merger, see
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page I-1. At December 31, 1995, the Company had economic and voting interests in
TBS of 19.6%and 6.4%, respectively. TBS is a diversified information and
entertainment company. Through its subsidiaries, TBS owns and operates four
domestic entertainment networks WTBS (commonly known as the 'TBS SuperStation'),
Turner Network Television ('TNT'), the Cartoon Network and Turner Classic Movies
('TCM'); four international entertainment networks TNT Latin America, Cartoon
Network Latin America, TNT & Cartoon Network Europe, and TNT & Cartoon Network
Asia; and four news networks Cable News Network ('CNN'), Headline News, Cable
News Network International ('CNNI') and CNN Financial Network ('CNNfn'). TBS
produces and distributes entertainment and news programming worldwide, with
operations in motion picture, animation and television production, home video,
television syndication, licensing and merchandising, and publishing.
AMERICAN LAWYER MEDIA
American Lawyer Media, L.P. ('ALM'), which is majority-owned by the
Company, operates a chain of metropolitan and regional legal and business
newspapers and also publishes THE AMERICAN LAWYER, a national monthly magazine
with a subscription-only readership among lawyers across the United States. ALM
also owns and operates COUNSEL CONNECT ('CC'), an on-line service connecting
lawyers in law firms and corporate legal departments worldwide. On February 2,
1996, ALM acquired the minority share of CC that had been held by Lexis-Nexis.
Since February 25, 1994, ALM had run CC as LEXIS Counsel Connect in partnership
with Lexis-Nexis, a division of Reed Elsevier Inc. At the time the partnership
was formed, Lexis-Nexis was the Mead Data Central division of the Mead
Corporation. ALM also publishes four weekly and five daily newspapers, which in
most cases enjoy local official status for the publication of court opinions,
legal notices and/or official court notices; and one monthly newsletter. ALM
also provides certain services to Court TV.
HASBRO, INC.
The Company owns approximately 14% of the outstanding common stock of
Hasbro, Inc., one of the world's largest toy companies. See Note 5 'Other
Investments' to the Company's consolidated financial statements at page F-34
herein for a description of the issuance by the Company of (i) zero coupon
exchangeable notes due 2012 that are exchangeable for the shares of Hasbro
common stock owned by the Company (the 'Hasbro Stock'), and (ii) mandatorily
redeemable preferred securities of a subsidiary of the Company redeemable in
1997 for cash or Hasbro Stock. Because the issuance of the mandatorily
redeemable preferred securities provides the Company with protection against the
risk of depreciation of the market price of Hasbro Stock and the zero coupon
exchangeable notes limit the Company's ability to share in the appreciation of
the market price of Hasbro Stock, the combination thereof has effectively
monetized the Company's investment in Hasbro.
ATARI CORPORATION
The Company owns approximately 13.5% of Atari Corporation, which is engaged
in the design, manufacture and sale of interactive multimedia entertainment
systems. In February 1996, Atari Corporation entered into an agreement to merge
with JTS Corp., a disk-drive manufacturer based in San Jose, California.
ATARI GAMES CORPORATION
The Company owns 100% of Atari Games Corporation ('Atari Games'), which is
engaged in the design, manufacture and sale of interactive video games for
arcades and home systems. On February 23, 1996, WCI entered into a Stock
Purchase Agreement with Williams Interactive Inc. ('Williams'), a wholly owned
subsidiary of WMS Industries, Inc., pursuant to which WCI will sell to Williams,
all of the issued and outstanding capital stock of Atari Games. The transaction
is expected to close in April 1996.
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CURRENCY RATES AND REGULATIONS
The Company's foreign operations are subject to the risk of fluctuation in
currency exchange rates and to exchange controls. The Company cannot predict the
extent to which such controls and fluctuations in currency exchange rates may
affect its operations in the future or its ability to remit dollars from abroad.
See Note 1 'Organization and Summary of Significant Accounting Policies Foreign
Currency' and Note 12 'Financial Instruments Foreign Exchange Risk Management'
to the consolidated financial statements set forth at pages F-24 through F-28
and F-44 through F-45, respectively, herein. For the revenues, operating income
from and identifiable assets of foreign operations, see Note 13 'Segment
Information' to the consolidated financial statements set forth at pages F-46
through F-49 herein.
EMPLOYEES
At December 31, 1995, the Company employed a total of approximately 65,500
persons. This number includes approximately 29,700 persons employed by TWE.
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ITEM 2. PROPERTIES
PUBLISHING, MUSIC AND CORPORATE
The following table sets forth certain information as of December 31, 1995
with respect to the Company's principal properties (over 250,000 square feet in
area) that are used primarily by its publishing and music divisions or occupied
for corporate offices, all of which the Company considers adequate for its
present needs, and all of which were substantially used by the Company or were
leased to outside tenants:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET TYPE OF OWNERSHIP
LOCATION PRINCIPAL USE FLOOR SPACE EXPIRATION DATE OF LEASE
- -------------------------- ------------------------------------ ----------- ---------------------------------
<S> <C> <C> <C>
New York, New York Executive and administrative offices 560,000 Leased by the Company. Lease
75 Rockefeller Plaza (Corporate, Music and Filmed expires in 2014. Approximately
Rockefeller Center Entertainment) 109,000 sq. ft. are sublet to
outside tenants.
New York, New York Business and editorial offices 1,457,000 Leased by the Company. Most
Time & Life Bldg. (Publishing and Corporate) leases expire in 2007.
Rockefeller Center Approximately 36,000 sq. ft. are
sublet to outside tenants.
Mechanicsburg, Office and warehouse space 358,000 Owned and occupied by the
Pennsylvania (Publishing) Company.
1225 S. Market St.
Olyphant, Manufacturing, warehouses, 1,058,000 Owned and occupied by the
Pennsylvania distribution and office space Company.
1400 and 1444 East (Music)
Lackawanna Avenue
Indianapolis, Indiana Warehouse space (Publishing) 252,000 Owned by the Company.
4200 N. Industrial Approximately 142,000 sq. ft. are
Street leased to outside tenants.
Nortorf, Manufacturing, distribution and 334,000 Owned and occupied by the
Germany office space (Music) Company.
Niedernstrasse 3-7
Alsdorf, Manufacturing, distribution and 269,000 Owned and occupied by the
Germany office space (Music) Company.
Max-Planck Strasse 1-9
Terre Haute, Manufacturing and office space 269,000 Leased by the Company. Lease
Indiana (Music) expires in 2001.
Bldg. 102, Fort Harrison
Industrial Park
Other:
U.S. and abroad, Office bldgs., plants and warehouses 2,097,000 Owned by the Company.
including locations (Publishing, Music and Corporate)
in
Europe, Asia, Latin
America, Australia
and
New Zealand.
5,084,000 Leased by the Company.
Approximately 297,000 sq. ft. are
sublet to outside tenants.
-----------
Total 11,738,000
-----------
-----------
</TABLE>
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FILMED ENTERTAINMENT, PROGRAMMING -- HBO AND CABLE
The following table sets forth certain information as of December 31, 1995
with respect to principal properties (over 125,000 square feet in area) owned or
leased by the Company's Filmed Entertainment, Programming -- HBO and cable
television businesses (including the properties of the Company, TWE and the
TWE/AN Partnership), all of which the Company considers adequate for its present
needs, and all of which were substantially used by the Company or were leased to
outside tenants.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FEET
FLOOR TYPE OF OWNERSHIP;
LOCATION PRINCIPAL USE SPACE/ACRES EXPIRATION DATE OF LEASE
- ------------------------ ----------------------------- ------------------ -----------------------------
<S> <C> <C> <C>
New York, New York Business offices 335,000 sq. ft. Leased by TWE.
HBO Building, 1100 (Programming HBO) Lease expires in 2004.
Avenue of the
Americas
New York, New York Business offices 139,000 sq. ft. Leased by TWE.
1325 Avenue of the (Filmed Entertainment) Lease expires in 2010.
Americas
Baltimore, Maryland Warehouse (Filmed 387,000 sq. ft. Owned by TWE.
White Marsh Entertainment)
Los Angeles, California Warehouse 182,000 sq. ft. Leased by TWE.
9210 San Fernando (Filmed Entertainment) Lease expires in 1997.
Burbank, California Sound stages, 3,422,000 (a) Owned by TWE.
The Warner Bros. administrative, technical and sq. ft. of
Studio dressing room structures, improved
screening theaters, machinery space on 158
and equipment facilities, acres
back lot and parking lot and
other Burbank properties
(Filmed Entertainment)
West Hollywood, Sound stages, 350,000 Owned by TWE.
California administrative, sq. ft. of Approx. 20,000 sq. ft. are
The Warner technical and dressing improved leased to outside tenants.
Hollywood Studio room space on 11
structures, screening acres
theaters, machinery and
equipment facilities (Filmed
Entertainment)
Valencia, California Location filming (Filmed 225 acres Owned by TWE.
Undeveloped Land Entertainment)
Raleigh, North Carolina Office/Warehouse facility 150,000 sq. ft. Leased by TWE. Lease expires
2505 Atlantic Avenue (Cable) 1999.
Other, in the U.S. and Office buildings, retail 3,799,000 sq. ft. (b) Owned by TWE.
abroad, including stores, theatres, plants and Approx. 62,000 sq. ft. are
locations in Europe, warehouses (Filmed leased to outside tenants.
Asia, Latin America, Entertainment, 7,070,000 sq. ft. (b)(c) Leased by TWE.
Australia and New Programming -- HBO, Cable) Approx. 57,000 sq. ft. are
Zealand sublet to outside tenants.
------------------
Totals 15,834,000 sq. ft.
394 acres
------------------
------------------
</TABLE>
- ------------
(a) Ten acres consist of various parcels adjoining The Warner Bros. Studio,
with mixed commercial, office and residential uses.
(footnotes continued on next page)
I-41
<PAGE>
<PAGE>
(footnotes continued from previous page)
(b) Excludes 436,847 sq. ft. of owned and 229,345 sq. ft. of leased properties
used by Time Warner Cable for headend, hub, and tower sites that are
located on 672 owned and 162 acres of leased land.
(c) Includes 108,000 sq. ft. of office space occupied by Time Warner corporate
staff who provide services to TWE pursuant to arrangements set forth in the
TWE Partnership Agreement.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties, in the ordinary course of
business, to litigations involving property, personal injury and contract
claims. The amounts that the Company believes may be recoverable in these
matters are either covered by insurance or are not material.
In November 1992, TWE filed a federal lawsuit seeking to overturn major
provisions of the 1992 Cable Act primarily on First Amendment grounds. The
complaint, filed in the U.S. District Court for the District of Columbia against
the FCC and the United States of America, challenges the provisions of the 1992
Cable Act relating to rate regulation, must carry, retransmission consent, terms
of dealing by vertically integrated programmers, uniform pricing and operation
of cable systems by municipal authorities, the number of subscribers that a
cable operator could serve nationwide, free previews of certain premium channels
and educational channel set-aside requirements for direct broadcast satellite
service. In addition, the complaint seeks to overturn several parts of the 1984
Cable Act relating to public, educational and government access requirements and
commercial leased channels. The complaint seeks injunctions against the
enforcement or implementation of these provisions. Several other parties have
also filed similar lawsuits and these actions have been at least partially
consolidated with the action filed by TWE. On April 8, 1993, in a 2-1 decision,
the District Court upheld the constitutionality of the must carry provisions of
the 1992 Cable Act. On May 3, 1993, TWE filed an appeal from this decision
directly to the U.S. Supreme Court. The U.S. Supreme Court on June 27, 1994
vacated the judgment of the District Court regarding the must-carry provisions
and remanded the case to that court for further factual findings after ruling
that cable systems were entitled to significant First Amendment protection. In
December 1995, that panel upheld the 'must-carry' requirements by 2-1 vote. The
Supreme Court has now decided to review that decision. On September 16, 1993, a
one-judge District Court upheld the constitutionality on First Amendment grounds
of all the other challenged provisions except restrictions on the number of
subscribers that a cable operator could serve nationwide, free pay TV previews
and direct broadcast channel usage. TWE appealed this decision to the U.S. Court
of Appeals for the D.C. Circuit on November 12, 1993. Briefing on the appeal,
and argument took place, on November 20, 1995. For a description of the 1984
Cable Act and the 1992 Cable Act, see Item 1 'Business -- Cable
Division -- Regulation and Legislation.'
By letters dated July 15, 1993 and September 21, 1993 (the 'Access
Letters'), the Dallas Regional Office of the Federal Trade Commission (the
'FTC') informed WEA that it is conducting a preliminary investigation to
determine whether WEA is 'unreasonably restricting the resale of previously
owned compact discs' and 'unreasonably restricting the sale of new compact
discs.' The Access Letters allege that WEA's conduct may violate Section 5 of
the Federal Trade Commission Act, but also say that neither the Access Letters
nor the existence of the investigation 'should be viewed as an accusation by the
FTC or its staff of any wrongdoing by [WEA].' The Access Letters request that
WEA voluntarily submit the documents and information requested therein. The FTC
investigation also includes other major distributors of recorded music. In the
course of the investigation, the FTC issued a subpoena for the deposition of a
former WEA executive. WEA has complied with the Access Letters and subpoena. In
early October 1994, WEA (and other major distributors of recorded music)
received a follow-up subpoena for the production of documents, stating that the
FTC is investigating whether members of the pre-recorded music distributing
industry may be engaging in unfair methods of competition by fixing prices or by
engaging in concerted activities to limit the availability of cooperative
advertising or promotional funds to retailers who distribute used compact discs
or advertise prices of compact discs below specified levels. WEA produced
documents in late December 1994 and early 1995 in response to the subpoena.
I-42
<PAGE>
<PAGE>
In October 1993, a purported class action was filed in the United States
District Court for the Northern District of Georgia entitled Samuel D. Moore, et
al. v. American Federation of Television and Radio Artists, et al., No.
93-Civ-2358. The action was brought by fifteen named music performers or
representatives of deceased performers on behalf of an alleged class of
performers who participated in the creation or production of phonograph
recordings for one or more of the defendant recording companies. The named
defendants included the American Federation of Television and Radio Artists
('AFTRA'), the AFTRA Health and Retirement Fund ('Fund'), each present trustee
of the Fund and fifty named recording companies, including four WCI
subsidiaries. The named defendant recording companies comprised substantially
all of the domestic recording industry and the complaint sought to establish a
defendant class for purposes of the litigation. The complaint sought recovery
against the recording companies for, among other things, breach of contract,
breach of fiduciary duty, fraud, embezzlement and RICO violations, all growing
out of alleged failure by the recording companies to make proper contributions
to the Fund pursuant to the Phono Code, which is negotiated by AFTRA and most of
the domestic recording companies, and other alleged failures to meet the terms
of the Phono Code and individual contracts. Plaintiffs sought from the defendant
record companies substantial monetary damages, treble damages, attorneys' fees
and costs and the imposition of a constructive trust over the master recordings
created from recorded performances of the plaintiffs. In March 1994, plaintiffs
filed an amended complaint. In March and April 1994, AFTRA, the Fund, the Fund's
trustees and certain of the defendant recording companies, including the four
WCI subsidiaries, moved to dismiss plaintiffs' amended complaint. On August 2,
1994, the court, among other things, dismissed the claims against the Fund and
the Fund's trustees, converted AFTRA's motion to one for summary judgment (and
allowed re-briefing) and dismissed all claims against the defendant recording
companies except the RICO claim. The record company defendants in the one
remaining RICO claim answered the amended complaint and filed a motion for
summary judgment seeking dismissal of the claim. The court subsequently granted
AFTRA's motion, and denied the recording company defendants' motion as
premature. Plaintiffs have filed a motion to certify various classes of
plaintiffs. The parties are in limited discovery.
On February 21, 1995, counsel for plaintiffs filed a new lawsuit, entitled
Samuel D. Moore, et al. v. Sony Music Entertainment Group, et al., No.
95-Civ-1221, in the United States District Court for the Southern District of
New York. The action was brought by all but one of the named plaintiffs in the
Georgia federal suit, with one new plaintiff. The plaintiffs are suing on behalf
of an alleged class of performers and derivatively on behalf of the AFTRA Fund.
The named defendants include the Fund's trustees, the Fund, and the recording
companies that were named as defendants in the Georgia federal suit. The
complaint is based on substantially the same allegations as the complaint in the
Georgia federal suit, and seeks to recover substantial monetary damages,
liquidated damages, and attorney's fees from the recording companies. The record
company defendants simultaneously moved in the Southern District of New York for
an order transferring the new case to the Northern District of Georgia, and
moved in the Northern District of Georgia for an order staying plaintiffs from
proceeding with the New York federal action. On April 19, 1995, the U.S.
District Court for the Northern District of Georgia granted the record company
defendants' motion with respect to the New York federal action and enjoined the
plaintiffs from proceeding any further with such action. On April 30, 1995, the
U.S. District Court for the Southern District of New York directed that the New
York federal action be transferred to the Northern District of Georgia in order
that the Georgia court may determine whether the claims asserted in the New York
action should be dismissed or pursued in the Georgia court. On February 26,
1996, the Georgia Court, finding the parties, issues and available relief
substantially the same as in the initial matter, dismissed the action. The
Georgia court further indicated that should plaintiffs wish to pursue the claims
of the second suit, the appropriate vehicle would be to seek leave of Court to
amend the complaint in the original action.
On July 14, 1994, the Company received a civil investigative demand from
the United States Department of Justice in furtherance of an investigation into
certain worldwide activities of the WMG and other companies in the recorded
music industry principally related to cable, wire and satellite-delivered music
and music video programmers. The Company has complied with the civil
investigative demand to the extent that it sought information and documents with
respect to domestic activities of the Warner Music Group and has objected to
responding with respect to foreign activities on the ground that the Department
of Justice lacks jurisdiction to inquire into such activities. On November 3,
1994, the Department of Justice filed a petition in the United States
I-43
<PAGE>
<PAGE>
District Court for the District of Columbia seeking to compel the Company and
the other companies to provide documents from their files in the United States
that deal with overseas activities. That motion remains pending.
On May 30, 1995, a purported class action was filed in the United States
District Court for the Central District of California, entitled Digital
Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution, Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corporation, UNI Distribution
Corporation, Bertelsmann Music Group, Inc. and Polygram Group Distribution,
Inc., No. 95-3596 (JSL) (the 'California Federal Action'). On July 19, 1995, a
purported class action was filed in the Superior Court of California for the
County of Los Angeles, entitled Brenden Barry v. CEMA Distribution, Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corporation, UNI Distribution
Corporation, Bertelsmann Music Group, Inc. and Polygram Group Distribution,
Inc., No. BC 131748 (the 'California State Action'). The California Federal
Action is brought on behalf of direct purchasers of compact discs ('CDs') and
the California State Action is brought on behalf of indirect purchasers of CDs.
In both actions, the plaintiffs allege that Warner Elektra Atlantic Corporation
('WEA'), along with five other distributors of recorded music CDs, violated the
federal and/or state antitrust laws and unfair competition laws, by engaging in
a conspiracy to fix prices of CDs, and seek an injunction and treble damages. In
the California Federal Action the defendants' motion to dismiss the amended
complaint was granted and the action was dismissed, with prejudice, on January
9, 1996. Plaintiffs have filed a notice of appeal. In the California State
Action, plaintiffs voluntarily dismissed the amended complaint without prejudice
on March 6, 1995.
Litigation relating to the 1990 merger of Time Inc. and Warner
Communications Inc. has either been dismissed, or has been dormant for years.
The litigation is described in previous reports on Form 10-K filed by the
Company.
On September 22, 1995, U S WEST and U S WEST Multimedia Communications,
Inc. ('USWMC'), a wholly owned subsidiary of U S WEST, filed a complaint in the
Court of Chancery of the State of Delaware (the 'Delaware Chancery Court')
individually and allegedly in a derivative capacity on behalf of TWE against the
Company and four of TWE's general partners, ATC, Time Warner Operations Inc.,
WCI and Warner Cable Communications, Inc. ('WCCI'), as well as TWE (as a nominal
defendant), alleging that the TBS Transaction would breach certain provisions of
the TWE Partnership Agreement and the Admission Agreement. U S WEST, Inc., et
al. v. Time Warner Inc., et al., Case No. 14555. U S WEST seeks equitable
relief, including an injunction against consummation of the TBS Transaction and
declarations that the defendants have breached fiduciary duties and such
agreements.
On October 11, 1995, the Company and the other defendants filed an answer
and counterclaims denying the material allegations contained in U S WEST's
complaint and alleging, among other things, (a) that U S WEST breached its
agreements with TWE, (b) that U S WEST fraudulently misrepresented and failed to
disclose the standards of regulatory compliance that would apply to the
partnership after the admission of U S WEST as a partner and (c) that the
Admission Agreement would not have been entered into as presently structured if
the misrepresentations had not been made. The counterclaim seeks, among other
things, (i) reformation of the Admission Agreement, (ii) an injunction
prohibiting U S WEST from preventing TWE from entering into contracts or
pursuing business opportunities that are in the best interests of TWE and (iii)
damages. On October 31, 1995, U S WEST replied to the Company's counterclaims,
essentially (A) denying the Company's material allegations and asserting as
affirmative defenses that the counterclaims fail to state a claim and are barred
by laches, acquiescence, unclean hands, waiver and/or estoppel and (B) asserting
that the proposed transactions which the Company alleges U S WEST obstructed are
businesses that the TWE Partnership Agreement prohibits TWE from owning or
conducting, and that the TWE Partnership Agreement provides that U S WEST may,
but need not, waive such restrictions on TWE in its sole discretion.
On December 12, 1995, U S WEST filed an amended and supplemental complaint,
reasserting the allegations contained in its original complaint and asserting
new allegations regarding (a) the Company's alleged failure to make U S WEST
aware during the negotiation of the Admission Agreement of the existence of
certain documents and (b) the Company's November 16, 1995 announcement regarding
a new strategic operating structure and management team. On December 27, 1995,
the Company and the other defendants filed an answer to the amended and
supplemental complaint and counterclaims denying the material allegations
contained in
I-44
<PAGE>
<PAGE>
U S WEST's amended and supplemental complaint and reasserting the counterclaims.
On February 8, 1996, the Company moved to dismiss the action on the pleadings.
On March 11, 1996, the Court announced that it would not rule on the motion, but
instead proceeded with the trial on March 13, 1996.
Two complaints have been filed against the Company, certain officers and
directors of the Company, and other defendants, by certain stockholders of the
Company, purportedly derivatively on behalf of the Company, relating to the
pending TBS Transaction and related transactions. The two complaints were filed
in the Delaware Chancery Court on October 30, 1995 (Bernard v. Time Warner Inc.,
et al., Case No. 14651; Parnes v. Time Warner Inc., et al., Case No. 14660).
These two complaints allege, among other things, that some or all of the
defendants have violated fiduciary duties owed to the Company and its
stockholders by, among other things, (a) seeking to entrench themselves in board
and management positions and to eliminate the threat of a hostile takeover, (b)
securing economic benefits for themselves or conferring special benefits on TCI
and others at the expense of the Company's public stockholders and (c)
structuring the TBS Transaction so as to place the Company's chief executive
officer in a position which allegedly will involve a conflict between the
interests of TCI and the Company. Among other relief demanded, both complaints
seek an injunction against consummation of the TBS Transaction and an order
directing the individual defendants to account to the Company for their alleged
profits and plaintiffs' alleged damages. On November 22, 1995, the Company and
the other defendants named in the Bernard complaint moved to dismiss such
complaint.
On March 12, 1996, a complaint was filed in the Delaware Chancery Court by
a stockholder of the Company, purportedly derivatively on behalf of the Company
(Trust for the Benefit of Paula C. Rand v. Gerald M. Levin, et al., Case No.
14890). The complaint alleges, among other things, that some or all of the
defendants have breached fiduciary duties owed to the Company and its
stockholders by, among other things, (a) seeking to entrench themselves in board
and management positions, (b) conferring special benefits upon TCI at the
expense of the Company's public stockholders and (c) wasting and
misappropriating corporate assets by causing the Company to enter into certain
agreements, including those with TCI, R.E. Turner and Michael Milken in
connection with the TBS Transaction. The complaint seeks, among other things,
(i) to enjoin, preliminarily and permanently, consummation of the TBS
Transaction and certain related arrangements, (ii) to void the Liberty Voting
Trust, (iii) to enjoin, preliminarily and permanently, any settlement of the
litigation between the Company and U S WEST, unless and until approved by the
Court of Chancery, (iv) a declaratory judgment that defendants breached their
fiduciary duties to the Company and its stockholders and (v) unspecified
damages.
Seventeen complaints have been filed against TBS, the Company, certain
officers and directors of TBS, the Company or TWE, and other defendants,
purportedly on behalf of a class of TBS shareholders, two of which have been
voluntarily dismissed. Sixteen of the 17 complaints were filed in Superior
Court, Fulton County, Georgia; the other was filed in the Court of Chancery of
the State of Delaware in and for New Castle County. Of the complaints filed in
Georgia, 14 were filed prior to the approval of the TBS Transaction on September
22, 1995 by the Company's Board of Directors and the Board of Directors of TBS
(Shingala v. Turner Broadcasting Sys., Inc., et al., Case No. E-41502; Schrank
v. R.E. Turner, et al., Case No. E-41501; Lewis, et al. v. Turner Broadcasting
Sys., Inc., et al., Case No. E-41500; Silverstein and Silverstein v. Turner
Broadcasting Sys., Inc., et al., Case No. E-41526; Strauss v. Turner
Broadcasting Sys., Inc., et al., Case No. E-41538; Hoffman v. Ted Turner, et
al., Case No. E-41544; Barry v. Turner Broadcasting Sys., Inc., et. al., Case
No. E-41545; Mersel and Mersel v. R.E. Turner, et. al., Case No. E-41554;
Friedland and Friedland v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41562; Schwarzchild v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41586; Turner and Hanson v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41637; H. Mark Solomon v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41685; Shores v. Turner Broadcasting Sys., Inc., et al., Case No. E-41749; and
Krim and Davidson v. Turner Broadcasting Sys., Inc. et al., Case No. E-41779).
Two of the complaints filed in Georgia were filed after the TBS Transaction was
approved by the Company's Board of Directors and the Board of Directors of TBS
(Altman v. Turner Broadcasting Sys., Inc., et al., Case No. E-43205; Joyce v.
Tele-Communications, Inc., et al., Case No. E-43321). The plaintiff in Altman
filed a voluntary dismissal of the action without prejudice on November 10,
1995. On September 27, 1995, an amended complaint was filed in Shingala. On
October 24, 1995, an amended complaint was filed in Lewis, apparently on behalf
of the named plaintiffs in 12 of the 16 actions filed in Georgia. On November 1,
1995, a second amended complaint was filed
I-45
<PAGE>
<PAGE>
in Lewis which is virtually identical to the first amended Lewis complaint
except that the plaintiff in the Joyce action was no longer included as a named
plaintiff. The purported class action filed by a TBS shareholder in Delaware was
filed on October 2, 1995 (Joyce v. John C. Malone, et al., Case No. 14592) and
subsequently dismissed voluntarily without prejudice by the plaintiff on
November 15, 1995. As noted above, a substantially similar action on behalf of
the same plaintiff was filed in Georgia on October 23, 1995 (Joyce v. Tele-
Communications, Inc., et al., Case No. E-43321). On November 13, 1995, Judge
Elizabeth Long, to whom all remaining actions had been assigned, consolidated
the actions. On November 20, 1995, subject to court approval, the plaintiff in
Joyce proposed to file an amended and consolidated class action complaint which
also includes a derivative claim. Also on November 20, 1995, plaintiffs in the
actions other than Joyce filed a motion for the recusal of Judge Long, which
motion was denied on January 22, 1996. The defendants filed answers in response
to the second amended complaint in Lewis on December 20, 1995.
The 17 purported class action complaints filed by TBS shareholders allege,
among other things, that the terms of the TBS Transaction are unfair to TBS
shareholders and that some or all of the defendants have breached or aided and
abetted the breach of fiduciary, common law and/or statutory duties owed to TBS
shareholders. Among the breaches alleged in many of the complaints are (a)
payment of unfair consideration for class members' shares, (b) conferral of
benefits on controlling shareholders at the expense of other shareholders, (c)
corporate waste, (d) failure to seek competitive bids and an independent
appraisal of TBS and (e) entrenchment of TBS Board members. Some of the
complaints allege that some or all of the defendants have committed fraud and/or
have used deceptive and coercive practices to being about the Transaction. Among
other relief demanded, all of these complaints seek damages, most seek an
injunction against consummation of the TBS Transaction and many seek an auction
of TBS.
On January 19, 1996, defendants in these actions filed a motion for
judgment on the pleadings on all claims asserted in the second amended complaint
filed in Lewis on the grounds that, under Georgia law, the valid grant of
dissenters' rights to TBS shareholders with respect to the TBS Transaction
prohibits plaintiffs from maintaining the claims asserted in the second amended
complaint. Plaintiffs are not yet required to file a response to this motion.
By letter dated October 20, 1995, plaintiffs in certain of the Georgia
suits made a demand upon TBS to repudiate (a) an agreement entered into by TBS
and a subsidiary of TCI to sell TBS's interest in SportsSouth, a regional sports
cable network, and (b) the fee authorized to be paid by TBS to MC Group in
connection with the TBS Transaction, as corporate waste or, absent repudiation,
to seek indemnification from any officers or directors of TBS who authorized the
challenged matters. These plaintiffs indicated that a shareholders' derivative
suit seeking injunctive relief would be filed in less than 90 days. These
derivative claims were asserted four days later in the amended Lewis complaint
referred to above. The TBS Board of Directors has established a committee to
investigate such claims.
The Company and its subsidiaries are also subject to industry
investigations by certain government agencies and/or proceedings under the
antitrust laws that have been filed by private parties in which, in some cases,
other companies in the same or related industries are also defendants. The
Company and its subsidiaries have denied or will deny liability in all of these
actions. In all but a few similar past actions, the damages, if any, recovered
from the Company or the amounts, if any, for which the actions were settled were
small or nominal in relation to the damages sought; and it is the opinion of the
management of the Company that any settlements or adverse judgments in the
similar actions currently pending will not involve the payment of amounts or
have other results that would have a material adverse effect on the financial
condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
I-46
<PAGE>
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction G (3), the information regarding the
Company's executive officers required by Item 401(b) of Regulation S-K is hereby
included in Part I of this report.
The following table sets forth the name of each executive officer of the
Company, the office held by such officer and the age, as of March 17, 1996, of
such officer:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- --------------------------------------------- --- ------------------------------------------------------------
<S> <C> <C>
Gerald M. Levin.............................. 56 Chairman of the Board and Chief Executive Officer
Richard D. Parsons........................... 47 President
Peter R. Haje................................ 61 Executive Vice President, General Counsel and Secretary
Timothy A. Boggs............................. 45 Senior Vice President
Richard J. Bressler.......................... 38 Senior Vice President and Chief Financial Officer
Tod R. Hullin................................ 52 Senior Vice President
Philip R. Lochner, Jr. ...................... 53 Senior Vice President
</TABLE>
Set forth below are the principal positions held by each of the executive
officers named above since March 1, 1991:
<TABLE>
<S> <C>
Mr. Levin.............................. Chairman of the Board of Directors and Chief Executive Officer since
January 21, 1993. Prior to that he served as President and Co-Chief
Executive Officer from February 20, 1992; Vice Chairman and Chief
Operating Officer from May 1991; and Vice Chairman of the Board prior to
that.
Mr. Parsons............................ President since February 1, 1995. Prior to that he served as Chairman
and Chief Executive Officer of The Dime Savings Bank of New York, FSB
from January 1991.
Mr. Haje............................... Executive Vice President and General Counsel since October 1, 1990 and
Secretary since May 20, 1993.
Mr. Boggs.............................. Senior Vice President since November 19, 1992. Prior to that he served
as Vice President of Public Affairs.
Mr. Bressler........................... Senior Vice President and Chief Financial Officer since March 16, 1995.
Prior to that he served as Senior Vice President, Finance from January
2, 1995; and as a Vice President prior to that.
Mr. Hullin............................. Senior Vice President since February 7, 1991.
Mr. Lochner............................ Senior Vice President since July 18, 1991. Prior to that, he was a
Commissioner of the Securities and Exchange Commission from March 1990
to June 1991.
</TABLE>
I-47
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The principal market for the Company's Common Stock is the New York Stock
Exchange. The Common Stock is also listed on the Pacific Stock Exchange and the
London Stock Exchange. For quarterly price information with respect to the
Company's Common Stock for the two years ended December 31, 1995, see 'Quarterly
Financial Information' at page F-55 herein, which information is incorporated
herein by reference.
The approximate number of holders of record of the Company's Common Stock
as of January 31, 1996 was 25,000.
For information on the frequency and amount of dividends paid with respect
to the Company's Common Stock during the two years ended December 31, 1995, see
'Quarterly Financial Information' at page F-55 herein, which information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information of the Company for the five years ended
December 31, 1995 is set forth at page F-53 herein and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption 'Management's Discussion and
Analysis' at pages F-2 through F-19 herein is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company
and the report of independent auditors thereon set forth at pages F-20 through
F-50 and F-52 herein are incorporated herein by reference.
Quarterly Financial Information set forth at page F-55 herein is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
II-1
<PAGE>
<PAGE>
PART III
<TABLE>
<S> <C>
Items 10, 11, 12 and 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; EXECUTIVE COMPENSATION;
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
</TABLE>
Information called for by PART III (Items 10, 11, 12 and 13) is
incorporated by reference from the Company's definitive Proxy Statement to be
filed in connection with its 1996 Annual Meeting of Stockholders pursuant to
Regulation 14A, except that the information regarding the Company's executive
officers called for by Item 401(b) of Regulation S-K has been included in PART I
of this report and the information called for by Items 402(k) and 402(l) of
Regulation S-K is not incorporated by reference.
III-1
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1)-(2) Financial Statements and Schedules:
(i) The list of consolidated financial statements and schedules set
forth in the accompanying Index to Consolidated Financial Statements and
Other Financial Information at page F-1 herein is incorporated herein by
reference. Such consolidated financial statements and schedules are filed
as part of this report.
(ii) The unaudited financial statements of the Time Warner Service
Partnerships for the quarterly period ended September 30, 1995 included in
the Current Report on Form 8-K of Time Warner Entertainment Company, L.P.
(Reg. No. 33-53742) dated November 28, 1995 ('TWE's 1995 Form 8-K') are
incorporated herein by reference and are filed as an exhibit to this
report.
(iii) The financial statements of the Time Warner Service Partnerships
and the report of independent auditors thereon, set forth at pages F-64
through F-73 in the 1994 Annual Report on Form 10-K of Time Warner
Entertainment Company, L.P. ('TWE's 1994 Form 10-K') are incorporated
herein by reference and are filed as an exhibit to this report.
(iv) The unaudited financial statements of Paragon Communications for
the quarterly period ended June 30, 1995 included in TWE's 1995 Form 8-K
are incorporated herein by reference and are filed as an exhibit to this
report.
(v) The financial statements and financial statement schedule of
Paragon Communications and the report of independent accountants thereon,
set forth at pages F-74 through F-83 in TWE's 1994 Form 10-K, are
incorporated herein by reference and are filed as an exhibit to this
report.
All other financial statement schedules are omitted because the required
information is not applicable, or because the information required is included
in the consolidated financial statements and notes thereto.
(3) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as part of this report and such Exhibit Index is
incorporated herein by reference. Exhibits 10.1 through 10.22 listed on the
accompanying Exhibit Index identify management contracts or compensatory plans
or arrangements required to be filed as exhibits to this report, and such
listing is incorporated herein by reference.
(b) Reports on Form 8-K.
(i) The Company filed a Current Report on Form 8-K dated November 14,
1995, in which it reported in Item 5 certain transactions entered into or
proposed to be entered into by the Company and TWE and which set forth in
Item 7 certain pro forma financial statements of the Company at September
30, 1995 which give effect to such transactions.
(ii) The Company filed a Current Report on Form 8-K dated December 1,
1995, in which it reported in Item 5 that it had entered into an Agreement
and Plan of Merger, dated as of September 22, 1995, providing for TBS to
become a wholly owned subsidiary of the Company through a merger with a
subsidiary of the Company.
(iii) The Company filed a Current Report on Form 8-K dated January 4,
1996, in which it reported in Item 2 its acquisition of CVI and certain
related companies, and related transactions.
(iv) The Company filed a Current Report on Form 8-K dated March 22,
1996 which set forth in Item 7 certain pro forma financial statements of
the Company at December 31, 1995.
IV-1
<PAGE>
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
TIME WARNER INC.
By /s/ PETER R. HAJE
.................................
PETER R. HAJE
EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
Date: March 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- -------------------
<C> <S> <C>
/s/ GERALD M. LEVIN Director, Chairman of the Board and Chief March 22, 1996
......................................... Executive Officer (principal executive
(GERALD M. LEVIN) officer)
/s/ RICHARD J. BRESSLER Senior Vice President and Chief Financial March 22, 1996
......................................... Officer (principal financial officer)
(RICHARD J. BRESSLER)
/s/ JOHN A. LABARCA Vice President and Controller (principal March 22, 1996
......................................... accounting officer)
(JOHN A. LABARCA)
* Director March 22, 1996
.........................................
(MERV ADELSON)
* Director March 22, 1996
.........................................
(LAWRENCE B. BUTTENWIESER)
* Director March 22, 1996
.........................................
(EDWARD S. FINKELSTEIN)
* Director March 22, 1996
.........................................
(BEVERLY SILLS GREENOUGH)
* Director March 22, 1996
.........................................
(CARLA A. HILLS)
* Director March 22, 1996
.........................................
(DAVID T. KEARNS)
</TABLE>
IV-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- -------------------
<C> <S> <C>
* Director March 22, 1996
.........................................
(HENRY LUCE III)
* Director March 22, 1996
.........................................
(REUBEN MARK)
* Director March 22, 1996
.........................................
(MICHAEL A. MILES)
* Director March 22, 1996
.........................................
(J. RICHARD MUNRO)
* Director March 22, 1996
.........................................
(RICHARD D. PARSONS)
* Director March 22, 1996
.........................................
(DONALD S. PERKINS)
* Director March 22, 1996
.........................................
(RAYMOND S. TROUBH)
* Director March 22, 1996
.........................................
(FRANCIS T. VINCENT, JR.)
*By /s/ PETER R. HAJE
.........................................
(ATTORNEY-IN-FACT)
</TABLE>
IV-3
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as 'tm'
The section symbol shall be expressed as SS
<PAGE>
<PAGE>
TIME WARNER INC. AND TIME WARNER ENTERTAINMENT COMPANY, L.P.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
--------------
TIME
WARNER TWE
------ ----
<S> <C> <C>
Management's Discussion and Analysis of Results of Operations and Financial Condition............ F-2 F-61
Consolidated Financial Statements:
Balance Sheet............................................................................... F-20 F-71
Statement of Operations..................................................................... F-21 F-72
Statement of Cash Flows..................................................................... F-22 F-73
Statement of Shareholders' Equity and Partnership Capital................................... F-23 F-74
Notes to Consolidated Financial Statements.................................................. F-24 F-75
Report of Management............................................................................. F-51
Report of Independent Auditors................................................................... F-52 F-94
Selected Financial Information................................................................... F-53 F-95
Quarterly Financial Information.................................................................. F-55 F-96
Financial Statement Schedules:
Schedule I -- Condensed Financial Information of Registrant................................. F-56
Schedule II -- Valuation and Qualifying Accounts............................................ F-60 F-97
</TABLE>
All other financial statements and schedules are omitted because the required
information is not present, or is not present in amounts sufficient to require
submission of the financial statements or schedules, or because the information
required is included in the consolidated financial statements and notes thereto.
F-1
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Time Warner has interests in three fundamental areas of business:
Entertainment, consisting principally of interests in recorded music and music
publishing, filmed entertainment, broadcasting, theme parks and cable television
programming; News and Information, consisting principally of interests in
magazine publishing, book publishing and direct marketing; and
Telecommunications, consisting principally of interests in cable television
systems. Substantially all of Time Warner's interests in filmed entertainment,
broadcasting, theme parks, cable television programming and most of its cable
television systems are held through the Entertainment Group, consisting
principally of TWE, which is not consolidated for financial reporting purposes.
TWE manages the telecommunications properties owned by Time Warner and the
combined cable television operations are conducted under the name of Time Warner
Cable. Capitalized terms are as defined and described in the accompanying
consolidated financial statements, or elsewhere herein.
STRATEGIC INITIATIVES
SIGNIFICANT TRANSACTIONS
During 1995, Time Warner and the Entertainment Group embarked on a program
to improve their financial condition and increase their overall financial
flexibility through the initiation of an asset sales program and significant
debt refinancings. Time Warner and the Entertainment Group also pursued
significant, strategic initiatives during 1995 through their cable television
operations and through a proposed merger of Time Warner and TBS. These
initiatives are part of a continuing strategy to further enhance the strength of
Time Warner's interests in entertainment and news and information, and to
attempt to use existing and acquired cable television systems to establish an
enterprise that will be responsible for the overall management and financing of
its cable and telecommunications interests. In pursuit of these strategic
initiatives, Time Warner and the Entertainment Group announced or completed a
number of transactions in 1995 and early 1996 that have had or are expected to
have a significant effect on their results of operations and financial
condition. Such transactions include:
The September 1995 announcement of Time Warner's agreement to merge with
TBS by acquiring the remaining 80% interest in TBS that it does not
already own;
The acquisitions by Time Warner of Summit, KBLCOM and CVI and related
companies, and the formation by TWE of the TWE-Advance/Newhouse
Partnership, which together strengthened the geographic clusters of the
cable television systems and substantially increased the number of cable
subscribers managed by Time Warner Cable (collectively, the 'Cable
Transactions');
The exchange of ITOCHU's and Toshiba's interests in TWE for equity
interests in Time Warner (the 'ITOCHU/Toshiba Transaction');
The refinancing of approximately $4 billion of public debt by Time Warner
and the execution of a new $8.3 billion credit agreement, under which
approximately $2.7 billion of debt assumed in the Cable Transactions was
refinanced by subsidiaries of Time Warner and $2.6 billion of pre-existing
bank debt was refinanced by TWE (the 'Debt Refinancings'); and
The sale by Time Warner and the Entertainment Group of certain assets
under an asset sales program, which raised approximately $1.6 billion on a
combined basis for debt reduction, including the sale of 51% of TWE's
interest in Six Flags (the 'Six Flags Transaction') and the sale or
expected sale or transfer of certain unclustered cable television systems
owned by TWE (the 'Unclustered Cable Transactions').
F-2
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
The nature of these transactions and their impact on the results of operations
and financial condition of Time Warner and the Entertainment Group are further
discussed below.
TELECOMMUNICATIONS STRATEGY
In 1994, Time Warner embarked on a strategy to expand its cable television
business, leading to agreements to combine with or acquire cable television
systems serving approximately 3.7 million subscribers. This strategy was based
on management's expectation that there would be a signficant increase in the
value of cable television systems related, in part, to a future convergence of
the cable and telephone industries which would provide cable companies with an
opportunity to operate large geographic clusters of cable television systems for
purposes of maximizing the development and distribution of new and improved
services on a cost efficient basis, such as increased channel capacity, high
speed data transmission and telephony services.
During 1995 and with the acquisition of CVI and related companies in
January 1996, Time Warner completed its plans for the expansion of its cable
television business, thereby strengthening its geographic clusters of cable
television systems as previously envisioned. Along with internal growth, the
acquisitions of Summit, KBLCOM and CVI and related companies, as well as the
formation of the TWE-Advance/Newhouse Partnership, increased the total number of
subscribers under the management of Time Warner Cable to 11.7 million, as
compared to 7.5 million subscribers at the end of 1994. Time Warner Cable has
also extended its reach of cable television systems to neighborhoods passing 18
million homes or close to 20% of television homes in the U.S. In addition, there
are now 35 geographic clusters of cable television systems serving over 100,000
subscribers each, including key markets such as New York City and State, central
Florida and North Carolina. Time Warner does not currently plan to make any more
significant acquisitions of cable television systems, but instead intends to
continue to refine its geographic clusters by exchanging certain unclustered
cable television systems for geographically-strategic ones or by selling
non-strategic cable television systems as part of the Company's continuing asset
sales program. Management continues to believe that the increased size and
concentration of its subscriber base will provide for sustained revenue growth
from new and improved services, and provide certain economies of scale relating
to the upgrade of the technological capabilities of Time Warner Cable's cable
television systems.
Management believes that the future convergence of the cable and telephone
industries has been substantially confirmed through various events within the
industry, including the February 1996 enactment into law of sweeping
telecommunications industry reform. Among other features, the Telecommunications
Act of 1996 effectively removes regulatory barriers that historically prohibited
cable television companies and local and long-distance telephone companies from
competing in each other's business. In addition, the new law eliminates most
cable rate pricing restrictions in 1999, and earlier under certain
circumstances. Time Warner expects that the relaxation of cable rate regulation
in 1999, along with permitted cable rate price increases for certain regulated
services that went into effect on January 1, 1996 under a separate Time Warner
agreement with the Federal Communications Commission (the 'FCC'), will provide
enhanced pricing flexibility that will help finance its cable and telephony
expansion plans.
The next phase of Time Warner's telecommunications strategy is to simplify
the structure of its cable and telecommunications properties by bringing such
properties together, so far as practicable and on a tax-efficient basis, into an
enterprise that will be responsible for the overall management and financing of
these interests. The first step of this process was completed in 1995 when
ITOCHU and Toshiba exchanged their interests in TWE for equity interests in Time
Warner. The restructuring process depends, among other things, upon successful
negotiations with U S WEST and certain creditors, and the receipt of franchise
and other regulatory approvals. Accordingly, there can be no assurance that the
effort will succeed. In the interim, as contemplated by the TWE-
F-3
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Advance/Newhouse Partnership agreement, Time Warner may transfer certain of its
newly-acquired cable systems to the TWE-Advance/Newhouse Partnership on a
tax-efficient basis. Such transfers, if they are made, are expected to be
structured so that the systems will be transferred subject to a portion of Time
Warner's debt, thereby reducing the financial leverage of Time Warner and
increasing the under-leveraged capitalization of the TWE-Advance/Newhouse
Partnership and consequently, TWE.
TBS TRANSACTION
With the announcement in September 1995 of Time Warner's plan to merge with
TBS, Time Warner has taken a strategic step that would further enhance Time
Warner's interests in entertainment and news and information assets while
improving the balance between such interests and its interests in the
telecommunications business. The addition of TBS' news and entertainment
programming networks, film and cartoon libraries, film production companies and
sports franchises is expected to complement virtually all of Time Warner's
business interests and expand the emphasis on growth through Time Warner's
interests in its entertainment and news and information businesses.
The TBS Transaction provides for the merger of each of Time Warner and TBS
with separate subsidiaries of a holding company ('New Time Warner') that will
combine, for financial reporting purposes, the consolidated net assets and
operating results of Time Warner and TBS. Based on TBS' financial position and
results of operations as of and for the year ended December 31, 1995, and giving
pro forma effect to the TBS Transaction as if it had occurred on December 31,
1995 for balance sheet purposes and at the beginning of the year for statement
of operations purposes, the incremental effect on Time Warner reflected in the
combined pro forma financial statements of New Time Warner would have been (i)
an increase in shareholder's equity of approximately $7.3 billion, principally
due to the issuance by New Time Warner of approximately 177.8 million shares of
common stock, (ii) an increase in long-term debt of approximately $2.5 billion
due to the assumption of TBS' debt, (iii) an increase in goodwill of
approximately $7.9 billion as a result of a preliminary allocation of the excess
cost over the net book value of assets acquired, (iv) an increase in revenues of
$3.4 billion, (v) an increase in EBITDA (as defined below) of $524 million, (vi)
an increase in depreciation and amortization of $377 million, including
approximately $200 million of noncash amortization of goodwill, (vii) an
increase in operating income of $147 million, (viii) an increase in net loss of
$111 million and (ix) a reduction in net loss per common share of $.12 per
common share resulting from the dilutive effect of issuing 177.8 million shares
of common stock.
The TBS Transaction is subject to customary closing conditions, including
the approval of the shareholders of TBS and of Time Warner, all necessary
approvals of the FCC and appropriate antitrust approvals. There can be no
assurance that all these approvals can be obtained or, in the case of
governmental approvals, if obtained, will not be conditioned upon changes to the
terms of the merger agreement or related agreements.
USE OF EBITDA
The following comparative discussion of the results of operations and
financial condition of Time Warner and the Entertainment Group includes, among
other factors, an analysis of changes in the operating income of the business
segments before depreciation and amortization ('EBITDA') in order to eliminate
the effect on the operating performance of the music, filmed entertainment and
cable businesses of significant amounts of amortization of intangible assets
recognized in the $14 billion acquisition of WCI in 1989, the $1.3 billion
acquisition of the ATC minority interest in 1992, the $1.4 billion acquisitions
of KBLCOM and Summit in 1995 and other business combinations accounted for by
the purchase method, including the $904 million acquisition
F-4
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
of CVI and related companies in January 1996 and the proposed TBS merger with
respect to certain discussions on a pro forma basis. Financial analysts
generally consider EBITDA to be an important measure of comparative operating
performance for the businesses of Time Warner and the Entertainment Group, and
when used in comparison to debt levels or the coverage of interest expense, as a
measure of liquidity. However, EBITDA should be considered in addition to, not
as a substitute for, operating income, net income, cash flow and other measures
of financial performance and liquidity reported in accordance with generally
accepted accounting principles.
RESULTS OF OPERATIONS
1995 VS. 1994
Time Warner had revenues of $8.067 billion, a loss of $124 million ($.46
per common share) before an extraordinary loss on the retirement of debt and a
net loss of $166 million ($.57 per common share) in 1995, compared to revenues
of $7.396 billion and a net loss of $91 million ($.27 per common share) in 1994.
The increase in Time Warner's net loss in 1995 was principally related to a
$42 million extraordinary loss on the retirement of debt ($.11 per common share)
and $85 million in pretax losses ($52 million after taxes and $.13 per common
share) related to certain businesses and joint ventures owned by the Music
Division which were restructured or closed. As discussed more fully below, the
increase in Time Warner's net loss in 1995 from such losses was principally
mitigated by an overall increase in the fundamental operating income of Time
Warner's business segments and increased income from its equity in the pretax
income of the Entertainment Group, offset in part by a decrease in
investment-related income and higher interest expense on approximately $1.3
billion of debt assumed in the cable acquisitions. The increase in Time Warner's
net loss per common share in 1995 also related to an increase in preferred
dividend requirements to $52 million from $13 million in 1994 as a result of the
preferred stock issued in connection with the 1995 cable acquisitions and the
ITOCHU/Toshiba Transaction.
Time Warner's equity in the pretax income of the Entertainment Group was
$256 million in 1995, compared to $176 million in 1994. As discussed more fully
below, the Entertainment Group's operating results in 1995 reflect an overall
increase in operating income generated by its business segments (including the
contribution by the TWE-Advance/Newhouse Partnership) and an increase in
investment-related income resulting from gains on the sale of certain
unclustered cable systems and other investments, offset in part by minority
interest expense related to the consolidation of the operating results of the
TWE-Advance/Newhouse Partnership effective as of April 1, 1995.
On a pro forma basis, giving effect to (i) the Cable Transactions, (ii) the
ITOCHU/Toshiba Transaction, (iii) the Debt Refinancings, (iv) the Six Flags
Transaction and (v) the Unclustered Cable Transactions, as if each of such
transactions had occurred at the beginning of the periods, Time Warner would
have reported for the years ended December 31, 1995 and 1994, revenues of $8.742
billion and $8.217 billion, depreciation and amortization of $935 million and
$906 million, operating income of $656 million and $653 million, equity in the
pretax income of the Entertainment Group of $286 million and $205 million, a
loss before extraordinary item of $255 million and $266 million ($1.02 and $1.07
per common share) and a net loss of $297 million and $266 million ($1.13 and
$1.07 per common share), respectively. The 1995 to 1994 comparison of pro forma
results are similarly affected by any underlying historical trends that are
unrelated to the transactions given pro forma effect to therein, such as the $85
million in pretax Music Division losses discussed above. The increase in pro
forma over historical losses before extraordinary items for each period is
principally the result of approximately $230 million in annualized noncash
amortization of certain intangible assets recognized in the
F-5
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
cable acquisitions which is not fully offset by the pro forma effects of other
improved net operating results, a component of which is the pro forma benefit
from the net addition of over $400 million in annualized EBITDA.
On a pro forma basis, giving effect to (i) the formation of the
TWE-Advance/Newhouse Partnership, (ii) the refinancing of approximately $2.6
billion of pre-existing bank debt, (iii) the consolidation of Paragon, (iv) the
Six Flags Transaction and (v) the Unclustered Cable Transactions, as if each of
such transactions had occurred at the beginning of the periods, the
Entertainment Group would have reported for the years ended December 31, 1995
and 1994, revenues of $9.686 billion and $8.778 billion, depreciation and
amortization of $1.078 billion and $1.038 billion, operating income of $994
million and $923 million, income before extraordinary item of $203 million and
$171 million and net income of $179 million and $171 million, respectively. The
1995 to 1994 comparison of pro forma results are similarly affected by any
underlying historical trends that are unrelated to the transactions given pro
forma effect to therein. The increase in pro forma over historical net income
for each period principally results from the pro forma effects of a full year
contribution by the TWE-Advance/Newhouse Partnership, and interest savings
associated with the refinancing of TWE's bank debt and lower debt levels
resulting from asset sales.
The relationship between income before income taxes and income tax expense
of Time Warner is principally affected by the amortization of goodwill and
certain other financial statement expenses that are not deductible for income
tax purposes. Income tax expense of Time Warner includes all income taxes
related to its allocable share of partnership income and its equity in the
income tax expense of corporate subsidiaries of the Entertainment Group.
EBITDA and operating income for Time Warner and the Entertainment Group in
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
EBITDA OPERATING INCOME
---------------- --------------------
1995 1994 1995 1994
------ ------ -------- --------
(MILLIONS)
<S> <C> <C> <C> <C>
Time Warner:
Publishing............................................................... $ 476 $ 430 $381 $347
Music(1)................................................................. 690 720 321 366
Cable.................................................................... 90 -- (5) --
------ ------ -------- --------
Total.................................................................... $1,256 $1,150 $697 $713
------ ------ -------- --------
------ ------ -------- --------
Entertainment Group:
Filmed Entertainment..................................................... $ 490 $ 430 $253 $219
Six Flags Theme Parks.................................................... 60 135 29 56
Broadcasting-The WB Network.............................................. (66) -- (66) --
Programming-HBO.......................................................... 293 257 274 237
Cable.................................................................... 1,275 989 502 340
------ ------ -------- --------
Total.................................................................... $2,052 $1,811 $992 $852
------ ------ -------- --------
------ ------ -------- --------
</TABLE>
- ------------
(1) Includes pretax losses of $85 million recorded in 1995 related to certain
businesses and joint ventures owned by the Music Division which were
restructured or closed.
F-6
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
TIME WARNER
Publishing. Revenues increased to $3.722 billion, compared to $3.433
billion in 1994. EBITDA increased to $476 million from $430 million.
Depreciation and amortization amounted to $95 million in 1995 and $83 million in
1994. Operating income increased to $381 million from $347 million. Revenues
benefited from increases in magazine circulation, advertising and book revenues.
Contributing to the revenue gain were increases achieved by People, Sports
Illustrated, Fortune and book publisher Oxmoor House. EBITDA and operating
income increased as a result of the revenue gains, offset in part by
significantly higher postal and paper costs as a result of price increases.
Music. Revenues increased to $4.196 billion, compared to $3.986 billion in
1994. EBITDA decreased to $690 million from $720 million. Depreciation and
amortization, including amortization related to the purchase of WCI, amounted to
$369 million in 1995 and $354 million in 1994. Operating income decreased to
$321 million from $366 million. Operating results were adversely affected by $85
million in losses recorded in 1995 that related to certain businesses and joint
ventures owned by the Music Division which were restructured or closed. Revenues
for 1995 were negatively affected by certain reclassifications relating to third
party, pressing and distribution arrangements and changes in the Music
Division's ownership interests in certain investments and subsidiaries that
resulted in changes from the consolidation to the equity method of accounting.
Excluding the effects from such reclassifications and changes, revenues from the
fundamental business increased by approximately 6%, principally as a result of
increases in both domestic and international recorded music revenues and
increased music publishing revenues. Domestic and international recorded music
revenues benefited from a number of popular releases and an increase in the
percentage of compact disc to total unit sales. Excluding the $85 million in
losses, EBITDA increased, and operating income benefited, principally from the
revenue gains and interest income on the resolution of a recorded music tax
matter, offset in part by expenses incurred in connection with the settlement of
certain employment contracts and lower results from direct marketing activities
attributable to higher amortization of member acquisition costs.
The losses relating to certain businesses and joint ventures that were
restructured or closed are primarily related to Warner Music Enterprises, one of
the Company's direct marketing efforts, and the write off of its related direct
mail order assets that were not recoverable due to the closure of this business.
Such closure was substantially completed in 1995 and will not require any
significant, future cash outlays. The activities that will not be continued have
not been material to historical operating results and are not expected to
significantly affect the results of future operations.
Cable. As a result of Time Warner's acquisitions of KBLCOM and Summit in
1995, cable operating results for 1995 included revenues of $172 million, EBITDA
of $90 million, depreciation and amortization of $95 million and an operating
loss of $5 million. Moderate operating losses are expected to continue in 1996
because of the full year effect of approximately $230 million of noncash
amortization of certain intangible assets recognized in Time Warner's
acquisitions of KBLCOM and Summit in 1995, and CVI and related companies in
1996.
Interest and Other, Net. Interest and other, net, increased to $877
million in 1995, compared to $724 million in 1994. Interest expense increased to
$877 million, compared to $769 million, principally as a result of approximately
$1.3 billion of debt assumed in the cable acquisitions and higher short-term,
floating-rates of interest paid on $2.6 billion notional amount of interest rate
swap contracts. Other income, net, was immaterial in 1995, compared to $45
million in 1994, principally because of a decrease in investment-related income.
Investment-related income in both periods consisted of gains on the sale of
certain assets, including the sale of an interest in QVC, Inc. in 1995, which
were offset by losses from reductions in the carrying value of certain
investments taken in each period.
F-7
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
ENTERTAINMENT GROUP
Filmed Entertainment. Revenues increased to $5.078 billion, compared to
$4.484 billion in 1994. EBITDA increased to $490 million from $430 million.
Depreciation and amortization, including amortization related to the purchase of
WCI, amounted to $237 million in 1995 and $211 million in 1994. Operating income
increased to $253 million from $219 million. Revenues benefited from increases
in worldwide theatrical, home video, consumer products and television
distribution operations. Worldwide theatrical and domestic home video revenues
in 1995 were led by the success of Batman Forever. EBITDA and operating income
benefited from the revenue gains and increased income from licensing operations.
Six Flags Theme Parks. As a result of TWE's sale of 51% of its interest in
Six Flags, the operating results of Six Flags have been deconsolidated effective
as of June 23, 1995 and TWE's remaining 49% interest in Six Flags is accounted
for under the equity method of accounting. Accordingly, revenues decreased to
$227 million, compared to $557 million in 1994. EBITDA decreased to $60 million
from $135 million. Depreciation and amortization amounted to $31 million in 1995
and $79 million in 1994. Operating income decreased to $29 million from $56
million.
Broadcasting-The WB Network. The WB Network was launched in January 1995,
and generated $66 million of operating losses on $33 million of revenues. The
operating loss was mitigated by a favorable legal settlement, as well as by
funding from a limited partner admitted as of August 1995. Due to the start-up
nature of this new national broadcast operation, losses are expected to
continue.
Programming-HBO. Revenues increased to $1.607 billion, compared to $1.513
billion in 1994. EBITDA increased to $293 million from $257 million.
Depreciation and amortization amounted to $19 million in 1995 and $20 million in
1994. Operating income increased to $274 million from $237 million. Revenues
benefited primarily from an increase in subscriptions to 29.7 million from 27
million at the end of 1994, as well as from higher pay-TV rates. EBITDA and
operating income improved principally as a result of the revenue gains.
Cable. Revenues increased to $3.094 billion, compared to $2.242 billion in
1994. EBITDA increased to $1.275 billion from $989 million. Depreciation and
amortization, including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $773 million in 1995 and
$649 million in 1994. Operating income increased to $502 million from $340
million. Revenues and operating results benefited from the formation of the
TWE-Advance/Newhouse Partnership on April 1, 1995 and the consolidation of
Paragon effective as of July 6, 1995. Excluding such effects, revenues benefited
from an aggregate increase in basic cable and Primestar-related, direct
broadcast satellite subscribers that approached 6% and increases in nonregulated
revenues, including pay-TV, pay-per-view and advertising. Excluding the positive
contributions from the TWE-Advance/Newhouse Partnership and the consolidation of
Paragon, EBITDA and operating income increased as a result of the revenue gains,
offset in part by the full year impact of the second round of cable rate
regulations that went into effect in July 1994, higher start-up costs for
telephony operations and, with respect to operating income only, higher
depreciation and amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, decreased to $539
million in 1995, compared to $616 million in 1994. Interest expense increased to
$579 million, compared to $567 million in 1994, principally as a result of
higher short-term, floating-rates of interest paid on borrowings under TWE's
former and existing bank credit agreements, offset in part by interest savings
in the last quarter of 1995 on lower debt levels related to management's asset
sales program. There was other income, net, of $40 million in 1995, compared to
other expense, net, of $49 million in 1994, principally because of an increase
in investment-related income related to gains on the sale of certain unclustered
cable systems and other investments.
F-8
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
1994 VS. 1993
Time Warner had revenues of $7.396 billion and a net loss of $91 million
($.27 per common share) in 1994, compared to revenues of $6.581 billion and a
net loss of $221 million ($.90 per common share) in 1993. Included in the 1993
results is an extraordinary loss on the retirement of debt of $57 million ($.15
per common share) and a one-time tax charge of $70 million ($.19 per common
share) that resulted from the effect on the Company's deferred income tax
liability of the increase in the corporate income tax rate enacted in August
1993.
As discussed more fully below, the improvement in Time Warner's net loss in
1994 reflected an overall increase in operating income generated by its business
segments and an increase in investment related income, offset in part by higher
interest expense and lower income from Time Warner's equity in the pretax income
of the Entertainment Group. The improvement in Time Warner's 1994 net loss also
related to the absence of the extraordinary loss and one-time tax charge that
were recorded in 1993. The improvement in Time Warner's net loss per common
share in 1994 further resulted from a $105 million reduction in preferred
dividend requirements relating to Time Warner's 1993 redemption or exchange of
$5.6 billion of preferred stock for debt.
Time Warner's equity in the pretax income of the Entertainment Group was
$176 million in 1994, compared to $281 million in 1993. As discussed more fully
below, the Entertainment Group's operating results in 1994 reflected an overall
decrease in operating income generated by its business segments, principally
relating to lower Cable results due to cable rate regulation, and an increase in
investment-related and foreign currency contract losses, offset in part by an
increase in interest income.
EBITDA and operating income for Time Warner and the Entertainment Group in
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
OPERATING
EBITDA INCOME
---------------- ------------
1994 1993 1994 1993
------ ------ ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
Time Warner:
Publishing..................................................................... $ 430 $ 372 $347 $295
Music.......................................................................... 720 643 366 296
------ ------ ---- ----
Total.......................................................................... $1,150 $1,015 $713 $591
------ ------ ---- ----
------ ------ ---- ----
Entertainment Group:
Filmed Entertainment........................................................... $ 430 $ 427 $219 $233
Six Flags Theme Parks.......................................................... 135 122 56 53
Programming-HBO................................................................ 257 230 237 213
Cable.......................................................................... 989 1,035 340 406
------ ------ ---- ----
Total.......................................................................... $1,811 $1,814 $852 $905
------ ------ ---- ----
------ ------ ---- ----
</TABLE>
TIME WARNER
Publishing. Revenues increased to $3.433 billion, compared to $3.270
billion in 1993. EBITDA increased to $430 million from $372 million.
Depreciation and amortization amounted to $83 million in 1994 and $77 million in
1993. Operating income increased to $347 million from $295 million. Revenues
benefited principally from increases in magazine advertising and circulation
revenues, which were aided in part by several special
F-9
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
issues during 1994. Significant revenue gains were achieved by People, Sports
Illustrated and Southern Living. EBITDA, operating income and operating margins
improved principally as a result of the revenue gains and continued cost
containment.
Music. Revenues increased to $3.986 billion, compared to $3.334 billion in
1993. EBITDA increased to $720 million from $643 million. Depreciation and
amortization, including amortization related to the purchase of WCI, amounted to
$354 million in 1994 and $347 million in 1993. Operating income increased to
$366 million from $296 million. The revenue growth resulted from increases in
both domestic and international recorded music revenues, which benefited from a
number of popular releases during the year and an increase in the percentage of
compact disc to total unit sales, and increased music publishing revenues.
EBITDA and operating income benefited from these revenue gains and increased
results from direct marketing activities attributable to new members and lower
amortization of member acquisition costs, offset in part by costs associated
with the reorganization of the domestic music companies and continuing
investment in new business ventures.
Interest and Other, Net. Interest and other, net, increased to $724
million in 1994, compared to $718 million in 1993. Interest expense increased to
$769 million from $698 million as a result of a full twelve months of interest
on the debt issued during the first three months of 1993 to redeem or exchange
preferred stock, offset in part by savings from lower-cost debt used to fund the
redemption of certain notes and debentures in 1993. There was other income, net,
of $45 million in 1994, compared to other expense, net, of $20 million in 1993,
principally because of an increase in investment-related income, including an
increase in the amortization of the excess of the Time Warner General Partners'
interest in the net assets of TWE over the net book value of their investment in
TWE to reflect U S WEST as a partner for a full year. Investment-related income
was reduced in part in both years by adjustments to the carrying value of
certain investments, expenses in connection with the settlement of certain
employment contracts and losses on foreign exchange contracts used to hedge
foreign exchange risk.
ENTERTAINMENT GROUP
Filmed Entertainment. Revenues increased to $4.484 billion, compared to
$4.032 billion in 1993. EBITDA increased to $430 million from $427 million.
Depreciation and amortization, including amortization related to the purchase of
WCI, amounted to $211 million in 1994 and $194 million in 1993. Operating income
decreased to $219 million from $233 million. Worldwide home video, syndication
and consumer products revenues increased at Warner Bros., offset in part by
lower worldwide theatrical revenues. EBITDA and operating income margins
decreased principally as a result of lower theatrical results in comparison to
the exceptionally strong theatrical results in 1993.
Six Flags Theme Parks. Revenues increased to $557 million, compared to
$533 million in 1993. EBITDA increased to $135 million from $122 million.
Depreciation and amortization amounted to $79 million in 1994 and $69 million in
1993. Operating income increased to $56 million from $53 million. Revenues
increased as a result of overall attendance growth and higher revenues per
visitor. EBITDA and operating income improved principally as a result of the
revenue gains.
Programming-HBO. Revenues increased to $1.513 billion, compared to $1.441
billion in 1993. EBITDA increased to $257 million from $230 million.
Depreciation and amortization amounted to $20 million in 1994 and $17 million in
1993. Operating income increased to $237 million from $213 million. Revenues
benefited from an increase in subscriptions and higher pay-TV rates. EBITDA,
operating income and operating margins improved principally as a result of the
revenue gains.
F-10
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Cable. Revenues increased to $2.242 billion, compared to $2.208 billion in
1993. EBITDA decreased to $989 million from $1.035 billion. Depreciation and
amortization, including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $649 million in 1994 and
$629 million in 1993. Operating income decreased to $340 million from $406
million. Revenues and operating results in 1994 were adversely affected by two
rounds of cable rate regulation that in general reduced the rates cable
operators are allowed to charge for regulated services, the first of which went
into effect in September 1993 and the second of which went into effect in July
1994. The unfavorable effects of rate regulation were offset in part by an
increase in subscribers and nonregulated revenues. Actions that were undertaken
to mitigate the impact of rate regulation included a number of cost containment
measures and a continued emphasis on near and long-term strategies to increase
revenues from unregulated services.
Interest and Other, Net. Interest and other, net, increased to $616
million in 1994, compared to $564 million in 1993. Interest expense decreased to
$567 million, compared with $580 million in 1993. There was other expense, net,
of $49 million in 1994, compared to other income, net, of $16 million in 1993.
Investment-related and foreign currency contract losses in 1994 exceeded an
increase in interest income on higher cash balances and the interest-bearing
note receivable from U S WEST. In 1993, other income, net, benefited from a gain
on the sale of certain assets and other investment-related income, which more
than offset investment losses.
FINANCIAL CONDITION AND LIQUIDITY
DECEMBER 31, 1995
TIME WARNER
1995 FINANCIAL CONDITION
Time Warner had $9.9 billion of debt, $949 million of mandatorily
redeemable preferred securities of subsidiaries, $1.2 billion of cash and
equivalents (net debt of $8.7 billion), and $3.7 billion of shareholders' equity
at December 31, 1995, compared to $9.2 billion of debt, $282 million of cash and
equivalents (net debt of $8.9 billion), and $1.1 billion of shareholders' equity
at December 31, 1994. The increase in debt principally reflects the assumption
of approximately $1.3 billion of debt related to the Cable Transactions, offset
in part by debt reductions using proceeds raised from the asset sales program,
including proceeds from the issuance of the PERCS which monetized Time Warner's
14% investment in Hasbro. The increase in mandatorily redeemable preferred
securities of subsidiaries reflects the issuance in 1995 of the PERCS and
Preferred Trust Securities, the proceeds of which were used to reduce certain
indebtedness of Time Warner. The noncurrent cash and equivalents consist of the
net proceeds received from the issuance of the Preferred Trust Securities in
December 1995, which were used in the redemption of the 8.75% Convertible
Debentures in early 1996. The increase in shareholders' equity reflects the
issuance in 1995 of approximately 2.5 million shares of common stock and
approximately 29.3 million shares of preferred stock in connection with the
ITOCHU/Toshiba Transaction and the acquisitions of KBLCOM and Summit. On a
combined basis (Time Warner and the Entertainment Group together), there was
$14.7 billion of net debt at December 31, 1995, compared to $15 billion of net
debt at the beginning of the year.
INVESTMENT IN TWE
Time Warner's investment in TWE at December 31, 1995 consists of 74.49% of
TWE's pro rata priority capital and residual equity capital, and 100% of TWE's
senior priority capital and junior priority capital. Such priority capital
interests provide Time Warner, and with respect to the pro rata priority capital
only, U S WEST, with certain priority claims to the net partnership income of
TWE and distributions of TWE partnership capital,
F-11
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
including certain priority distributions of partnership capital in the event of
liquidation or dissolution of TWE. Each level of priority capital interest
provides for an annual rate of return equal to or exceeding 8%, including an
above-market 13.25% annual rate of return (11.25% to the extent concurrently
distributed) related to Time Warner's junior priority capital interest, which
represents Cumulative Priority Capital of $4.6 billion at December 31, 1995.
While the TWE partnership agreement contemplates the reinvestment of significant
partnership cash flows in the form of capital expenditures and otherwise
provides for certain other restrictions that are expected to limit cash
distributions on partnership interests for the foreseeable future, Time Warner's
$1.4 billion senior priority capital interest and, to the extent not previously
distributed, partnership income allocated thereto (based on an 8% annual rate of
return) is required to be distributed to Time Warner in three annual
installments beginning on July 1, 1997. In 1995, Time Warner received a $366
million cash distribution from TWE representing the priority capital return
allocated to its senior priority capital interest through June 30, 1995.
CREDIT AGREEMENT REFINANCINGS
In connection with the Cable Transactions, TWI Cable, TWE and the
TWE-Advance/Newhouse Partnership executed a five-year revolving credit facility
in June 1995. The New Credit Agreement enabled such entities to refinance
certain indebtedness assumed in the Cable Transactions, to refinance TWE's
indebtedness under a pre-existing bank credit agreement and to finance the
ongoing working capital, capital expenditure and other corporate needs of each
borrower.
The New Credit Agreement permits borrowings in an aggregate amount of up to
$8.3 billion, with no scheduled reductions in credit availability prior to
maturity. Borrowings are limited to $4 billion in the case of TWI Cable, $5
billion in the case of the TWE-Advance/Newhouse Partnership and $8.3 billion in
the case of TWE, subject in each case to certain limitations and adjustments.
Such borrowings bear interest at specific rates for each of the three borrowers,
generally equal to LIBOR plus a margin initially ranging from 50 to 87.5 basis
points, which margin will vary based on the credit rating or financial leverage
of the applicable borrower. Unused credit is available for general business
purposes and to support any commercial paper borrowings. Each borrower is
required to pay a commitment fee initially ranging from .2% to .35% per annum on
the unused portion of its commitment. TWI Cable may also be required to pay an
annual facility fee equal to .1875% of the entire amount of its commitment,
depending on the level of its financial leverage in any given year. The New
Credit Agreement contains certain covenants for each borrower relating to, among
other things, additional indebtedness; liens on assets; cash flow coverage and
leverage ratios; and loans, advances, distributions and other cash payments or
transfers of assets from the borrowers to their respective partners or
affiliates.
In July 1995, TWI Cable borrowed approximately $1.2 billion under the New
Credit Agreement to refinance certain indebtedness assumed or incurred in the
acquisition of KBLCOM, and TWE borrowed approximately $2.6 billion to repay and
terminate its pre-existing bank credit agreement. An additional $1.5 billion was
borrowed by TWI Cable under the New Credit Agreement in January 1996 to
refinance certain indebtedness assumed or incurred in the acquisition of CVI and
related companies.
PUBLIC DEBT REFINANCINGS
In 1995 and early 1996, Time Warner refinanced approximately $4 billion of
its public debt, thereby increasing its financial flexibility through lowering
interest rates, extending debt maturities and eliminating potential dilution
from the conversion of its 8.75% Convertible Debentures into 46.6 million shares
of common stock. The outstanding 8.75% Convertible Debentures were redeemed in
two tranches: $1 billion principal amount in September 1995 for $1.06 billion
(including redemption premiums and accrued interest) and the
F-12
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
remaining $1.2 billion principal amount in February 1996 for $1.28 billion
(including redemption premiums and accrued interest). The September 1995
redemption was financed with proceeds from a $500 million issuance of 7.75%
ten-year notes in June 1995, proceeds from a $374 million issuance of the PERCS
in August 1995 and available cash and equivalents. The February 1996 redemption
was financed with proceeds from a $575 million issuance of the Preferred Trust
Securities in December 1995 and proceeds from a $750 million issuance of certain
debentures in January 1996. In connection therewith, Time Warner recognized an
extraordinary loss of $26 million in February 1996.
In August 1995, Time Warner redeemed all of its $1.8 billion principal
amount of outstanding Reset Notes in exchange for new securities, consisting of
approximately $454 million aggregate principal amount of Floating Rate Notes due
August 15, 2000, approximately $272 million aggregate principal amount of 7.975%
Notes due August 15, 2004, approximately $545 million aggregate principal amount
of 8.11% Debentures due August 15, 2006, and approximately $545 million
aggregate principal amount of 8.18% Debentures due August 15, 2007.
ASSET SALES
As part of a continuing strategy to enhance the financial position and
credit statistics of Time Warner and the Entertainment Group, an asset sales
program was initiated in 1995. Including the sale of 51% of TWE's interest in
Six Flags in June 1995, the sale of an interest in QVC, Inc. in February 1995,
the sale or expected sale of certain unclustered cable systems and the proceeds
raised from the monetization of Time Warner's investment in Hasbro in August
1995, Time Warner and the Entertainment Group on a combined basis have completed
or entered into transactions that raised approximately $1.6 billion for debt
reduction, all of which were completed in 1995 except for certain transactions
aggregating approximately $170 million which are expected to close in 1996.
CREDIT STATISTICS
The combination of asset sales and debt refinancings is intended to
strengthen the financial position of Time Warner and the Entertainment Group
and, when taken together with EBITDA growth, is expected to continue the
improvement of Time Warner's overall credit statistics. These credit statistics
consist of commonly-used liquidity measures such as leverage and coverage
ratios. The leverage ratio represents the ratio of total debt, less cash ('Net
debt') to total business segment EBITDA, less corporate expenses ('Adjusted
EBITDA'). The coverage ratio represents the ratio of Adjusted EBITDA to total
interest expense and/or preferred dividends. Those ratios, on a pro forma basis
for 1995 and on an historical basis for 1994 and 1993, are as set forth below
for each of Time Warner and Time Warner and the Entertainment Group combined.
Certain rating agencies and other credit analysts place more emphasis on the
combined ratios while others place more emphasis on the Time Warner stand-alone
ratios. It should be understood, however, that the assets of the Entertainment
Group are not freely available to fund the cash needs of Time Warner.
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA ------------
1995(A) 1994 1993
--------- ---- ----
<S> <C> <C> <C>
Time Warner:
Net debt/Adjusted EBITDA.............................................................. 7.0x 8.3x 9.8x
Adjusted EBITDA/Interest (b).......................................................... 1.6x 1.4x 1.3x
Adjusted EBITDA/Interest and preferred dividends (b)(c)............................... 1.3x 1.4x 1.2x
Time Warner and Entertainment Group combined:
Net debt/Adjusted EBITDA.............................................................. 4.7x 5.3x 5.6x
Adjusted EBITDA/Interest (b).......................................................... 2.4x 2.1x 2.1x
Adjusted EBITDA/Interest and preferred dividends (b)(c)............................... 2.1x 2.1x 1.9x
</TABLE>
(footnotes on next page)
F-13
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
(footnotes from previous page)
(a) Pro forma ratios for 1995 give effect to the Cable Transactions, the
ITOCHU/Toshiba Transaction, the Debt Refinancings, the Six Flags Transaction
and the Unclustered Cable Transactions, and with respect to Time Warner and
the Entertainment Group combined only, the consolidation of Paragon, as if
each of such transactions occurred at the beginning of 1995. Although not
reflected therein, the TBS Transaction is not expected to significantly
affect the pro forma ratios presented above. Historical ratios for 1995 are
not meaningful and have not been presented because they reflect the
operating results of acquired or disposed entities for only a portion of the
year in comparison to year-end net debt levels.
(b) Excludes interest of $28 million in 1995 and $12 million in 1994 which was
paid to TWE in connection with borrowings under Time Warner's $400 million
credit agreement with TWE.
(c) Includes preferred dividends of $11 million in 1995 in connection with
Company-obligated mandatorily redeemable preferred securities of
subsidiaries and on a pro forma basis, an incremental $91 million of
preferred dividends related to the preferred stock issued in the Cable
Transactions and the ITOCHU/Toshiba Transaction.
CASH FLOWS
During 1995, Time Warner's cash provided by operations amounted to $1.051
billion and reflected $1.256 billion of EBITDA from its Publishing, Music and
Cable businesses, $1.063 billion of net distributions from TWE and $35 million
from the securitization of receivables, less $659 million of interest payments,
$278 million of income taxes, $74 million of corporate expenses and $292 million
related to an increase in other working capital requirements, balance sheet
accounts and noncash items. Cash provided by operations of $473 million in 1994
reflected $1.150 billion of EBITDA from the Publishing and Music businesses,
$120 million of net distributions from TWE, $179 million from the securitization
of receivables, less $539 million of interest payments, $339 million of income
taxes, $76 million of corporate expenses and $22 million related to an increase
in other working capital requirements, balance sheet accounts and noncash items.
Cash used by investing activities, excluding investment proceeds, increased
to $647 million in 1995, compared to $351 million in 1994, principally as a
result of higher investment spending by Time Warner's business segments. As a
result of management's asset sales program, investment proceeds increased to
$376 million in 1995, compared to $118 million in 1994.
Cash provided by financing activities was $123 million in 1995, compared to
cash used by financing activities of $158 million in 1994, principally as a
result of the receipt of proceeds from the issuance of the Preferred Trust
Securities in December 1995, offset in part by the use of available cash and
equivalents to redeem a portion of the 8.75% Convertible Debentures in September
1995. In addition, cash dividends paid increased to $171 million in 1995,
compared to $142 million in 1994.
The assets and cash flows of TWE are restricted by the TWE partnership
agreement and are unavailable to Time Warner except through the payment of
certain fees, reimbursements, cash distributions and loans, which are subject to
limitations. Under the New Credit Agreement, TWE and TWI Cable are permitted to
incur additional indebtedness to make loans, advances, distributions and other
cash payments to Time Warner, subject to their respective compliance with the
cash flow coverage and leverage ratio covenants contained therein.
Management believes that Time Warner's operating cash flow, cash and
marketable securities and additional borrowing capacity are sufficient to fund
its capital and liquidity needs for the foreseeable future without distributions
and loans from TWE above those permitted by existing agreements.
F-14
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
ENTERTAINMENT GROUP
1995 FINANCIAL CONDITION
The financial condition of the Entertainment Group, principally TWE, at
December 31, 1995 was affected by the formation of the TWE-Advance/Newhouse
Partnership, the Six Flags Transaction and the consolidation of Paragon. The
Entertainment Group had $6.2 billion of debt, $1.4 billion of Time Warner
General Partners' senior priority capital and $6.6 billion of partners' capital
(net of the $169 million uncollected portion of the note receivable from U S
WEST) at December 31, 1995, compared to $7.2 billion of debt, $1.7 billion of
Time Warner General Partners' senior priority capital and $6.5 billion of
partners' capital at December 31, 1994. The $1 billion reduction in debt
resulted principally from the Six Flags Transaction. In addition, principally as
a result of the payment of over $1 billion of distributions to Time Warner in
1995, cash and equivalents decreased to $209 million at December 31, 1995,
compared to $1.1 billion at December 31, 1994, reducing the debt-net-of-cash
amounts for the Entertainment Group to $6 billion and $6.1 billion,
respectively.
CREDIT STATISTICS
Principally as a result of the formation of the TWE-Advance/Newhouse
Partnership and the Six Flags Transaction, the Entertainment Group's leverage
and coverage ratios improved in 1995 on a pro forma basis, as set forth below:
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA ------------
1995(A) 1994 1993
--------- ---- ----
<S> <C> <C> <C>
Net debt/Adjusted EBITDA.............................................................. 3.0x 3.5x 3.3x
Adjusted EBITDA/Interest.............................................................. 3.8x 3.1x 3.0x
</TABLE>
- ------------
(a) Pro forma ratios for 1995 give effect to the formation of the
TWE-Advance/Newhouse Partnership, the refinancing of approximately $2.6
billion of pre-existing bank debt, the consolidation of Paragon, the Six
Flags Transaction and the Unclustered Cable Transactions, as if each of such
transactions had occurred at the beginning of 1995. Historical ratios for
1995 are not meaningful and have not been presented because they reflect the
operating results of acquired or disposed entities for only a portion of the
year in comparison to year-end net debt levels.
Such ratios may be adversely affected upon the transfer of certain of Time
Warner's newly-acquired cable systems to the TWE-Advance/Newhouse Partnership,
which, if completed, is expected to be structured so that the systems will be
transferred subject to a portion of Time Warner's debt, thereby reducing the
financial leverage of Time Warner and increasing the under-leveraged
capitalization of the TWE-Advance/Newhouse Partnership and consequently, TWE.
CASH FLOWS
In 1995, the Entertainment Group's cash provided by operations amounted to
$1.495 billion and reflected $2.052 billion of EBITDA from the Filmed
Entertainment, Six Flags Theme Parks, Broadcasting-The WB Network,
Programming-HBO and Cable businesses and $159 million related to a reduction in
working capital requirements, other balance sheet accounts and noncash items,
less $577 million of interest payments, $75 million of income taxes and $64
million of corporate expenses. Cash provided by operations of $1.341 billion in
1994 reflected $1.811 billion of business segment EBITDA and $180 million
related to a reduction in working capital requirements, other balance sheet
accounts and noncash items, less $521 million of interest payments, $69 million
of income taxes and $60 million of corporate expenses.
F-15
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Cash used by investing activities decreased to $750 million in 1995,
compared to $1.770 billion in 1994, principally as a result of a $1.1 billion
increase in investment proceeds relating to management's asset sales program.
Capital expenditures increased to $1.653 billion in 1995, compared to $1.235
billion in 1994, principally as a result of higher capital spending by the Cable
Division.
Cash used by financing activities was $1.607 billion in 1995, compared to
cash provided by financing activities of $162 million in 1994, principally as a
result of an approximate $1 billion reduction in debt in 1995 and a $943 million
increase in distributions paid to Time Warner, offset in part by a $368 million
increase in collections on the note receivable from U S WEST that were used to
partially finance the capital spending requirements of the Cable Division.
Management believes that TWE's operating cash flow, cash and equivalents,
collections on the U S WEST Note and additional borrowing capacity are
sufficient to fund its capital and liquidity needs for the foreseeable future.
CABLE CAPITAL SPENDING
Since the beginning of 1994, Time Warner Cable has been engaged in a plan
to upgrade the technological capability and reliability of its cable television
systems and develop new services, which it believes will position the business
for sustained, long-term growth. Capital spending by Time Warner Cable,
including the cable operations of both Time Warner and TWE, amounted to $1.349
billion in 1995, compared to $778 million in 1994, and was financed in part
through collections on the note receivable from U S WEST of $602 million in 1995
and $234 million in 1994. Cable capital spending for 1996 is budgeted to be
approximately $1.6 billion and is expected to be funded principally by cable
operating cash flow and $169 million of collections on the remaining portion of
the note receivable from U S WEST. In exchange for certain flexibility in
establishing cable rate pricing structures for regulated services that went into
effect on January 1, 1996 and consistent with Time Warner Cable's long-term
strategic plan, Time Warner Cable has agreed with the FCC to invest a total of
$4 billion in capital costs in connection with the upgrade of its cable
infrastructure, which is expected to be substantially completed over the next
five years. The agreement with the FCC covers all of the cable operations of
Time Warner Cable, including the owned or managed cable television systems of
Time Warner, TWE and the TWE-Advance/Newhouse Partnership. Management expects to
continue to finance such level of investment principally through the growth in
cable operating cash flow derived from increases in subscribers and cable rates,
borrowings under the New Credit Agreement and the development of new revenue
streams from expanded programming options, high speed data transmission,
telephony and other services.
OFF-BALANCE SHEET ASSETS
As discussed below, Time Warner believes that the value of certain
off-balance sheet assets should be considered, along with other factors
discussed elsewhere herein, in evaluating the Company's financial condition and
prospects for future results of operations, including its ability to fund its
capital and liquidity needs.
INTANGIBLE ASSETS
As a creator and distributor of branded information and entertainment
copyrights, Time Warner and the Entertainment Group have a significant amount of
internally-generated intangible assets whose value is not fully reflected in
their respective consolidated balance sheets. Such intangible assets extend
across Time Warner's principal business interests, but are best exemplified by
Time Warner's collection of copyrighted music product,
F-16
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
its interests in Warner Bros.' and HBO's copyrighted film and television product
libraries, and the creation or extension of brands, as in the case of Time
Inc.'s new magazine titles or The WB Network. Generally accepted accounting
principles do not recognize the value of such assets, except at the time they
may be acquired in a business combination accounted for by the purchase method
of accounting.
Because Time Warner owns the copyrights to such creative material, it
continually generates revenue through the sale of such products across different
media and in new and existing markets. The value of film and television-related
copyrighted product and trademarks is continually realized by the licensing of
films and television series to secondary markets and the licensing of
trademarks, such as the Looney Tunes characters and Batman, to the retail
industry and other markets. In addition, technological advances, such as the
introduction of the compact disc and home videocassette in the 1980's and
potentially the digital versatile disc in the future, have historically
generated significant revenue opportunities through the repackaging and sale of
such copyrighted products under the new technological format. Accordingly, such
intangible assets have significant off-balance sheet asset value that is not
fully reflected in the consolidated balance sheets of Time Warner or the
Entertainment Group.
WARNER BROS. BACKLOG
Warner Bros.' backlog, representing the amount of future revenue not yet
recorded from cash contracts for the licensing of theatrical and television
product for pay cable, network, basic cable and syndicated television
exhibition, amounted to $1.056 billion at December 31, 1995, compared to $852
million at December 31, 1994 (including amounts relating to HBO of $175 million
at each date). Because such contracts are for the licensing of theatrical and
television product which have already been produced, the recognition of revenue
is principally only dependent upon the commencement of the availability period
for telecast under the terms of the related licensing agreement. In addition,
cash licensing fees are collected periodically over the term of the related
licensing agreements. Accordingly, the portion of backlog for which cash
advances have not already been received has significant off-balance sheet asset
value as a source of future funding. The backlog excludes advertising barter
contracts, which are also expected to result in the future realization of cash
through the sale of advertising spots received under such contracts.
INTEREST RATE AND FOREIGN CURRENCY RISK MANAGEMENT
INTEREST RATE SWAP CONTRACTS
Time Warner uses interest rate swap contracts to adjust the proportion of
total debt that is subject to variable and fixed interest rates. At December 31,
1995, Time Warner had interest rate swap contracts to pay floating-rates of
interest (average six-month LIBOR rate of 5.9%) and receive fixed-rates of
interest (average rate of 5.4%) on $2.6 billion notional amount of indebtedness,
which resulted in approximately 43% of Time Warner's underlying debt, and 41% of
the debt of Time Warner and the Entertainment Group combined, being subject to
variable interest rates. The notional amount of outstanding contracts at
December 31, 1995 by year of maturity, along with the related average
fixed-rates of interest to be received and the average floating-rates of
interest to be paid, are as follows: 1996-$300 million (receive-4.6%; pay-5.9%);
1998-$700 million (receive-5.5%; pay-5.8%); 1999-$1.2 billion (receive-5.5%;
pay-5.9%); and 2000-$400 million (receive-5.5%; pay-5.9%). At December 31, 1994,
Time Warner had interest rate swap contracts on $2.9 billion notional amount of
indebtedness.
F-17
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Based on the level of interest rates prevailing at December 31, 1995, the
fair value of Time Warner's fixed-rate debt exceeded its carrying value by $407
million and it would have cost $9 million to terminate the related interest rate
swap contracts, which combined is the equivalent of an unrealized loss of $416
million. Based on Time Warner's fixed-rate debt and related interest rate swap
contracts outstanding at December 31, 1995, each 25 basis point increase or
decrease in the level of interest rates prevailing at December 31, 1995 would
result in a net reduction or increase in the combined unrealized loss of
approximately $185 million, respectively, including respective costs or savings
of $16 million to terminate the related interest rate swap contracts. Based on
the level of interest rates prevailing at December 31, 1994, the fair value of
Time Warner's fixed-rate debt was $572 million less than its carrying value and
it would have cost $236 million to terminate its interest rate swap contracts,
which combined was the equivalent of an unrealized gain of $336 million.
Unrealized gains or losses on debt or interest rate swap contracts are not
recognized unless the debt is retired or the contracts are terminated prior to
their maturity.
Although changes in the unrealized gains or losses on interest rate swap
contracts and debt do not result in the realization or expenditure of cash
unless the contracts are terminated or the debt is retired, each 25 basis point
increase or decrease in the level of interest rates related to Time Warner's
variable-rate debt and interest rate swap contracts would respectively increase
or decrease Time Warner's annual interest expense and related cash payments by
approximately $12 million, including $7 million related to interest rate swap
contracts.
FOREIGN EXCHANGE CONTRACTS
Time Warner uses foreign exchange contracts primarily to hedge the risk
that unremitted or future royalties and license fees owed to Time Warner or TWE
domestic companies for the sale or anticipated sale of U.S. copyrighted products
abroad may be adversely affected by changes in foreign currency exchange rates.
As part of its overall strategy to manage the level of exposure to the risk of
foreign currency exchange rate fluctuations, Time Warner hedges a portion of its
and TWE's combined foreign currency exposures anticipated over the ensuing
twelve month period. At December 31, 1995, Time Warner has effectively hedged
approximately half of the combined estimated foreign currency exposures that
principally relate to anticipated cash flows to be remitted to the U.S. over the
ensuing twelve month period, using foreign exchange contracts that generally
have maturities of three months or less, which are generally rolled over to
provide continuing coverage throughout the year. Time Warner often closes
foreign exchange sale contracts by purchasing an offsetting purchase contract.
At December 31, 1995, Time Warner had contracts for the sale of $504 million and
the purchase of $140 million of foreign currencies at fixed rates, primarily
English pounds (29% of net contract value), German marks (19%), Canadian dollars
(16%), French francs (16%) and Japanese yen (5%), compared to contracts for the
sale of $551 million and the purchase of $109 million of foreign currencies at
December 31, 1994.
Unrealized gains or losses related to foreign exchange contracts are
recorded in income as the market value of such contracts change; accordingly,
the carrying value of foreign exchange contracts approximates market value. The
carrying value of foreign exchange contracts was not material at December 31,
1995 and 1994. No cash is required to be received or paid with respect to the
realization of such gains and losses until the related foreign exchange
contracts are settled, generally at their respective maturity dates. In 1995 and
1994, Time Warner had $20 million and $33 million, respectively, and TWE had $11
million and $20 million, respectively, of net losses on foreign exchange
contracts, which were or are expected to be offset by corresponding increases in
the dollar value of foreign currency royalties and license fee payments that
have been or are anticipated to be received in cash from the sale of U.S.
copyrighted products abroad. Time Warner reimburses or is reimbursed by TWE for
contract gains and losses related to TWE's foreign currency exposure. Foreign
currency contracts are placed with a number of major financial institutions in
order to minimize credit risk.
F-18
<PAGE>
<PAGE>
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Based on the foreign exchange contracts outstanding at December 31, 1995,
each 5% devaluation of the U.S. dollar as compared to the level of foreign
exchange rates for currencies under contract at December 31, 1995 would result
in approximately $25 million of unrealized losses and $7 million of unrealized
gains on foreign exchange contracts involving foreign currency sales and
purchases, respectively. Conversely, a 5% appreciation of the U.S. dollar would
result in $25 million of unrealized gains and $7 million of unrealized losses,
respectively. At December 31, 1995, none of Time Warner's foreign exchange
purchase contracts relates to TWE's foreign currency exposure. However, with
regard to the $25 million of unrealized losses or gains on foreign exchange sale
contracts, Time Warner would be reimbursed by TWE, or would reimburse TWE,
respectively, for approximately $6 million related to TWE's foreign currency
exposure. Consistent with the nature of the economic hedge provided by such
foreign exchange contracts, such unrealized gains or losses would be offset by
corresponding decreases or increases, respectively, in the dollar value of
future foreign currency royalty and license fee payments that would be received
in cash within the ensuing twelve month period from the sale of U.S. copyrighted
products abroad.
F-19
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents.......................................................................... $ 628 $ 282
Receivables, less allowances of $786 and $768................................................. 1,755 1,439
Inventories................................................................................... 443 370
Prepaid expenses.............................................................................. 894 726
------- -------
Total current assets.......................................................................... 3,720 2,817
Cash and equivalents segregated for redemption of long-term debt.............................. 557 --
Investments in and amounts due to and from Entertainment Group................................ 5,734 5,350
Other investments............................................................................. 2,389 1,555
Land and buildings............................................................................ 431 412
Cable television equipment.................................................................... 361 --
Furniture, fixtures and other equipment....................................................... 1,196 998
------- -------
1,988 1,410
Less accumulated depreciation................................................................. (869) (657)
------- -------
Property, plant and equipment................................................................. 1,119 753
Music catalogues, contracts and copyrights.................................................... 1,140 1,207
Cable television franchises................................................................... 1,696 --
Goodwill...................................................................................... 5,213 4,630
Other assets.................................................................................. 564 404
------- -------
Total assets.................................................................................. $22,132 $16,716
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.............................................................................. $ 672 $ 648
Royalties payable............................................................................. 755 731
Debt due within one year...................................................................... 34 355
Other current liabilities..................................................................... 1,566 1,238
------- -------
Total current liabilities..................................................................... 3,027 2,972
Long-term debt................................................................................ 9,907 8,839
Deferred income taxes......................................................................... 3,420 2,700
Unearned portion of paid subscriptions........................................................ 654 631
Other liabilities............................................................................. 508 426
Company-obligated mandatorily redeemable preferred securities of subsidiaries
holding solely subordinated notes and debentures of the Company (a)......................... 949 --
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value, 250 million shares authorized, 29.7 million and 962 thousand
shares
outstanding, $2.994 billion and $140 million liquidation preference......................... 30 1
Common stock, $1 par value, 750 million shares authorized, 387.7 million and 379.3 million
shares outstanding.......................................................................... 388 379
Paid-in capital............................................................................... 5,422 2,588
Unrealized gains on certain marketable securities............................................. 116 130
Accumulated deficit........................................................................... (2,289) (1,950)
------- -------
Total shareholders' equity.................................................................... 3,667 1,148
------- -------
Total liabilities and shareholders' equity.................................................... $22,132 $16,716
------- -------
------- -------
</TABLE>
- ------------
(a) Includes $374 million of preferred securities that are redeemable for cash
or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner (Note 8).
See accompanying notes.
F-20
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues (a).......................................................................... $8,067 $7,396 $6,581
------ ------ ------
Cost of revenues (a)(b)............................................................... 4,682 4,307 3,780
Selling, general and administrative (a)(b)............................................ 2,688 2,376 2,210
------ ------ ------
Operating expenses.................................................................... 7,370 6,683 5,990
------ ------ ------
Business segment operating income..................................................... 697 713 591
Equity in pretax income of Entertainment Group(a)..................................... 256 176 281
Interest and other, net (a)........................................................... (877) (724) (718)
Corporate expenses (a)................................................................ (74) (76) (73)
------ ------ ------
Income before income taxes............................................................ 2 89 81
Income taxes.......................................................................... (126) (180) (245)
------ ------ ------
Loss before extraordinary item........................................................ (124) (91) (164)
Extraordinary loss on retirement of debt, net of $26 million and $37 million
income tax benefit in 1995 and 1993, respectively................................... (42) -- (57)
------ ------ ------
Net loss.............................................................................. (166) (91) (221)
Preferred dividend requirements....................................................... (52) (13) (118)
------ ------ ------
Net loss applicable to common shares.................................................. $ (218) $ (104) $ (339)
------ ------ ------
------ ------ ------
Loss per common share:
Loss before extraordinary item........................................................ $ (.46) $ (.27) $ (.75)
------ ------ ------
------ ------ ------
Net loss.............................................................................. $ (.57) $ (.27) $ (.90)
------ ------ ------
------ ------ ------
Average common shares................................................................. 383.8 378.9 374.7
------ ------ ------
------ ------ ------
</TABLE>
- ------------
(a) Includes the following income (expenses) resulting from transactions with
the Entertainment Group and other related companies for the years ended
December 31, 1995, 1994 and 1993, respectively: revenues-$211 million, $203
million and $170 million; cost of revenues-$(108) million, $(109) million
and $(87) million; selling, general and administrative-$46 million, $47
million and $59 million; equity in pretax income of Entertainment
Group-$(95) million, $(120) million and $(115) million; interest and other,
net-$(27) million, $13 million and $(4) million; and corporate expenses-$64
million, $60 million and $60 million.
<TABLE>
<S> <C> <C> <C>
(b) Includes depreciation and amortization expense of:................................ $ 559 $ 437 $ 424
------ ------ ------
------ ------ ------
</TABLE>
See accompanying notes.
F-21
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- -------
<S> <C> <C> <C>
OPERATIONS
Net loss.............................................................................. $ (166) $ (91) $ (221)
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt.............................................. 42 -- 57
One-time tax charge (a)............................................................... -- -- 70
Depreciation and amortization......................................................... 559 437 424
Noncash interest expense.............................................................. 176 219 185
Excess (deficiency) of distributions over equity in pretax income of Entertainment
Group............................................................................... 807 (56) (261)
Equity in income of other investee companies, net of distributions.................... (16) (17) --
Changes in operating assets and liabilities:
Receivables....................................................................... (68) (47) (71)
Inventories....................................................................... (52) (38) 20
Accounts payable and other liabilities............................................ 160 324 206
Other balance sheet changes....................................................... (391) (258) (152)
------- ----- -------
Cash provided by operations........................................................... 1,051 473 257
------- ----- -------
INVESTING ACTIVITIES
Investments and acquisitions.......................................................... (381) (187) (175)
Capital expenditures.................................................................. (266) (164) (198)
Investment proceeds................................................................... 376 118 103
------- ----- -------
Cash used by investing activities..................................................... (271) (233) (270)
------- ----- -------
FINANCING ACTIVITIES
Borrowings............................................................................ 2,023 582 4,714
Debt repayments....................................................................... (2,693) (626) (1,599)
Issuance of Company-obligated mandatorily redeemable preferred securities of
subsidiaries........................................................................ 949 -- --
Redemption of old Series D preferred stock............................................ -- -- (3,494)
Dividends paid........................................................................ (171) (142) (299)
Stock option and dividend reinvestment plans.......................................... 106 34 92
Other, principally financing costs.................................................... (91) (6) (143)
------- ----- -------
Cash provided (used) by financing activities.......................................... 123 (158) (729)
------- ----- -------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS........................................... 903 82 (742)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD........................................... 282 200 942
------- ----- -------
CASH AND EQUIVALENTS AT END OF PERIOD (B)............................................. $ 1,185 $ 282 $ 200
------- ----- -------
------- ----- -------
</TABLE>
- ------------
(a) Reflects a $70 million increase in Time Warner's deferred income tax
liability as a result of new tax law enacted in 1993.
(b) Includes current and noncurrent cash and equivalents at December 31, 1995.
See accompanying notes.
F-22
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED COMMON PAID-IN UNREALIZED ACCUMULATED
STOCK STOCK CAPITAL GAINS DEFICIT TOTAL
--------- ------ ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992................... $ 129 $372 $8,606 $ -- $ (940) $ 8,167
Net loss....................................... (221) (221)
Dividends on common stock-$.31 per share....... (116) (116)
Dividends on Series B preferred stock-$9.28 per
share........................................ 4 (13) (9)
Dividends on old Series C and D preferred stock
to dates of redemption or exchange........... (106) (106)
Exchange of old Series C preferred stock and
redemption of old Series D preferred stock... (128) (6,240) (311) (6,679)
Unrealized gains on certain marketable equity
investments at adoption of FAS 115........... 205 205
Shares issued pursuant to stock option and
dividend reinvestment plans.................. 4 116 120
Other.......................................... 2 51 (44) 9
--------- ------ ------- ----- ----------- -------
BALANCE AT DECEMBER 31, 1993................... 1 378 2,537 205 (1,751) 1,370
Net loss....................................... (91) (91)
Dividends on common stock-$.35 per share ($.09
per share per quarter effective for the
second quarter of 1994)...................... (133) (133)
Dividends on Series B preferred stock-$9.28 per
share........................................ 4 (13) (9)
Unrealized losses on certain marketable equity
investments.................................. (75) (75)
Shares issued pursuant to stock option and
dividend reinvestment plans.................. 1 53 54
Other.......................................... (6) 38 32
--------- ------ ------- ----- ----------- -------
BALANCE AT DECEMBER 31, 1994................... 1 379 2,588 130 (1,950) 1,148
Net loss....................................... (166) (166)
Dividends on common stock-$.36 per share....... (138) (138)
Dividends on Series B preferred stock-$6.40 per
share........................................ 3 (8) (5)
Dividends on new Series C, D, G, H and I
preferred stock-$3.75 per share per year
effective from the respective dates of
issuance..................................... (44) (44)
Issuance of common and preferred stock in the
KBLCOM and Summit acquisitions............... 14 3 1,367 1,384
Issuance of preferred stock in the
ITOCHU/Toshiba Transaction................... 15 1,335 1,350
Unrealized losses on certain marketable equity
investments.................................. (14) (14)
Shares issued pursuant to stock option and
dividend reinvestment plans.................. 4 122 126
Other.......................................... 2 7 17 26
--------- ------ ------- ----- ----------- -------
BALANCE AT DECEMBER 31, 1995................... $ 30 $388 $5,422 $116 $(2,289) $ 3,667
--------- ------ ------- ----- ----------- -------
--------- ------ ------- ----- ----------- -------
</TABLE>
See accompanying notes.
F-23
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Time Warner Inc. ('Time Warner' or the 'Company') is the world's leading
media company, whose principal business objective is to create and distribute
branded information and entertainment copyrights throughout the world. Time
Warner has interests in three fundamental areas of business: Entertainment,
consisting principally of interests in recorded music and music publishing,
filmed entertainment, broadcasting, theme parks and cable television
programming; News and Information, consisting principally of interests in
magazine publishing, book publishing and direct marketing; and
Telecommunications, consisting principally of interests in cable television
systems. Substantially all of Time Warner's interests in filmed entertainment,
broadcasting, theme parks, cable television programming and most of its cable
television systems are held through Time Warner Entertainment Company, L.P.
('TWE'), a partnership in which Time Warner owns a 74.49% residual equity
interest and certain priority capital interests senior thereto. Time Warner does
not consolidate TWE and certain related companies (the 'Entertainment Group')
for financial reporting purposes because of certain limited partnership approval
rights related to TWE's interest in certain cable television systems.
Each of the business interests within Entertainment, News and Information
and Telecommunications is important to management's objective of increasing
shareholder value through the creation, extension and distribution of
recognizable brands and copyrights throughout the world. Such brands and
copyrights include (1) copyrighted music from many of the world's leading
recording artists that is produced and distributed by a family of established
record labels such as Warner Bros. Records, the Atlantic and Elektra
Entertainment Groups and Warner Music International, (2) the unique and
extensive film and television libraries of Warner Bros. and trademarks such as
the Looney Tunes characters and Batman, (3) The WB Network, a new national
broadcasting network launched in 1995 as an extension of the Warner Bros. brand
and as an additional distribution outlet for Warner Bros.' collection of
children cartoons and television programming, (4) Six Flags, the largest
regional theme park operator in the United States, in which TWE owns a 49%
interest, (5) HBO and Cinemax, the leading pay television services, (6) magazine
franchises such as Time, People and Sports Illustrated and direct marketing
brands such as Time Life Inc. and Book-of-the-Month Club and (7) Time Warner
Cable, the second largest operator of cable television systems in the U.S.
The operating results of Time Warner's various business interests are
presented herein as an indication of financial performance (Note 13). Except for
start-up losses incurred in an effort to create value in a branded national
broadcasting network, Time Warner's principal business interests generate
significant operating income and cash flow from operations. The cash flow from
operations generated by such business interests is significantly greater than
their operating income due to significant amounts of noncash amortization of
intangible assets recognized in various acquisitions accounted for by the
purchase method of accounting. Noncash amortization of intangible assets
recorded by Time Warner's business interests, including the unconsolidated
business interests of the Entertainment Group, amounted to $822 million in 1995,
$782 million in 1994 and $768 million in 1993.
BASIS OF CONSOLIDATION AND
ACCOUNTING FOR INVESTMENTS
The consolidated financial statements include 100% of the assets,
liabilities, revenues, expenses, income, loss and cash flows of Time Warner and
all companies in which Time Warner has a controlling voting interest
('subsidiaries'), as if Time Warner and its subsidiaries were a single company.
Significant intercompany accounts and transactions between the consolidated
companies have been eliminated.
The Entertainment Group and investments in certain other companies in which
Time Warner has significant influence but less than a controlling voting
interest, are accounted for using the equity method. Under the equity
F-24
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
method, only Time Warner's investment in and amounts due to and from the equity
investee are included in the consolidated balance sheet, only Time Warner's
share of the investee's earnings is included in the consolidated operating
results, and only the dividends, cash distributions, loans or other cash
received from the investee, less any additional cash investment, loan repayments
or other cash paid to the investee are included in the consolidated cash flows.
In accordance with Financial Accounting Standards Board ('FASB') Statement
No. 115, 'Accounting For Certain Investments in Debt and Equity Securities,'
('FAS 115') investments in companies in which Time Warner does not have the
controlling interest or an ownership and voting interest so large as to exert
significant influence are accounted for at market value if the investments are
publicly traded and there are no resale restrictions, or at cost, if the sale of
a publicly-traded investment is restricted or if the investment is not publicly
traded. Unrealized gains and losses on investments accounted for at market value
are reported net-of-tax in a separate component of shareholders' equity until
the investment is sold, at which time the realized gain or loss is included in
income. Dividends and other distributions of earnings from both market value and
cost method investments are included in income when declared.
The effect of any changes in Time Warner's ownership interests resulting
from the issuance of equity capital by consolidated subsidiaries or equity
investees to unaffiliated parties is included in income.
FOREIGN CURRENCY
The financial position and operating results of substantially all foreign
operations are consolidated using the local currency as the functional currency.
Local currency assets and liabilities are translated at the rates of exchange on
the balance sheet date, and local currency revenues and expenses are translated
at average rates of exchange during the period. Resulting translation gains or
losses, which have not been material, are included in accumulated deficit.
Foreign currency transaction gains and losses, which have not been material, are
included in operating results.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Significant estimates inherent in the preparation of the accompanying
consolidated financial statements include management's forecast of anticipated
revenues from the sale of future and existing music and publishing-related
products in order to evaluate the ultimate recoverability of accounts
receivables and artist and author advances recorded as assets in the
consolidated balance sheet. Accounts receivables and sales in the music and
publishing industries are subject to customers' rights to return unsold items.
Management periodically reviews such estimates and it is reasonably possible
that management's assessment of recoverability of accounts receivables and
individual artist and author advances may change based on actual results and
other factors.
REVENUES AND COSTS
The unearned portion of paid subscriptions is deferred until magazines are
delivered to subscribers. Upon each delivery, a proportionate share of the gross
subscription price is included in revenues.
Inventories of magazines, books, cassettes and compact discs are stated at
the lower of cost or estimated realizable value. Cost is determined using
first-in, first-out; last-in, first-out; and average cost methods. In accordance
with industry practice, certain products (such as magazines, books, compact
discs and cassettes) are sold to customers with the right to return unsold
items. Revenues from such sales represent gross sales less a
F-25
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
provision for future returns. Returned goods included in inventory are valued at
estimated realizable value but not in excess of cost.
A significant portion of cable system revenues are derived from subscriber
fees, which are recorded as revenue in the period the service is provided.
ADVERTISING
Advertising costs are expensed upon the first exhibition of the
advertisement, except for certain direct-response advertising, for which the
costs are capitalized and amortized over the expected period of future benefits.
Direct-response advertising principally consists of product promotional
mailings, broadcast advertising, catalogs and other promotional costs incurred
in the Company's direct-marketing businesses. Deferred advertising costs are
generally amortized over periods of up to three years subsequent to the
promotional event using straight-line or accelerated methods, with a significant
portion of such costs amortized in twelve months or less. Deferred advertising
costs for Time Warner amounted to $195 million and $175 million at December 31,
1995 and 1994, respectively. Advertising expense for Time Warner amounted to
$1.045 billion in 1995, $931 million in 1994 and $831 million in 1993.
CASH AND EQUIVALENTS
Cash equivalents consist of commercial paper and other investments that are
readily convertible into cash, and have original maturities of three months or
less. Noncurrent cash and equivalents at December 31, 1995 consist of net
proceeds received from the issuance of Preferred Trust Securities in December
1995, which were segregated for the redemption of the 8.75% Convertible
Debentures in February 1996 (Notes 6 and 8).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions to cable
property, plant and equipment generally include material, labor, overhead and
interest. Depreciation is provided generally on the straight-line method over
useful lives ranging up to twenty-five years for buildings and improvements and
up to fifteen years for furniture, fixtures, cable television equipment and
other equipment.
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, 'Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of,' ('FAS 121') effective for fiscal years beginning
after December 15, 1995. The new rules establish standards for the recognition
and measurement of impairment losses on long-lived assets and certain intangible
assets. Time Warner expects that the adoption of FAS 121 will not have a
material effect on its financial statements.
INTANGIBLE ASSETS
As a creator and distributor of branded information and entertainment
copyrights, Time Warner has a significant and growing amount of intangible
assets, including goodwill, cable television franchises and music catalogues,
contracts and copyrights. In accordance with generally accepted accounting
principles, Time Warner does not recognize the fair value of
internally-generated intangible assets. Costs incurred to create and produce
copyrighted product, such as compact discs and cassettes, are generally either
expensed as incurred, or capitalized as tangible assets as in the case of cash
advances and inventoriable product costs. However, accounting recognition is not
given to any increasing asset value that may be associated with the collection
of the underlying copyrighted material. Additionally, costs incurred to create
or extend brands, such as magazine titles, generally result in losses over an
extended development period and are recognized as a reduction of income as
incurred, while any corresponding brand value created is not recognized as an
intangible asset in the consolidated balance sheet. On the other hand,
intangible assets acquired in business combinations accounted for
F-26
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by the purchase method of accounting are capitalized and amortized over their
expected useful life as a noncash charge against future results of operations.
Accordingly, the intangible assets reported in the consolidated balance sheet do
not reflect the fair value of Time Warner's internally-generated intangible
assets, but rather are limited to intangible assets resulting from certain
acquisitions in which the cost of the acquired companies exceeded the fair value
of their tangible assets at the time of acquisition.
Time Warner amortizes goodwill over periods up to forty years using the
straight-line method. Cable television franchises, music catalogues, contracts
and copyrights, and other intangible assets are amortized over periods up to
twenty years using the straight-line method. In 1995, 1994 and 1993,
amortization of goodwill amounted to $175 million, $158 million and $148
million, respectively; amortization of music copyrights, artists' contracts and
record catalogues amounted to $118 million, $115 million and $113 million,
respectively; amortization of other intangible assets amounted to $43 million,
$31 million and $31 million, respectively; and amortization of cable television
franchises amounted to $42 million in 1995. Accumulated amortization of
intangible assets at December 31, 1995 and 1994 amounted to $1.845 billion and
$1.505 billion, respectively.
Time Warner separately reviews the carrying value of acquired intangible
assets for each acquired entity on a quarterly basis to determine whether an
impairment may exist. Time Warner considers relevant cash flow and profitability
information, including estimated future operating results, trends and other
available information, in assessing whether the carrying value of intangible
assets can be recovered. Upon a determination that the carrying value of
intangible assets will not be recovered from the undiscounted future cash flows
of the acquired business, the carrying value of such intangible assets would be
considered impaired and will be reduced by a charge to operations in the amount
of the impairment. Impairment is measured as any deficiency in estimated
undiscounted future cash flows of the acquired business to recover the carrying
value related to the intangible assets.
INCOME TAXES
Income taxes are provided using the liability method prescribed by FASB
Statement No. 109, 'Accounting for Income Taxes.' Under the liability method,
deferred income taxes reflect tax carryforwards and the net tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial statement and income tax purposes, as determined under enacted tax
laws and rates. The financial effect of changes in tax laws or rates is
accounted for in the period of enactment.
Realization of the net operating loss and investment tax credit
carryforwards, which were acquired in acquisitions, are accounted for as a
reduction of goodwill.
The principal operations of the Entertainment Group are conducted by
partnerships. Income tax expense includes all income taxes related to Time
Warner's allocable share of partnership income and its equity in the income tax
expense of corporate subsidiaries of the partnerships.
STOCK OPTIONS
In accordance with Accounting Principles Board Opinion No. 25, 'Accounting
for Stock Issued to Employees,' compensation cost for stock options is
recognized in income based on the excess, if any, of the quoted market price of
the stock at the grant date of the award or other measurement date over the
amount an employee must pay to acquire the stock. The exercise price for stock
options granted to employees equals or exceeds the fair market value of Time
Warner common stock at the date of grant, thereby resulting in no recognition of
compensation expense by Time Warner.
F-27
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LOSS PER COMMON SHARE
Loss per common share is based upon the net loss applicable to common
shares after preferred dividend requirements and upon the weighted average of
common shares outstanding during the period. The conversion of securities
convertible into common stock and the exercise of stock options were not assumed
in the calculations of loss per common share because the effect would have been
antidilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1995 presentation.
2. ENTERTAINMENT GROUP
Time Warner's investment in and amounts due to and from the Entertainment
Group at December 31, 1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Investment in TWE.............................................................................. $6,179 $5,284
Income tax and stock option related distributions due from TWE................................. 122 423
Credit agreement debt due to TWE............................................................... (400) (400)
Other liabilities due to TWE, principally related to home video distribution................... (354) (266)
Other receivables due from TWE................................................................. 76 --
------ ------
Investment in and amounts due to and from TWE.................................................. 5,623 5,041
Investment in other Entertainment Group companies.............................................. 111 309
------ ------
Total.......................................................................................... $5,734 $5,350
------ ------
------ ------
</TABLE>
TWE is a Delaware limited partnership that was capitalized on June 30, 1992
to own and operate substantially all of the Filmed Entertainment,
Programming-HBO and Cable businesses previously owned by subsidiaries of Time
Warner. Certain Time Warner subsidiaries are the general partners of TWE ('Time
Warner General Partners'). Time Warner acquired the aggregate 11.22% limited
partnership interests previously held by subsidiaries of each of ITOCHU
Corporation ('ITOCHU') and Toshiba Corporation ('Toshiba') in 1995 for an
aggregate cost of $1.36 billion, consisting of 15 million shares of convertible
preferred stock (Series G Preferred Stock, Series H Preferred Stock and Series I
Preferred Stock) and $10 million in cash (the 'ITOCHU/Toshiba Transaction'). The
ITOCHU/Toshiba Transaction was accounted for by the purchase method of
accounting for business combinations.
After the ITOCHU/Toshiba Transaction, Time Warner and certain of its
wholly-owned subsidiaries collectively own 74.49% of the pro rata priority
capital and residual equity interests in TWE, and certain additional senior and
junior priority capital interests. The remaining 25.51% pro rata priority
capital and residual equity limited partnership interests are held by a
subsidiary of U S WEST, Inc. ('U S WEST'), which acquired such interests in 1993
for $1.532 billion of cash and a $1.021 billion 4.4% note (the 'U S WEST Note').
Each partner's interest in TWE consists of the initial priority capital and
residual equity amounts that were assigned to that partner or its predecessor
based on the estimated fair value of the net assets each contributed to the
partnership, as adjusted for the fair value of certain assets distributed by TWE
to the Time Warner General Partners in 1993 which were not subsequently
reacquired by TWE in 1995 ('Contributed Capital'), plus, with respect to the
priority capital interests only, any undistributed priority capital return. The
priority capital return consists of net partnership income allocated to date in
accordance with the provisions of the TWE partnership
F-28
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement and the right to be allocated additional partnership income which,
together with any previously allocated net partnership income, provides for the
various priority capital rates of return specified in the table below. The sum
of Contributed Capital and the undistributed priority capital return is referred
to as 'Cumulative Priority Capital.' Cumulative Priority Capital is not
necessarily indicative of the fair value of the underlying priority capital
interests principally due to above-market rates of return on certain priority
capital interests as compared to securities of comparable credit risk and
maturity, such as the 13.25% rate of return on the junior priority capital
interest owned by subsidiaries of Time Warner. Furthermore, the ultimate
realization of Cumulative Priority Capital could be affected by the fair value
of TWE, which is subject to fluctuation.
A summary of the priority of Contributed Capital, Time Warner's ownership
of Contributed Capital and Cumulative Priority Capital at December 31, 1995 and
priority capital rates of return thereon is set forth below:
<TABLE>
<CAPTION>
CUMULATIVE
CONTRIBUTED PRIORITY PRIORITY CAPITAL RATES % OWNED BY
PRIORITY OF CONTRIBUTED CAPITAL CAPITAL(A) CAPITAL OF RETURN(B) TIME WARNER
----------- ---------- ----------------------- -----------
(% PER ANNUM
COMPOUNDED
(BILLIONS) QUARTERLY)
<S> <C> <C> <C> <C>
Senior priority capital............................... $ 1.4 $1.4(c) 8.00% 100.00%
Pro rata priority capital............................. 5.6 8.7 13.00%(d) 74.49%
Junior priority capital............................... 2.9 4.6 13.25%(e) 100.00%
Residual equity capital............................... 3.3 3.3(f) -- (f) 74.49%
</TABLE>
- ------------
(a) Excludes partnership income or loss allocated thereto.
(b) Income allocations related to priority capital rates of return are based on
partnership income after any special tax allocations.
(c) Net of $366 million of partnership income distributed in 1995 representing
the priority capital return thereon through June 30, 1995.
(d) 11.00% to the extent concurrently distributed.
(e) 11.25% to the extent concurrently distributed.
(f) Residual equity capital is not entitled to stated priority rates of return
and, as such, its Cumulative Priority Capital is equal to its Contributed
Capital. However, in the case of certain events such as the liquidation or
dissolution of TWE, residual equity capital is entitled to any excess of the
fair value of the net assets of TWE over the aggregate amount of Cumulative
Priority Capital and special tax allocations. The residual equity
Contributed Capital has priority over the priority returns on junior and pro
rata priority capital.
Because Contributed Capital is based on the fair value of the net assets
that each partner contributed to the partnership, the aggregate of such amounts
is significantly higher than TWE's partners' capital as reflected in the
consolidated financial statements, which is based on the historical cost of the
contributed net assets. For purposes of allocating partnership income or loss to
the partners, partnership income or loss is based on the fair value of the net
assets contributed to the partnership and results in significantly less
partnership income, or results in partnership losses, in contrast to the net
income reported by TWE for financial statement purposes, which is also based on
the historical cost of contributed net assets.
Under the TWE partnership agreement, partnership income, to the extent
earned, is first allocated to the partners so that the economic burden of the
income tax consequences of partnership operations is borne as though the
partnership were taxed as a corporation ('special tax allocations'), then to the
senior priority, pro rata priority and junior priority capital interests, in
order of priority, at rates of return ranging from 8% to 13.25% per annum, and
finally to the residual equity interests. Partnership losses generally are
allocated first to eliminate prior allocations of partnership income to, and
then to reduce the Contributed Capital of, the residual equity, junior priority
capital and pro rata priority capital interests, in that order, then to reduce
the Time Warner General Partners' senior priority capital, including partnership
income allocated thereto, and finally to reduce any special tax allocations. To
the extent partnership income is insufficient to satisfy all special allocations
in a particular accounting period, the right to receive additional partnership
income necessary to provide for the various priority capital rates of return is
carried forward until satisfied out of future partnership income, including any
partnership income that may result from any liquidation or dissolution of TWE.
F-29
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The TWE partnership agreement provides, under certain circumstances, for
the distribution of partnership income allocated to the senior priority capital
owned by the Time Warner General Partners. Pursuant to such provision, $366
million of partnership income was distributed to the Time Warner General
Partners in 1995. The senior priority capital and, to the extent not previously
distributed, partnership income allocated thereto is required to be distributed
in three annual installments beginning on July 1, 1997. The junior priority
capital owned by subsidiaries of Time Warner may be increased if certain
operating performance targets are achieved over a five-year period ending on
December 31, 1996 and a ten-year period ending on December 31, 2001. Although
satisfaction of the ten-year operating performance target is indeterminable at
this time, it is not expected that the five-year target will be attained.
TWE reported net income of $73 million, $161 million and $198 million in
1995, 1994 and 1993, respectively, no portion of which was allocated to the
limited partners. Time Warner did not recognize a gain when TWE was capitalized.
TWE recorded the assets contributed by the Time Warner General Partners at Time
Warner's historical cost. The excess of the Time Warner General Partners'
interest in the net assets of TWE over the net book value of their investment in
TWE is being amortized to income over a twenty year period.
U S WEST has an option to obtain up to an additional 6.33% of pro rata
priority capital and residual equity interests, depending on cable operating
performance. The option is exercisable between January 1, 1999 and on or about
May 31, 2005 at a maximum exercise price of $1.25 billion to $1.8 billion,
depending on the year of exercise. Either U S WEST or TWE may elect that the
exercise price be paid with partnership interests rather than cash.
Each Time Warner General Partner has guaranteed a pro rata portion of
approximately $6 billion of TWE's debt and accrued interest at December 31,
1995, based on the relative fair value of the net assets each Time Warner
General Partner contributed to TWE. Such indebtedness is recourse to each Time
Warner General Partner only to the extent of its guarantee. In addition to their
interests in TWE and the other Entertainment Group companies, the assets of the
Time Warner General Partners include the equivalent of 29.6 million common
shares of Turner Broadcasting System, Inc., 12.1 million common shares of
Hasbro, Inc., 43.7 million common shares of Time Warner, and substantially all
the assets of Time Warner's music business. There are no restrictions on the
ability of the Time Warner General Partner guarantors to transfer assets, other
than TWE assets, to parties that are not guarantors.
Set forth below is summarized financial information of the Entertainment
Group, which reflects the consolidation by TWE of the TWE-Advance/Newhouse
Partnership effective as of April 1, 1995 (Note 4), the deconsolidation of Six
Flags Entertainment Corporation ('Six Flags') effective as of June 23, 1995 and
the consolidation of Paragon Communications ('Paragon') effective as of July 6,
1995.
TIME WARNER ENTERTAINMENT GROUP
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
OPERATING STATEMENT INFORMATION
Revenues.......................................................................... $ 9,629 $ 8,509 $ 7,963
Depreciation and amortization..................................................... 1,060 959 909
Business segment operating income................................................. 992 852 905
Interest and other, net........................................................... 539 616 564
Minority interest................................................................. 133 -- --
Income before income taxes........................................................ 256 176 281
Income before extraordinary item.................................................. 170 136 217
Net income........................................................................ 146 136 207
</TABLE>
F-30
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
CASH FLOW INFORMATION
Cash provided by operations....................................................... $ 1,495 $ 1,341 $ 1,276
Capital expenditures.............................................................. (1,653) (1,235) (613)
Investments and acquisitions...................................................... (217) (186) (368)
Investment proceeds............................................................... 1,120 51 184
Loan to Time Warner............................................................... -- (400) --
Borrowings........................................................................ 2,484 1,001 3,075
Debt repayments................................................................... (3,596) (953) (3,734)
Collections on note receivable from U S WEST...................................... 602 234 16
Capital contributions............................................................. -- -- 1,532
Capital distributions............................................................. (1,063) (120) (20)
Increase (decrease) in cash and equivalents....................................... (862) (267) 1,302
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(MILLIONS)
<S> <C> <C>
BALANCE SHEET INFORMATION
Cash and equivalents....................................................................... $ 209 $ 1,071
Total current assets....................................................................... 2,909 3,571
Total assets............................................................................... 18,960 18,992
Total current liabilities.................................................................. 3,230 2,953
Long-term debt............................................................................. 6,137 7,160
Minority interests......................................................................... 726 --
Time Warner General Partners' senior priority capital, consisting of $1.364 billion
Contributed Capital plus an undistributed priority return................................ 1,426 1,663
Partners' capital, before deduction of the U S WEST Note................................... 6,745 7,262
U S WEST Note.............................................................................. 169 771
</TABLE>
The assets and cash flows of TWE are restricted by the TWE partnership and
credit agreements and are unavailable for use by the partners except through the
payment of certain fees, reimbursements, cash distributions and loans, which are
subject to limitations. At December 31, 1995 and 1994, the Time Warner General
Partners had recorded $122 million and $89 million, respectively, of stock
option related distributions due from TWE, based on closing prices of Time
Warner common stock of $37.875 and $35.125, respectively. Time Warner is paid
when the options are exercised. The Time Warner General Partners also receive
tax-related distributions from TWE. The payment of such distributions was
previously subject to restrictions until July 1995 and is now made to the Time
Warner General Partners on a current basis. At December 31, 1994, the Time
Warner General Partners had accrued $334 million of tax-related distributions
due from TWE. During 1995, the Time Warner General Partners received net
distributions from TWE in the amount of $1.063 billion, consisting of $366
million of TWE partnership income allocated to the Time Warner General Partners'
senior priority capital interest, $680 million of tax-related distributions and
$17 million of stock option related distributions. During 1994 and 1993, the
Time Warner General Partners received net distributions from TWE in the amount
of $120 million and $20 million, respectively, consisting of $115 million of
tax-related distributions and $5 million of stock option related distributions
in 1994, and $20 million of stock option related distributions in 1993. In
addition to the tax, stock option and Time Warner General Partners' senior
priority capital distributions, TWE may make other distributions, generally
depending on excess cash and credit agreement limitations. The Time Warner
General Partners' full share of such distributions may be deferred if the
limited partners do not receive certain threshold amounts by certain dates.
F-31
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 23, 1995, TWE sold 51% of its interest in Six Flags to an
investment group led by Boston Ventures for $204 million and received $640
million in additional proceeds from Six Flags, representing payment of certain
intercompany indebtedness and licensing fees. As a result of the transaction,
Six Flags has been deconsolidated and TWE's remaining 49% interest in Six Flags
is accounted for under the equity method of accounting. TWE reduced debt by
approximately $850 million in connection with the transaction, and a portion of
the income on the transaction has been deferred by TWE principally as a result
of its guarantee of certain third-party, zero-coupon indebtedness of Six Flags
due in 1999.
In the normal course of conducting their businesses, Time Warner and its
subsidiaries and affiliates have had various transactions with TWE and other
Entertainment Group companies, generally on terms resulting from a negotiation
between the affected units that in management's view results in reasonable
allocations. In 1995, TWE and certain subsidiaries of Time Warner entered into
management services agreements, pursuant to which TWE receives fees for the
management of all cable television systems owned by Time Warner. Management fees
paid to TWE in 1995 were not material. In addition, Time Warner provides TWE
with certain corporate support services for which it received a fee in the
amount of $64 million, $60 million and $60 million in 1995, 1994 and 1993,
respectively.
3. TBS TRANSACTION
Time Warner has entered into an Amended and Restated Agreement and Plan of
Merger dated as of September 22, 1995 (the 'Merger Agreement'), which provides
for the merger of each of Time Warner and Turner Broadcasting System, Inc.
('TBS') with separate subsidiaries of a holding company ('New Time Warner' and
collectively, the 'TBS Transaction'). In connection therewith, the issued and
outstanding shares of each class of the capital stock of Time Warner will be
converted into shares of a substantially identical class of capital stock of New
Time Warner. In addition, Time Warner has agreed to enter into certain
agreements and related transactions with certain shareholders of TBS, including
R. E. Turner and Liberty Media Corporation ('LMC'). The Merger Agreement and
certain related agreements provide for the issuance by New Time Warner of
approximately 172.8 million shares of common stock, par value $.01 per share
(including 50.6 million shares of a special class of non-redeemable common stock
to be issued to LMC, the 'LMC Class Common Stock'), in exchange for the
outstanding TBS capital stock, the issuance of approximately 13 million stock
options to replace all outstanding TBS options and the assumption of TBS'
indebtedness (which approximated $2.5 billion at December 31, 1995). As part of
the TBS Transaction, LMC will receive an additional five million shares of LMC
Class Common Stock pursuant to a separate option agreement which, together with
the 50.6 million shares received pursuant to the TBS Transaction, will be placed
in a voting trust or, in certain circumstances, exchanged for shares of another
special class of non-voting, non-redeemable common stock of New Time Warner. The
TBS Transaction will be accounted for by the purchase method of accounting for
business combinations.
The TBS Transaction is subject to customary closing conditions, including
the approval of the shareholders of TBS and of Time Warner, all necessary
approvals of the Federal Communications Commission and appropriate antitrust
approvals. There can be no assurance that all these approvals can be obtained
or, in the case of governmental approvals, if obtained, will not be conditioned
upon changes to the terms of the Merger Agreement or the related agreements.
4. CABLE TRANSACTIONS
On April 1, 1995, TWE formed a cable television joint venture with the
Advance/Newhouse Partnership ('Advance/Newhouse') to which Advance/Newhouse and
TWE contributed cable television systems (or interests therein) serving
approximately 4.5 million subscribers, as well as certain foreign cable
investments and programming investments that included Advance/Newhouse's 10%
interest in Primestar Partners, L.P.
F-32
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
('Primestar'). TWE owns a two-thirds equity interest in the TWE-Advance/Newhouse
Partnership and is the managing partner. TWE consolidates the partnership and
the one-third equity interest owned by Advance/Newhouse is reflected in TWE's
consolidated financial statements as minority interest. In accordance with the
partnership agreement, Advance/Newhouse can require TWE to purchase its equity
interest for fair market value at specified intervals following the death of
both of its principal shareholders. Beginning in the third year, either partner
can initiate a dissolution in which TWE would receive two-thirds and
Advance/Newhouse would receive one-third of the partnership's net assets. The
assets contributed by TWE and Advance/Newhouse to the partnership were recorded
at their predecessor's historical cost. No gain was recognized by TWE upon the
capitalization of the partnership.
On May 2, 1995, Time Warner acquired Summit Communications Group, Inc.
('Summit'), which owned cable television systems serving approximately 162,000
subscribers, in exchange for the issuance of approximately 1.6 million shares of
common stock and approximately 3.3 million shares of a new convertible preferred
stock ('Series C Preferred Stock') and the assumption of $140 million of
indebtedness. The acquisition was accounted for by the purchase method of
accounting for business combinations; accordingly, the cost to acquire Summit of
approximately $351 million was allocated to the net assets acquired in
proportion to estimates of their respective fair values, as follows: cable
television franchises-$372 million; goodwill-$146 million; other current and
noncurrent assets-$144 million; long-term debt-$140 million; deferred income
taxes-$166 million; and other current liabilities-$5 million.
On July 6, 1995, Time Warner acquired KBLCOM Incorporated ('KBLCOM'), which
owned cable television systems serving approximately 700,000 subscribers and a
50% interest in Paragon, which owned cable television systems serving an
additional 972,000 subscribers. The other 50% interest in Paragon was already
owned by TWE. To acquire KBLCOM, Time Warner issued 1 million shares of common
stock and 11 million shares of a new convertible preferred stock ('Series D
Preferred Stock') and assumed or incurred approximately $1.2 billion of
indebtedness. The acquisition was accounted for by the purchase method of
accounting for business combinations; accordingly, the cost to acquire KBLCOM of
approximately $1.033 billion was allocated to the net assets acquired in
proportion to their respective fair values, as follows: investments-$950
million; cable television franchises-$1.366 billion; goodwill-$586 million;
other current and noncurrent assets-$289 million; long-term debt-$1.213 billion;
deferred income taxes-$895 million; and other current liabilities-$50 million.
On January 4, 1996, Time Warner acquired Cablevision Industries Corporation
('CVI') and related companies that owned cable television systems serving
approximately 1.3 million subscribers, in exchange for the issuance of
approximately 2.9 million shares of common stock and approximately 6.5 million
shares of new convertible preferred stock ('Series E Preferred Stock' and
'Series F Preferred Stock') and the assumption or incurrence of approximately $2
billion of indebtedness. The acquisition is not reflected in the accompanying
consolidated financial statements. The acquisition will be accounted for by the
purchase method of accounting for business combinations; accordingly, the cost
to acquire CVI and related companies of $904 million is expected to be
preliminarily allocated to the net assets acquired in proportion to estimates of
their respective fair values, as follows: cable television franchises-$2.390
billion; goodwill-$688 million; other current and noncurrent assets-$481
million; long-term debt-$1.766 billion; deferred income taxes-$731 million; and
other current and noncurrent liabilities-$158 million.
The accompanying consolidated statement of operations includes the
operating results of each business from the respective closing date of each
transaction. On a pro forma basis, giving effect to (i) all of the
aforementioned cable transactions, (ii) the ITOCHU/Toshiba Transaction, (iii)
Time Warner's and TWE's debt refinancings and (iv) the sale of 51% of TWE's
interest in Six Flags and the sale or expected sale or transfer of certain
unclustered cable television systems owned by TWE, as if each of such
transactions had occurred at the beginning of the periods, Time Warner would
have reported for the years ended December 31, 1995 and 1994, revenues of $8.742
billion and $8.217 billion, depreciation and amortization of $935 million and
$906 million,
F-33
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
operating income of $656 million and $653 million, equity in the pretax income
of the Entertainment Group of $286 million and $205 million, a loss before
extraordinary item of $255 million and $266 million ($1.02 and $1.07 per common
share) and a net loss of $297 million and $266 million ($1.13 and $1.07 per
common share), respectively.
5. OTHER INVESTMENTS
Time Warner's other investments consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Equity method investments(1)................................................................... $1,898 $ 985
Market value method investments................................................................ 375 435
Cost method investments........................................................................ 116 135
------ ------
Total.......................................................................................... $2,389 $1,555
------ ------
------ ------
</TABLE>
- ------------
(1) Equity method investments include Time Warner's investment in TBS which was
carried at $541 million at December 31, 1995. Time Warner has agreed to
acquire the remaining interest in TBS that it does not already own (Note 3).
Market value method investments include the fair value of 12.1 million
shares of common stock of Hasbro, Inc. ('Hasbro'). Notwithstanding the market
value per share, such shares can be used, at Time Warner's option, to fully
satisfy either its obligations with respect to the zero coupon exchangeable
notes due 2012 (Note 6) or the Company-obligated mandatorily redeemable
preferred securities of a subsidiary due 1997 (Note 8). Because the issuance of
the mandatorily redeemable preferred securities provides Time Warner with
protection against the risk of depreciation of the market price of Hasbro common
stock and the zero coupon exchangeable notes limit Time Warner's ability to
share in the appreciation of the market price of Hasbro common stock, the
combination thereof has effectively monetized Time Warner's investment in
Hasbro.
In addition to TWE and its equity investees, companies accounted for using
the equity method include TBS (currently 19.6% owned); Cinamerica Theatres, L.P.
(50% owned) and The Columbia House Company partnerships (50% owned) and other
music joint ventures (generally 50% owned). A summary of combined financial
information as reported by the equity investees of Time Warner is set forth
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Revenues.......................................................................... $5,123 $4,444 $3,363
Depreciation and amortization..................................................... 219 182 140
Operating income.................................................................. 547 584 450
Income before extraordinary items and cumulative effect of a change in accounting
principle....................................................................... 188 281 201
Net income (loss)................................................................. 188 256 (135)
Current assets.................................................................... 2,272 2,113 1,586
Total assets...................................................................... 5,851 5,194 4,111
Current liabilities............................................................... 1,318 1,136 755
Long-term debt.................................................................... 3,826 3,730 2,606
Total liabilities................................................................. 5,886 5,423 3,992
Total shareholders' equity or partners' capital................................... (35) (229) 119
</TABLE>
F-34
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- ------
(MILLIONS)
<S> <C> <C>
Time Warner:
7.45% Notes due February 1, 1998............................................................ $ 500 $ 500
7.95% Notes due February 1, 2000............................................................ 500 500
Floating rate notes due August 15, 2000 (6.8% interest rate)................................ 454 --
Redeemable reset notes due August 15, 2002 (8.7% yield)..................................... -- 1,719
7.975% Notes due August 15, 2004............................................................ 272 --
7.75% Notes due June 15, 2005............................................................... 497 --
8.11% Debentures due August 15, 2006........................................................ 545 --
8.18% Debentures due August 15, 2007........................................................ 545 --
Zero coupon exchangeable notes due December 17, 2012 (6.25% yield).......................... 581 547
Zero coupon convertible notes due June 22, 2013 (5% yield).................................. 1,019 970
9.125% Debentures due January 15, 2013...................................................... 1,000 1,000
8.75% Convertible subordinated debentures due January 10, 2015.............................. 1,226 2,226
8.75% Debentures due April 1, 2017.......................................................... 248 248
9.15% Debentures due February 1, 2023....................................................... 1,000 1,000
Credit agreement debt due to TWE (6.8% and 6.7% interest rates)............................. 400 400
Time Warner Cable Subsidiaries:
New Credit Agreement (6.8% interest rate)................................................... 1,265 --
Summit 10.5% Debentures due April 15, 2005.................................................. 140 --
Other....................................................................................... 115 129
------- ------
Subtotal.................................................................................... 10,307 9,239
Reclassification of debt due to TWE to amounts due to the Entertainment Group............... (400) (400)
------- ------
Total....................................................................................... $ 9,907 $8,839
------- ------
------- ------
</TABLE>
DEBT REFINANCINGS
During 1995 and early 1996, in response to favorable market conditions,
Time Warner refinanced approximately $4 billion of its public debt and, in
conjunction with the cable acquisitions entered into a new credit agreement
under which it refinanced approximately $2.7 billion of debt assumed in the
acquisitions, as more fully described below.
In June 1995, a wholly-owned subsidiary of Time Warner ('TWI Cable'), TWE
and the TWE-Advance/Newhouse Partnership executed a five-year revolving credit
facility (the 'New Credit Agreement'). The New Credit Agreement enabled such
entities to refinance certain indebtedness assumed in the cable acquisitions, to
refinance TWE's indebtedness under a pre-existing bank credit agreement and to
finance the ongoing working capital, capital expenditure and other corporate
needs of each borrower.
The New Credit Agreement permits borrowings in an aggregate amount of up to
$8.3 billion, with no scheduled reductions in credit availability prior to
maturity. Borrowings are limited to $4 billion in the case of TWI Cable, $5
billion in the case of the TWE-Advance/Newhouse Partnership and $8.3 billion in
the case of TWE, subject in each case to certain limitations and adjustments.
Such borrowings bear interest at specific rates for each of the three borrowers,
generally equal to LIBOR plus a margin initially ranging from 50 to 87.5 basis
F-35
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
points, which margin will vary based on the credit rating or financial leverage
of the applicable borrower. Unused credit is available for general business
purposes and to support any commercial paper borrowings. Each borrower is
required to pay a commitment fee initially ranging from .2% to .35% per annum on
the unused portion of its commitment. TWI Cable may also be required to pay an
annual facility fee equal to .1875% of the entire amount of its commitment,
depending on the level of its financial leverage in any given year. The New
Credit Agreement contains certain covenants for each borrower relating to, among
other things, additional indebtedness; liens on assets; cash flow coverage and
leverage ratios; and loans, advances, distributions and other cash payments or
transfers of assets from the borrowers to their respective partners or
affiliates. Principally as a result of such restrictions, restricted net assets
of consolidated subsidiaries of Time Warner amounted to approximately $950
million at December 31, 1995.
In July 1995, TWI Cable borrowed approximately $1.2 billion under the New
Credit Agreement to refinance certain indebtedness assumed or incurred in the
acquisition of KBLCOM. An additional $1.5 billion was borrowed by TWI Cable
under the New Credit Agreement in January 1996 to refinance certain indebtedness
assumed or incurred in the acquisition of CVI and related companies.
In August 1995, Time Warner redeemed all of its $1.8 billion principal
amount of outstanding Redeemable Reset Notes due August 15, 2002 (the 'Reset
Notes') in exchange for new securities, consisting of approximately $454 million
aggregate principal amount of Floating Rate Notes due August 15, 2000,
approximately $272 million aggregate principal amount of 7.975% Notes due August
15, 2004, approximately $545 million aggregate principal amount of 8.11%
Debentures due August 15, 2006, and approximately $545 million aggregate
principal amount of 8.18% Debentures due August 15, 2007.
Through periodic redemptions, Time Warner has fully redeemed its $3.1
billion principal amount of 8.75% Convertible Subordinated Debentures due 2015
(the '8.75% Convertible Debentures'), which were issued in April 1993 in
exchange for the old Series C preferred stock that was issued in Time Warner's
1989 acquisition of Warner Communications Inc. ('WCI') (Note 9). Time Warner
first redeemed $900 million principal amount of 8.75% Convertible Debentures in
July 1993. In September 1995, Time Warner redeemed approximately $1 billion
principal amount of such debentures for $1.06 billion (including redemption
premiums and accrued interest) and, in February 1996, Time Warner redeemed the
remaining $1.2 billion principal amount of 8.75% Convertible Debentures for
$1.28 billion (including redemption premiums and accrued interest). The
September 1995 redemption was financed with proceeds from a $500 million
issuance of 7.75% ten-year notes in June 1995, proceeds from a $374 million
issuance of Company-obligated mandatorily redeemable preferred securities of a
subsidiary in August 1995 and available cash and equivalents. The February 1996
redemption was financed with proceeds raised from a $575 million issuance of
Company-obligated mandatorily redeemable preferred securities of a subsidiary in
December 1995 and proceeds from a $750 million issuance in January 1996 of (i)
$400 million principal amount of 6.85% thirty-year debentures, which are putable
by the holders thereof in year seven, (ii) $200 million principal amount of 8.3%
forty-year discount debentures, which do not pay cash interest for the first
twenty years, (iii) $166 million principal amount of 7.48% twelve-year
debentures and (iv) $150 million principal amount of 8.05% twenty-year
debentures. See Note 8 for a description of the mandatorily redeemable preferred
securities issued in connection with such redemptions.
An extraordinary loss of $57 million was incurred in 1993, principally in
connection with the redemption of $900 million of 8.75% Convertible Debentures
and $529 million of WCI senior and subordinated debentures. An extraordinary
loss of $42 million was recognized in 1995 in connection with the September 1995
redemption of the 8.75% Convertible Debentures and the write-off by TWE of
deferred financing costs related to its former bank credit agreement. In
addition, Time Warner recognized an extraordinary loss of $26 million in
February 1996 in connection with the redemption of the remaining outstanding
portion of the 8.75% Convertible Debentures.
F-36
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ZERO COUPON NOTES
Time Warner's zero coupon notes do not pay interest until maturity. The
zero coupon exchangeable notes due December 17, 2012 are exchangeable at any
time by the holders into an aggregate of 12.1 million shares of common stock of
Hasbro, Inc. ('Hasbro') at the rate of 7.301 shares for each $1,000 principal
amount of notes, subject to Time Warner's right to pay in whole or in part with
cash instead of Hasbro common stock. Time Warner can elect to redeem the notes
any time after December 17, 1997, and holders can elect to have the notes
redeemed prior thereto in the event of a change of control, at the issue price
plus accrued interest. Holders also can elect to have the notes redeemed at the
issue price plus accrued interest on December 17, 1997, 2002 and 2007, subject
to Time Warner's right to pay in whole or in part with Hasbro common stock
instead of cash. The equivalent conversion price of Hasbro common stock at the
first date of redemption is $54.41 per share, and will be adjusted thereafter in
proportion to changes in the accrued original issue discount of each note. The
12.1 million shares of Hasbro common stock owned by Time Warner can be used by
the Company, at its election, to satisfy its obligations under such notes or its
obligations under certain mandatorily redeemable preferred securities of a
subsidiary (Note 8). Unamortized original issue discount on the zero coupon
exchangeable notes due 2012 was $1.070 billion and $1.104 billion at December
31, 1995 and 1994, respectively.
The zero coupon convertible notes due June 22, 2013 are convertible at any
time by the holders into an aggregate of 18.7 million shares of Time Warner
common stock at the rate of 7.759 shares for each $1,000 principal amount of
notes. Time Warner can elect to redeem the notes any time after June 22, 1998,
and holders can elect to have the notes redeemed prior thereto in the event of a
change in control, at the issue price plus accrued interest. Holders also can
elect to have the notes redeemed at the issue price plus accrued interest on
June 22, 1998, 2003 and 2008, subject to Time Warner's right to pay in whole or
in part with Time Warner common stock instead of cash. The equivalent conversion
price of Time Warner common stock at the first date of redemption is $61.44 per
share, and will be adjusted thereafter in proportion to changes in the accrued
original issue discount of each note. Unamortized original issue discount on the
zero coupon convertible notes due 2013 was $1.396 billion and $1.445 billion at
December 31, 1995 and 1994, respectively.
TWE-RELATED OBLIGATIONS
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. Time
Warner borrowed $400 million in 1994 under the credit agreement, and used the
proceeds therefrom principally to repay certain of its notes at their maturity.
In addition, each Time Warner General Partner has guaranteed a pro rata portion
of approximately $6 billion of TWE's debt and accrued interest at December 31,
1995, as more fully described in Note 2.
INTEREST EXPENSE AND MATURITIES
At December 31, 1995, Time Warner had interest rate swap contracts to pay
floating-rates of interest and receive fixed-rates of interest on $2.6 billion
notional amount of indebtedness, which resulted in approximately 43% of Time
Warner's underlying debt being subject to variable interest rates (Note 12).
Interest expense amounted to $877 million in 1995, $769 million in 1994 and
$698 million in 1993, including $28 million in 1995 and $12 million in 1994
which was paid to TWE in connection with borrowings under Time Warner's $400
million credit agreement with TWE. The weighted average interest rate on Time
Warner's total debt, including the effect of interest rate swap contracts, was
7.9% and 8.1% at December 31, 1995 and 1994, respectively.
F-37
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Annual repayments of long-term debt for the five years subsequent to
December 31, 1995 consist of $500 million due in 1998 and $2.219 billion due in
2000. Such repayments exclude the aggregate repurchase or redemption prices of
$656 million in 1997 and $1.151 billion in 1998 relating to the zero coupon
exchangeable notes and zero coupon convertible notes, respectively, in the years
in which the holders of such debt may first exercise their redemption options.
7. INCOME TAXES
Domestic and foreign pretax income (loss) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Domestic................................................................................ $(203) $(78) $(57)
Foreign................................................................................. 205 167 138
----- ---- ----
Total................................................................................... $ 2 $ 89 $ 81
----- ---- ----
----- ---- ----
</TABLE>
Current and deferred income taxes (tax benefits) provided are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
1995 1994 1993
----- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Federal:
Current(1)........................................................................ $ 42 $ 66 $ 45
Deferred(2)....................................................................... (167) (81) 11
Foreign:
Current(3)........................................................................ 215 194 168
Deferred.......................................................................... 8 (45) (11)
State and Local:
Current........................................................................... 78 79 86
Deferred.......................................................................... (50) (33) (54)
----- ---- ----
Total.................................................................................. $ 126 $180 $245
----- ---- ----
----- ---- ----
</TABLE>
- ------------
(1) Includes utilization of tax carryforwards of $101 million in 1995, $48
million in 1994 and $136 million in 1993. Excludes current tax benefits of
$9 million in 1995, $11 million in 1994 and $14 million in 1993 resulting
from the exercise of stock options and vesting of restricted stock awards,
which were credited directly to paid-in-capital, and current tax benefits of
$3 million in 1995 and $6 million in 1993 resulting from the retirement of
debt, which reduced the extraordinary losses in such years.
(2) Includes $70 million unusual charge in 1993 to increase deferred tax
liability for increase in tax rate.
(3) Includes foreign withholding taxes of $102 million in 1995, $74 million in
1994 and $79 million in 1993.
F-38
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between income taxes expected at the U.S. federal statutory
income tax rate and income taxes provided are as set forth below. The
relationship between income before income taxes and income tax expense is most
affected by the amortization of goodwill and certain other financial statement
expenses that are not deductible for income tax purposes and by a $70 million
charge in 1993 to adjust the deferred income tax liability for the increase in
the U.S. federal statutory rate from 34% to 35% enacted into law that year.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
---- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Taxes on income at U.S. federal statutory rate...................................... $ 1 $ 31 $ 28
State and local taxes, net.......................................................... 18 30 21
Nondeductible goodwill amortization................................................. 100 97 96
Other nondeductible expenses........................................................ 10 10 11
Charge to increase deferred tax liability for increase in tax rate.................. -- -- 70
Foreign income taxed at different rates, net of U.S. foreign tax credits............ 3 1 13
Other............................................................................... (6) 11 6
---- ------ ------
Total............................................................................... $126 $ 180 $ 245
---- ------ ------
---- ------ ------
</TABLE>
Significant components of Time Warner's net deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Assets acquired in business combinations..................................................... $2,963 $2,276
Depreciation and amortization................................................................ 829 619
Unrealized appreciation of certain marketable securities..................................... 81 91
Other........................................................................................ 390 460
------ ------
Deferred tax liabilities..................................................................... 4,263 3,446
------ ------
Tax carryforwards............................................................................ 296 264
Accrued liabilities.......................................................................... 228 206
Receivable allowances and return reserves.................................................... 211 200
Other........................................................................................ 108 76
------ ------
Deferred tax assets.......................................................................... 843 746
------ ------
Net deferred tax liabilities................................................................. $3,420 $2,700
------ ------
------ ------
</TABLE>
U.S. income and foreign withholding taxes have not been recorded on
permanently reinvested earnings of foreign subsidiaries aggregating
approximately $760 million at December 31, 1995. Determination of the amount of
unrecognized deferred U.S. income tax liability with respect to such earnings is
not practicable. If such earnings are repatriated, additional U.S. income and
foreign withholding taxes are substantially expected to be offset by the
accompanying foreign tax credits.
U.S. federal tax carryforwards at December 31, 1995 consisted of $328
million of net operating losses, $152 million of investment tax credits and $30
million of alternative minimum tax credits. The utilization of certain
carryforwards is subject to limitations under U.S. federal income tax laws.
Except for the alternative
F-39
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
minimum tax credits which do not expire, the other U.S. federal tax
carryforwards expire in varying amounts as follows for income tax reporting
purposes:
<TABLE>
<CAPTION>
CARRYFORWARDS
-----------------------
NET INVESTMENT
OPERATING TAX
LOSSES CREDITS
--------- ----------
(MILLIONS)
<S> <C> <C>
1997...................................................................................... $ -- $ 2
1998...................................................................................... -- 7
1999...................................................................................... 14 19
2000...................................................................................... -- 25
Thereafter up to 2008..................................................................... 314 99
--------- ----------
$ 328 $152
--------- ----------
--------- ----------
</TABLE>
8. MANDATORILY REDEEMABLE PREFERRED SECURITIES
In August 1995, Time Warner issued approximately 12.1 million
Company-obligated mandatorily redeemable preferred securities of a wholly-owned
subsidiary ('PERCS') for aggregate gross proceeds of $374 million. The sole
assets of the subsidiary that is the obligor on the PERCS are $385 million
principal amount of 4% subordinated notes of Time Warner due December 23, 1997.
Cumulative cash distributions are payable on the PERCS at an annual rate of 4%.
The PERCS are mandatorily redeemable on December 23, 1997, for an amount per
PERCS equal to the lesser of $54.41, and the market value of a share of common
stock of Hasbro on December 17, 1997, payable in cash or, at Time Warner's
option, Hasbro common stock. Time Warner has the right to redeem the PERCS at
any time prior to December 23, 1997, at an amount per PERCS equal to $54.41 (or
in certain limited circumstances the lesser of such amount and the market value
of a share of Hasbro common stock at the time of redemption) plus accrued and
unpaid distributions thereon and a declining premium, payable in cash or, at
Time Warner's option, Hasbro common stock.
In December 1995, Time Warner issued approximately 23 million
Company-obligated mandatorily redeemable preferred securities of a wholly-owned
subsidiary ('Preferred Trust Securities') for aggregate gross proceeds of $575
million. The sole assets of the subsidiary that is the obligor on the Preferred
Trust Securities are $592 million principal amount of 8 7/8% subordinated
debentures of Time Warner due December 31, 2025. Cumulative cash distributions
are payable on the Preferred Trust Securities at an annual rate of 8 7/8%. Cash
distributions may be deferred at the election of Time Warner for any period not
exceeding 20 consecutive quarters. The Preferred Trust Securities are
mandatorily redeemable for cash on December 31, 2025, and Time Warner has the
right to redeem the Preferred Trust Securities, in whole or in part, on or after
December 31, 2000, or in other certain circumstances, in each case at an amount
per Preferred Trust Security equal to $25 plus accrued and unpaid distributions
thereon.
Time Warner has certain obligations relating to the PERCS and the Preferred
Trust Securities which amount to a full and unconditional guaranty of each
subsidiary's obligations with respect thereto.
9. CAPITAL STOCK
The outstanding capital stock of Time Warner at December 31, 1995 consisted
of 29.7 million shares of preferred stock and 387.7 million shares of common
stock (net of 45.7 million shares of common stock in treasury, as to which 43.7
million were held by the Time Warner General Partners). At January 31, 1996,
including each brokerage house that holds shares of Time Warner common stock as
one shareholder but excluding the number of shareholders whose shares are
beneficially held by such brokerage houses, there were approximately 25,000
holders of record of Time Warner common stock.
F-40
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, Time Warner issued approximately 29.3 million shares of
convertible preferred stock in connection with the ITOCHU/Toshiba Transaction
and its acquisitions of KBLCOM and Summit, and in January 1996, Time Warner
issued an additional 6.5 million shares of convertible preferred stock in
connection with its acquisiton of CVI and related companies. Set forth below is
a summary of the principal terms of Time Warner's outstanding issues of
preferred stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK EARLIEST EARLIEST
ISSUABLE UPON EXCHANGE REDEMPTION
DESCRIPTION CONVERSION DATE DATE
- ------------------------------------------------------- SHARES ---------------- -------- ------------
OUTSTANDING (MILLIONS)
-----------
(MILLIONS)
<S> <C> <C> <C> <C>
Series B Preferred Stock............................... .4 -- -- At any time
Series C Preferred Stock............................... 3.3 6.8 5/2/98 5/2/00
Series D Preferred Stock............................... 11.0 22.9 7/6/99 7/6/00
Series G Preferred Stock............................... 6.2 12.9 9/5/99 9/5/99
Series H Preferred Stock............................... 1.8 3.7 9/5/00 9/5/99
Series I Preferred Stock............................... 7.0 14.6 10/2/99 10/2/99
----- -----
Shares outstanding at December 31, 1995................ 29.7 60.9
Series E Preferred Stock issued in January 1996........ 3.3 6.8 1/4/01 1/4/01
Series F Preferred Stock issued in January 1996........ 3.2 6.7 1/4/00 1/4/01
----- -----
Total shares outstanding at January 31, 1996........... 36.2 74.4
----- -----
----- -----
</TABLE>
Each share of Series B Preferred Stock: (1) is entitled to a liquidation
preference of $145 per share, (2) is not convertible, (3) entitles the holder
thereof to receive an annual dividend equal to $4.35 per share beginning in June
1995, and $9.28 per share prior thereto, (4) does not generally entitle the
holder thereof to vote, except in certain limited circumstances, and (5) is
redeemable, in whole or in part, by Time Warner and the holders thereof in
exchange for cash or shares of any class or series of publicly-traded Time
Warner stock, at Time Warner's option, equal in value to the liquidation value
of the Series B Preferred Stock plus a premium of 2% of liquidation value for
each year after May 31, 1995 to the redemption date.
The principal terms of each series of convertible preferred stock issued in
1995 and 1996 (the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock, the Series F Preferred Stock, the Series G Preferred
Stock, the Series H Preferred Stock and the Series I Preferred Stock, and
collectively, the 'Convertible Preferred Stock') are similar in nature, unless
otherwise noted below. Each share of Convertible Preferred Stock: (1) is
entitled to a liquidation preference of $100 per share, (2) is immediately
convertible into 2.08264 shares of Time Warner common stock at a conversion
price of $48 per share (based on its liquidation value), except that shares of
the Series H Preferred Stock are generally not convertible until September 5,
2000, (3) entitles the holder thereof (i) to receive for a four year period from
the date of issuance (or a five year period with respect to the Series C and
Series E Preferred Stock) an annual dividend per share equal to the greater of
$3.75 and an amount equal to the dividends paid on the Time Warner common stock
into which each share may be converted and (ii) to the extent that any of such
shares of preferred stock remain outstanding at the end of the period in which
the minimum $3.75 per share dividend is to be paid, the holders thereafter will
receive dividends equal to the dividends paid on shares of Time Warner common
stock multiplied by the number of shares into which their shares of preferred
stock are convertible and (4) except for the Series H Preferred Stock which is
generally not entitled to vote, entitles the holder thereof to vote with the
common stockholders on all matters on which the common stockholders are entitled
to vote, and each share of such Convertible Preferred Stock is entitled to two
votes on any such matter.
Time Warner has the right to exchange each series of Convertible Preferred
Stock for Time Warner common stock at the stated conversion price at any time on
or after the respective exchange date. The Series C Preferred Stock is
exchangeable by the holder beginning after the third year from its date of
issuance and by
F-41
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Time Warner after the fourth year at the stated conversion price plus a
declining premium in years four and five and no premium thereafter. In addition,
Time Warner has the right to redeem each series of Convertible Preferred Stock,
in whole or in part, for cash at the liquidation value plus accrued dividends,
at any time on or after the respective redemption date.
Pursuant to a shareholder rights plan adopted in January 1994, Time Warner
distributed one right per common share which currently becomes exercisable in
certain events involving the acquisition of 15% or more of the then ouststanding
common stock of Time Warner. Upon the occurrence of such an event, each right
entitles its holder to purchase for $150 the economic equivalent of common stock
of Time Warner, or in certain circumstances, of the acquiror, worth twice as
much. In connection with the plan, 4 million shares of preferred stock were
reserved. The rights expire on January 20, 2004. In connection with the TBS
Transaction, Time Warner expects to amend the shareholder rights plan
principally to change the basis for determining if an acquisition of 15% or more
of Time Warner common stock has occurred to a fully-diluted basis.
In 1993, Time Warner redeemed or exchanged $6.4 billion of Series C and
Series D preferred stock ('old Series C and Series D preferred stock') that were
issued in Time Warner's 1989 acquisition of WCI. The cash redemption of the old
Series D preferred stock was financed principally by the proceeds from the
issuance of long-term notes and debentures. The old Series C preferred stock was
exchanged for the 8.75% Convertible Debentures.
At December 31, 1995, Time Warner had reserved 172.6 million shares of
common stock for the conversion of its Convertible Preferred Stock, zero coupon
convertible notes and other convertible securities, and for the exercise of
outstanding options to purchase shares of common stock, excluding 25.7 million
shares related to the 8.75% Convertible Debentures which were redeemed in
February 1996 (Note 6).
10. STOCK OPTION PLANS
Options to purchase Time Warner common stock under various stock option
plans have been granted to employees of Time Warner and TWE at, or in excess of,
fair market value at the date of grant. Generally, the options become
exercisable over a three-year vesting period and expire ten years from the date
of grant. A summary of stock option activity under all plans is as follows:
<TABLE>
<CAPTION>
THOUSANDS EXERCISE PRICE
OF SHARES PER SHARE
--------- --------------
<S> <C> <C>
Balance at January 1, 1995............................................................. 77,611 $ 8-48
Granted................................................................................ 5,096 34-45
Exercised.............................................................................. (3,721) 8-40
Cancelled.............................................................................. (367) 17-45
---------
Balance at December 31, 1995........................................................... 78,619 $17-48
---------
---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
--------- --------------
(THOUSANDS)
<S> <C> <C>
Exercisable............................................................................ 66,242 63,106
Available for future grants............................................................ 7,884 8,849
</TABLE>
For options exercised by employees of TWE, Time Warner is reimbursed for
the amount by which the market value of Time Warner common stock on the exercise
date exceeds the exercise price, or the greater of the exercise price or $27.75
for options granted prior to the TWE capitalization on June 30, 1992. There were
28.5 million options held by employees of TWE at December 31, 1995, 21.8 million
of which were exercisable. There were 1.3 million options exercised in 1994 and
4.8 million options exercised in 1993, at prices ranging from $8-$36 per share
in each year.
F-42
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. BENEFIT PLANS
Time Warner and its subsidiaries have defined benefit pension plans
covering substantially all domestic employees. Pension benefits are based on
formulas that reflect the employees' years of service and compensation levels
during their employment period. Qualifying plans are funded in accordance with
government pension and income tax regulations. Plan assets are invested in
equity and fixed income securities.
Pension expense included the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost.......................................................................... $ 29 $ 34 $ 25
Interest cost......................................................................... 53 50 45
Actual return on plan assets.......................................................... (137) (2) (52)
Net amortization and deferral......................................................... 89 (45) 10
----- ---- ----
Total................................................................................. $ 34 $ 37 $ 28
----- ---- ----
----- ---- ----
</TABLE>
The status of funded pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994
---- ----
(MILLIONS)
<S> <C> <C>
Accumulated benefit obligation (89% vested)..................................................... $544 $394
Effect of future salary increase................................................................ 192 132
---- ----
Projected benefit obligation.................................................................... 736 526
Plan assets at fair value....................................................................... 643 495
---- ----
Projected benefit obligation in excess of plan assets........................................... (93) (31)
Unamortized actuarial losses.................................................................... 94 49
Unamortized plan changes........................................................................ 2 (7)
Other........................................................................................... (10) (8)
---- ----
Prepaid (accrued) pension expense............................................................... $ (7) $ 3
---- ----
---- ----
</TABLE>
The following assumptions were used in accounting for pension plans:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate............................................................ 7.25% 8.5 % 7.5 %
Return on plan assets..................................................................... 9% 9 % 9 %
Rate of increase in compensation.......................................................... 6% 6 % 6 %
</TABLE>
Employees of Time Warner's operations in foreign countries participate to
varying degrees in local pension plans, which in the aggregate are not
significant.
Time Warner also has an employee stock ownership plan, 401(k) savings plans
and other savings and profit sharing plans, as to which the expense amounted to
$51 million in 1995, $51 million in 1994 and $46 million in 1993. Contributions
to the 401(k) and other savings plans are based upon a percentage of the
employees' elected contributions. Contributions to the employee stock ownership
and profit sharing plans are generally determined by management and approved by
the board of directors of the participating companies.
F-43
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. FINANCIAL INSTRUMENTS
The carrying value of Time Warner's financial instruments approximates fair
value, except for differences with respect to long-term, fixed-rate debt and
related interest rate swap contracts and certain differences related to cost
method investments and other financial instruments which are not significant.
The fair value of financial instruments, such as long-term debt and investments,
is generally determined by reference to market values resulting from trading on
a national securities exchange or in an over-the-counter market. In cases where
quoted market prices are not available, such as for derivative financial
instruments, fair value is based on estimates using present value or other
valuation techniques.
INTEREST RATE RISK MANAGEMENT
Interest rate swap contracts are used to adjust the proportion of total
debt that is subject to variable and fixed interest rates. Under interest rate
swap contracts, the Company either agrees to pay an amount equal to a specified
floating-rate of interest times a notional principal amount, and to receive in
return an amount equal to a specified fixed-rate of interest times the same
notional principal amount or, vice versa, to receive a floating-rate amount and
to pay a fixed-rate amount. The notional amounts of the contracts are not
exchanged. No other cash payments are made unless the contract is terminated
prior to maturity, in which case the amount paid or received in settlement is
established by agreement at the time of termination, and usually represents the
net present value, at current rates of interest, of the remaining obligations to
exchange payments under the terms of the contract. Interest rate swap contracts
are entered into with a number of major financial institutions in order to
minimize credit risk.
The net amounts paid or payable, or received or receivable, through the end
of the accounting period are included in interest expense. Because interest rate
swap contracts are used to modify the interest characteristics of Time Warner's
outstanding debt from a fixed to a floating-rate basis or, vice versa,
unrealized gains or losses on interest rate swap contracts are not recognized in
income unless the contracts are terminated prior to their maturity. Gains or
losses on any contracts terminated early are deferred and amortized to income
over the remaining average life of the terminated contracts.
At December 31, 1995, Time Warner had interest rate swap contracts to pay
floating-rates of interest (average six-month LIBOR rate of 5.9%) and receive
fixed-rates of interest (average rate of 5.4%) on $2.6 billion notional amount
of indebtedness, which resulted in approximately 43% of Time Warner's underlying
debt being subject to variable interest rates. The notional amount of
outstanding contracts by year of maturity at December 31, 1995 is as follows:
1996-$300 million; 1998-$700 million; 1999-$1.2 billion; and 2000-$400 million.
At December 31, 1994, Time Warner had interest rate swap contracts on $2.9
billion notional amount of indebtedness.
Based on the level of interest rates prevailing at December 31, 1995, the
fair value of Time Warner's fixed-rate debt exceeded its carrying value by $407
million and it would have cost $9 million to terminate the related interest rate
swap contracts, which combined is the equivalent of an unrealized loss of $416
million. Based on Time Warner's fixed-rate debt and related interest rate swap
contracts outstanding at December 31, 1995, each 25 basis point increase or
decrease in the level of interest rates prevailing at December 31, 1995 would
result in a net reduction or increase in the combined unrealized loss of
approximately $185 million, respectively, including respective costs or savings
of $16 million to terminate the related interest rate swap contracts. Based on
the level of interest rates prevailing at December 31, 1994, the fair value of
Time Warner's fixed-rate debt was $572 million less than its carrying value and
it would have cost $236 million to terminate its interest rate swap contracts,
which combined was the equivalent of an unrealized gain of $336 million.
Although changes in the unrealized gains or losses on interest rate swap
contracts and debt do not result in the realization or expenditure of cash
unless the contracts are terminated or the debt is retired, each 25 basis point
increase or decrease in the level of interest rates related to Time Warner's
variable-rate debt and interest
F-44
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate swap contracts would respectively increase or decrease Time Warner's annual
interest expense and related cash payments by approximately $12 million,
including $7 million related to interest rate swap contracts.
FOREIGN EXCHANGE RISK MANAGEMENT
Foreign exchange contracts are used primarily by Time Warner to hedge the
risk that unremitted or future royalties and license fees owed to Time Warner or
TWE domestic companies for the sale or anticipated sale of U.S. copyrighted
products abroad may be adversely affected by changes in foreign currency
exchange rates. As part of its overall strategy to manage the level of exposure
to the risk of foreign currency exchange rate fluctuations, Time Warner hedges a
portion of its and TWE's combined foreign currency exposures anticipated over
the ensuing twelve month period. At December 31, 1995, Time Warner has
effectively hedged approximately half of the combined estimated foreign currency
exposures that principally relate to anticipated cash flows to be remitted to
the U.S. over the ensuing twelve month period, using foreign exchange contracts
that generally have maturities of three months or less, which are generally
rolled over to provide continuing coverage throughout the year. Time Warner
often closes foreign exchange sale contracts by purchasing an offsetting
purchase contract. At December 31, 1995, Time Warner had contracts for the sale
of $504 million and the purchase of $140 million of foreign currencies at fixed
rates, primarily English pounds (29% of net contract value), German marks (19%),
Canadian dollars (16%), French francs (16%) and Japanese yen (5%), compared to
contracts for the sale of $551 million and the purchase of $109 million of
foreign currencies at December 31, 1994.
Unrealized gains or losses related to foreign exchange contracts are
recorded in income as the market value of such contracts change; accordingly,
the carrying value of foreign exchange contracts approximates market value. The
carrying value of foreign exchange contracts was not material at December 31,
1995 and 1994 and is included in other current liabilities. No cash is required
to be received or paid with respect to the realization of such gains and losses
until the related foreign exchange contracts are settled, generally at their
respective maturity dates. In 1995 and 1994, Time Warner had $20 million and $33
million, respectively, and TWE had $11 million and $20 million, respectively, of
net losses on foreign exchange contracts, which were or are expected to be
offset by corresponding increases in the dollar value of foreign currency
royalties and license fee payments that have been or are anticipated to be
received in cash from the sale of U.S. copyrighted products abroad. Time Warner
reimburses or is reimbursed by TWE for contract gains and losses related to
TWE's foreign currency exposure. Foreign currency contracts are placed with a
number of major financial institutions in order to minimize credit risk.
Based on the foreign exchange contracts outstanding at December 31, 1995,
each 5% devaluation of the U.S. dollar as compared to the level of foreign
exchange rates for currencies under contract at December 31, 1995 would result
in approximately $25 million of unrealized losses and $7 million of unrealized
gains on foreign exchange contracts involving foreign currency sales and
purchases, respectively. Conversely, a 5% appreciation of the U.S. dollar would
result in $25 million of unrealized gains and $7 million of unrealized losses,
respectively. At December 31, 1995, none of Time Warner's foreign exchange
purchase contracts relates to TWE's foreign currency exposure. However, with
regard to the $25 million of unrealized losses or gains on foreign exchange sale
contracts, Time Warner would be reimbursed by TWE, or would reimburse TWE,
respectively, for approximately $6 million related to TWE's foreign currency
exposure. Consistent with the nature of the economic hedge provided by such
foreign exchange contracts, such unrealized gains or losses would be offset by
corresponding decreases or increases, respectively, in the dollar value of
future foreign currency royalty and license fee payments that would be received
in cash within the ensuing twelve month period from the sale of U.S. copyrighted
products abroad.
F-45
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENT INFORMATION
Time Warner's businesses are conducted in three fundamental areas:
Entertainment, consisting principally of interests in recorded music and music
publishing, filmed entertainment, broadcasting, theme parks and cable television
programming; News and Information, consisting principally of interests in
magazine publishing, book publishing and direct marketing; and
Telecommunications, consisting principally of interests in cable television
systems. Time Warner's interests in filmed entertainment, broadcasting, theme
parks, cable television programming and most of its telecommunications business
are held by the Entertainment Group, which is not consolidated for financial
reporting purposes.
Information as to the operations of Time Warner and the Entertainment Group
in different business segments is set forth below. Cable business segment
information for Time Warner reflects the 1995 acquisitions of KBLCOM and Summit.
Cable business segment information for the Entertainment Group reflects the
consolidation by TWE of the TWE-Advance/Newhouse Partnership effective as of
April 1, 1995 and Paragon effective as of July 6, 1995. The operating results of
Six Flags have been deconsolidated effective as of June 23, 1995 and results
prior to that date are reported separately to facilitate comparability.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
REVENUES
Time Warner:
Publishing........................................................................ $3,722 $3,433 $3,270
Music............................................................................. 4,196 3,986 3,334
Cable............................................................................. 172 -- --
Intersegment elimination.......................................................... (23) (23) (23)
------ ------ ------
Total............................................................................. $8,067 $7,396 $6,581
------ ------ ------
------ ------ ------
Entertainment Group:
Filmed Entertainment.............................................................. $5,078 $4,484 $4,032
Six Flags Theme Parks............................................................. 227 557 533
Broadcasting-The WB Network....................................................... 33 -- --
Programming-HBO................................................................... 1,607 1,513 1,441
Cable............................................................................. 3,094 2,242 2,208
Intersegment elimination.......................................................... (410) (287) (251)
------ ------ ------
Total............................................................................. $9,629 $8,509 $7,963
------ ------ ------
------ ------ ------
</TABLE>
F-46
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
OPERATING INCOME
Time Warner:
Publishing............................................................................. $381 $347 $295
Music(1)............................................................................... 321 366 296
Cable.................................................................................. (5) -- --
---- ---- ----
Total.................................................................................. $697 $713 $591
---- ---- ----
---- ---- ----
Entertainment Group:
Filmed Entertainment................................................................... $253 $219 $233
Six Flags Theme Parks.................................................................. 29 56 53
Broadcasting-The WB Network............................................................ (66) -- --
Programming-HBO........................................................................ 274 237 213
Cable.................................................................................. 502 340 406
---- ---- ----
Total.................................................................................. $992 $852 $905
---- ---- ----
---- ---- ----
</TABLE>
- ------------
(1) Includes pretax losses of $85 million recorded in 1995 related to certain
businesses and joint ventures owned by the Music Division which were
restructured or closed. The losses are primarily related to Warner Music
Enterprises, one of the Company's direct marketing efforts, and the write
off of its related direct mail order assets that were not recoverable due to
the closure of this business. Such closure was substantially completed in
1995 and will not require any significant, future cash outlays. The
activities that will not be continued are not material to the Company's
results of operations, having resulted in insignificant operating losses in
prior periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Time Warner:
Publishing............................................................................. $ 59 $ 47 $ 45
Music.................................................................................. 95 86 87
Cable.................................................................................. 27 -- --
---- ---- ----
Total.................................................................................. $181 $133 $132
---- ---- ----
---- ---- ----
Entertainment Group:
Filmed Entertainment................................................................... $113 $ 76 $ 51
Six Flags Theme Parks.................................................................. 20 51 41
Broadcasting-The WB Network............................................................ -- -- --
Programming-HBO........................................................................ 18 14 14
Cable.................................................................................. 465 340 327
---- ---- ----
Total.................................................................................. $616 $481 $433
---- ---- ----
---- ---- ----
</TABLE>
F-47
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
AMORTIZATION OF INTANGIBLE ASSETS(1)
Time Warner:
Publishing.................................................................... $ 36 $ 36 $ 32
Music......................................................................... 274 268 260
Cable......................................................................... 68 -- --
------- ------- -------
Total......................................................................... $ 378 $ 304 $ 292
------- ------- -------
------- ------- -------
Entertainment Group:
Filmed Entertainment.......................................................... $ 124 $ 135 $ 143
Six Flags Theme Parks......................................................... 11 28 28
Broadcasting-The WB Network................................................... -- -- --
Programming-HBO............................................................... 1 6 3
Cable......................................................................... 308 309 302
------- ------- -------
Total......................................................................... $ 444 $ 478 $ 476
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Amortization includes all amortization relating to the acquisition of WCI in
1989, the acquisition of the minority interest in ATC in 1992, the
acquisitions of KBLCOM and Summit in 1995 and other business combinations
accounted for by the purchase method.
Information as to the assets and capital expenditures of Time Warner and
the Entertainment Group is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
ASSETS
Time Warner:
Publishing.................................................................... $ 2,175 $ 2,013 $ 1,897
Music......................................................................... 7,828 7,672 7,401
Cable......................................................................... 3,875 -- --
Entertainment Group(1)........................................................ 5,734 5,350 5,627
Corporate(2).................................................................. 2,520 1,681 1,967
------- ------- -------
Total......................................................................... $22,132 $16,716 $16,892
------- ------- -------
------- ------- -------
Entertainment Group:
Filmed Entertainment.......................................................... $ 7,389 $ 7,184 $ 6,719
Six Flags Theme Parks......................................................... -- 814 848
Broadcasting-The WB Network................................................... 63 -- --
Programming-HBO............................................................... 935 911 875
Cable......................................................................... 9,842 8,303 8,102
Corporate(2).................................................................. 731 1,780 1,658
------- ------- -------
Total......................................................................... $18,960 $18,992 $18,202
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Entertainment Group assets represent Time Warner's investment in and amounts
due to and from the Entertainment Group.
(2) Consists principally of cash, cash equivalents and other investments.
F-48
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Time Warner:
Publishing.................................................................... $ 70 $ 50 $ 41
Music......................................................................... 121 108 91
Cable......................................................................... 56 -- --
Corporate..................................................................... 19 6 66
------- ------- -------
Total......................................................................... $ 266 $ 164 $ 198
------- ------- -------
------- ------- -------
Entertainment Group:
Filmed Entertainment.......................................................... $ 294 $ 395 $ 210
Six Flags Theme Parks......................................................... 43 46 34
Broadcasting-The WB Network................................................... -- -- --
Programming-HBO............................................................... 20 14 16
Cable(1)...................................................................... 1,293 778 353
Corporate..................................................................... 3 2 --
------- ------- -------
Total......................................................................... $ 1,653 $ 1,235 $ 613
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Cable capital expenditures were funded in part through collections on the
U S WEST Note in the amount of $602 million in 1995, $234 million in 1994
and $16 million in 1993 (Note 2).
Information as to Time Warner's operations in different geographical areas
is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
REVENUES
United States(1).............................................................. $ 5,447 $ 4,944 $ 4,414
Europe........................................................................ 1,552 1,445 1,296
Pacific Rim................................................................... 775 724 583
Rest of World................................................................. 293 283 288
------- ------- -------
Total......................................................................... $ 8,067 $ 7,396 $ 6,581
------- ------- -------
------- ------- -------
OPERATING INCOME
United States................................................................. $ 457 $ 494 $ 436
Europe........................................................................ 158 108 102
Pacific Rim................................................................... 57 74 28
Rest of World................................................................. 25 37 25
------- ------- -------
Total......................................................................... $ 697 $ 713 $ 591
------- ------- -------
------- ------- -------
ASSETS
United States................................................................. $19,301 $13,961 $14,328
Europe........................................................................ 1,797 1,717 1,635
Pacific Rim................................................................... 628 636 514
Rest of World................................................................. 406 402 415
------- ------- -------
Total......................................................................... $22,132 $16,716 $16,892
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Time Warner's revenues do not include the revenues of the Entertainment
Group, which had export revenues of $1.982 billion in 1995, $1.693 billion
in 1994 and $1.650 billion in 1993, principally from the sale of Filmed
Entertainment products abroad.
F-49
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
Total rent expense amounted to $174 million in 1995, $157 million in 1994
and $163 million in 1993. The minimum rental commitments under noncancellable
long-term operating leases are: 1996-$147 million; 1997-$133 million; 1998-$139
million; 1999-$130 million; 2000-$123 million and after 2000-$923 million.
Minimum commitments and guarantees under certain licensing, artists and
other agreements aggregated approximately $2.9 billion at December 31, 1995,
which are payable principally over a five-year period. Such amounts do not
include the Time Warner General Partner guarantees of approximately $6 billion
of TWE debt.
Pending legal proceedings are substantially limited to litigation
incidental to the businesses of Time Warner, alleged damages in connection with
class action lawsuits and pending litigation with U S WEST. In the opinion of
counsel and management, the ultimate resolution of these matters will not have a
material effect on the financial statements of Time Warner.
15. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash flows is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
---- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Cash payments made for interest..................................................... $659 $ 539 $ 330
Cash payments made for income taxes................................................. 302 389 234
Tax-related distributions received from TWE......................................... 680 115 --
Income tax refunds received......................................................... 24 50 52
</TABLE>
During the years ended December 31, 1995 and 1994, Time Warner realized $35
million and $179 million, respectively, from the securitization of receivables.
Noncash investing and financing activities in 1995 included the $1.4 billion
acquisitions of KBLCOM and Summit in exchange for capital stock (Note 4), the
$1.36 billion acquisition of ITOCHU's and Toshiba's interests in TWE in exchange
for capital stock and $10 million in cash (Note 2) and the $1.8 billion
redemption of Time Warner's Reset Notes in exchange for other debt securities
(Note 6). Noncash financing activities in 1993 included the issuance of
approximately $3.1 billion of debentures in exchange for the old Series C
preferred stock (Note 9).
Other current liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Accrued expenses............................................................................. $ 972 $ 794
Accrued compensation......................................................................... 337 308
Accrued income taxes......................................................................... 173 81
Deferred revenues............................................................................ 84 55
------ ------
Total........................................................................................ $1,566 $1,238
------ ------
------ ------
</TABLE>
F-50
<PAGE>
<PAGE>
REPORT OF MANAGEMENT
The accompanying consolidated financial statements have been prepared by
management in conformity with generally accepted accounting principles, and
necessarily include some amounts that are based on management's best estimates
and judgments.
Time Warner maintains a system of internal accounting controls designed to
provide management with reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition, and that transactions are executed in
accordance with management's authorization and recorded properly. The concept of
reasonable assurance is based on the recognition that the cost of a system of
internal control should not exceed the benefits derived and that the evaluation
of those factors requires estimates and judgments by management. Further,
because of inherent limitations in any system of internal accounting control,
errors or irregularities may occur and not be detected. Nevertheless, management
believes that a high level of internal control is maintained by Time Warner
through the selection and training of qualified personnel, the establishment and
communication of accounting and business policies, and its internal audit
program.
The Audit Committee of the Board of Directors, composed solely of directors
who are not employees of Time Warner, meets periodically with management and
with Time Warner's internal auditors and independent auditors to review matters
relating to the quality of financial reporting and internal accounting control,
and the nature, extent and results of their audits. Time Warner's internal
auditors and independent auditors have free access to the Audit Committee.
<TABLE>
<S> <C> <C>
Gerald M. Levin Richard D. Parsons Richard J. Bressler
Chairman and President Senior Vice President
Chief Executive Officer and Chief Financial Officer
</TABLE>
F-51
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
TIME WARNER INC.
We have audited the accompanying consolidated balance sheet of Time Warner Inc.
('Time Warner') as of December 31, 1995 and 1994, and the related consolidated
statements of operations, cash flows and shareholders' equity for each of the
three years in the period ended December 31, 1995. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of Time Warner's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Time Warner at
December 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 6, 1996
F-52
<PAGE>
<PAGE>
TIME WARNER INC.
SELECTED FINANCIAL INFORMATION
The selected financial information for each of the five years in the period
ended December 31, 1995 set forth below has been derived from and should be read
in conjunction with the financial statements and other financial information
presented elsewhere herein. Capitalized terms are as defined and described in
such consolidated financial statements, or elsewhere herein. The selected
historical financial information for all periods after 1992 reflects the
deconsolidation of the Entertainment Group, principally TWE, effective January
1, 1993.
The selected historical financial information for 1995 reflects the
issuance of 29.3 million shares of convertible preferred stock having an
aggregate liquidation preference of $2.926 billion in connection with (i) the
acquisitions of KBLCOM and Summit and (ii) the exchange by Toshiba and ITOCHU of
their direct and indirect interests in TWE. The selected historical financial
information for 1993 reflects the issuance of $6.1 billion of long-term debt and
the use of $.5 billion of cash and equivalents 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 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>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
SELECTED OPERATING STATEMENT INFORMATION 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 8,067 $ 7,396 $ 6,581 $13,070 $12,021
Depreciation and amortization.............................. 559 437 424 1,172 1,109
Business segment operating income (a)...................... 697 713 591 1,343 1,154
Equity in pretax income of Entertainment Group............. 256 176 281 -- --
Interest and other, net.................................... 877 724 718 882 966
Net income (loss) (b)(c)................................... (166) (91) (221) 86 (99)
Net loss applicable to common shares (after preferred
dividends)............................................... (218) (104) (339) (542) (692)
Per share of common stock:
Net loss (b)(c).......................................... $ (0.57) $ (0.27) $ (0.90) $ (1.46) $ (2.40)
Dividends................................................ $ 0.36 $ 0.35 $ 0.31 $ 0.265 $ 0.25
Average common shares (c).................................. 383.8 378.9 374.7 371.0 288.2
</TABLE>
- ------------
(a) Business segment operating income for the year ended December 31, 1995
includes $85 million in losses relating to certain businesses and joint
ventures owned by the Music Division which were restructured or closed.
Business segment operating income for the year ended December 31, 1991
includes a $60 million charge relating to the restructuring of the
Publishing Division.
(b) The net loss for the year ended December 31, 1995 includes an
extraordinary loss on the retirement of debt of $42 million ($.11 per
common share). The net loss for the year ended December 31, 1993 includes
an extraordinary loss on the retirement of debt of $57 million ($.15 per
common share) and an unusual charge of $70 million ($.19 per common share)
from the effect of the new income tax law on Time Warner's deferred income
tax liability.
(c) In August 1991, Time Warner completed the sale of 137.9 million shares of
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.
F-53
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
SELECTED BALANCE SHEET INFORMATION 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Investments in and amounts due to and from Entertainment
Group.................................................... $ 5,734 $ 5,350 $ 5,627 $ -- $ --
Total assets............................................... 22,132 16,716 16,892 27,366 24,889
Long-term debt............................................. 9,907 8,839 9,291 10,068 8,716
Company-obligated mandatorily redeemable preferred
securities of subsidiaries holding solely subordinated
notes and debentures of the Company (a).................. 949 -- -- -- --
Shareholders' equity:
Preferred stock liquidation preference................... 2,994 140 140 6,532 6,256
Equity applicable to common stock........................ 673 1,008 1,230 1,635 2,242
Total shareholders' equity............................... 3,667 1,148 1,370 8,167 8,498
Total capitalization....................................... 14,523 9,987 10,661 18,235 17,214
</TABLE>
- ------------
(a) Includes $374 million of preferred securities that are redeemable for cash
or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.
F-54
<PAGE>
<PAGE>
TIME WARNER INC.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
EQUITY IN
PRETAX NET NET INCOME
OPERATING INCOME INCOME (LOSS) (LOSS) PER DIVIDENDS
INCOME OF (LOSS) OF NET APPLICABLE COMMON PER
BUSINESS ENTERTAINMENT INCOME TO COMMON SHARE COMMON
QUARTER REVENUES SEGMENTS GROUP (LOSS) SHARES(B) (B)(C) SHARE
- -------- -------- --------- ------------- ------ ------------- ---------- ---------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
1995
1st $1,817 $ 138 $ 22 $ (47) $ (50) $(0.13) $0.09
2nd 1,907 184 84 (8) (13) (0.03) 0.09
3rd (a) 1,981 21 129 (144) (160) (0.41) 0.09
4th 2,362 354 21 33 5 0.01 0.09
Year (a) 8,067 697 256 (166) (218) (0.57) 0.36
1994
1st $1,558 $ 112 $ 45 $ (51) $ (54) $(0.14) $0.08
2nd 1,667 170 66 (20) (23) (0.06) 0.09
3rd 1,884 141 66 (32) (35) (0.09) 0.09
4th 2,287 290 (1) 12 8 0.02 0.09
Year 7,396 713 176 (91) (104) (0.27) 0.35
<CAPTION>
AVERAGE COMMON STOCK
COMMON ------------
QUARTER SHARES HIGH LOW
- -------- ------ ---- ---
<S> <C> <C> <C>
1995
1st 379.5 $39 1/4 $33 5/8
2nd 381.4 43 1/2 34 1/4
3rd (a) 386.5 45 5/8 38 7/8
4th 387.5 41 1/4 35 3/4
Year (a) 383.8 45 5/8 33 5/8
1994
1st 378.6 $44 1/4 $36 5/8
2nd 378.8 40 5/8 34 1/2
3rd 379.1 38 3/4 34
4th 379.2 37 3/4 31 1/2
Year 378.9 44 1/4 31 1/2
</TABLE>
- ------------
(a) Business segment operating income for the third quarter of 1995 includes
$85 million in losses relating to certain businesses and joint ventures
owned by the Music Division which were restructured or closed. The net
loss for the third quarter of 1995 includes an extraordinary loss on the
retirement of debt of $42 million ($.11 per common share).
(b) After preferred dividend requirements.
(c) Per common share amounts for the quarters and full years have been
calculated separately. Accordingly, quarterly amounts may not add to the
annual amount because of differences in the average common shares
outstanding during each period.
F-55
<PAGE>
<PAGE>
TIME WARNER INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNCONSOLIDATED (PARENT-ONLY) CONDENSED BALANCE SHEET
DECEMBER 31,
(MILLIONS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS
Cash and equivalents (a)................................................................. $ 922 $ 68
Investments in and amounts due to and from unconsolidated subsidiaries and equity method
investees.............................................................................. 16,040 13,122
Other assets............................................................................. 436 358
------- -------
Total assets............................................................................. $17,398 $13,548
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term debt........................................................................... $ 8,467 $ 8,811
Deferred income taxes.................................................................... 3,420 2,700
Other liabilities........................................................................ 867 889
Subordinated notes and debentures in support of mandatorily redeemable preferred
securities of subsidiaries............................................................. 977 --
Shareholders' equity:
Preferred stock.......................................................................... 30 1
Common stock............................................................................. 388 379
Paid-in capital.......................................................................... 5,422 2,588
Unrealized gains on certain marketable securities........................................ 116 130
Accumulated deficit...................................................................... (2,289) (1,950)
------- -------
Total shareholders' equity............................................................... 3,667 1,148
------- -------
Total liabilities and shareholders' equity............................................... $17,398 $13,548
------- -------
------- -------
</TABLE>
- ------------
(a) Includes $557 million of cash and equivalents at December 31, 1995
segregated for the redemption of long-term debt.
See accompanying notes.
F-56
<PAGE>
<PAGE>
TIME WARNER INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNCONSOLIDATED (PARENT-ONLY) CONDENSED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
(MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Equity in the income of unconsolidated subsidiaries and equity method investees
before federal and state income and foreign withholding taxes..................... $ 815 $ 731 $ 794
Interest and other, net............................................................. (860) (641) (718)
Corporate expenses.................................................................. (74) (76) (73)
----- ----- -----
Income (loss) before federal and state income and foreign withholding taxes......... (119) 14 3
Provision for federal and state income and foreign withholding taxes................ (5) (105) (167)
----- ----- -----
Loss before extraordinary item...................................................... (124) (91) (164)
Extraordinary loss on debt, net of $26 million and $37 million income tax benefit in
1995 and 1993, respectively....................................................... (42) -- (57)
----- ----- -----
Net loss............................................................................ $(166) $ (91) $(221)
----- ----- -----
----- ----- -----
</TABLE>
See accompanying notes.
F-57
<PAGE>
<PAGE>
TIME WARNER INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNCONSOLIDATED (PARENT-ONLY) CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ -------
<S> <C> <C> <C>
OPERATIONS
Net loss....................................................................... $ (166) $ (91) $ (221)
Extraordinary loss on retirement of debt....................................... 42 -- 57
One-time tax charge (a)........................................................ -- -- 70
Noncash interest expense....................................................... 176 219 185
Deficiency of distributions over equity in pretax income of unconsolidated
subsidiaries and equity method investees (b)................................. (89) (396) (462)
Other, principally changes in operating assets and liabilities................. (72) 149 435
------- ------ -------
Cash provided (used) by operations (c)......................................... (109) (119) 64
------- ------ -------
INVESTING ACTIVITIES
Investments and acquisitions, principally loans and advances to unconsolidated
subsidiaries................................................................. (353) (815) (737)
Investment proceeds, principally repayments of loans and advances by
unconsolidated subsidiaries.................................................. 1,154 1,087 114
------- ------ -------
Cash provided (used) by investing activities (d)............................... 801 272 (623)
------- ------ -------
FINANCING ACTIVITIES
Borrowings..................................................................... 748 550 4,730
Debt repayments................................................................ (1,455) (617) (1,003)
Issuance of subordinated notes and debentures in support of mandatorily
redeemable preferred securities of subsidiaries.............................. 977 -- --
Redemption of old Series D preferred stock..................................... -- -- (3,494)
Dividends paid................................................................. (171) (142) (299)
Stock option and dividend reinvestment plans................................... 106 34 92
Other, principally financing costs............................................. (43) (6) (133)
------- ------ -------
Cash provided (used) by financing activities (d)............................... 162 (181) (107)
------- ------ -------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS.................................... 854 (28) (666)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD.................................... 68 96 762
------- ------ -------
CASH AND EQUIVALENTS AT END OF PERIOD.......................................... $ 922 $ 68 $ 96
------- ------ -------
------- ------ -------
</TABLE>
- ------------
(a) Reflects a $70 million increase in Time Warner's deferred income tax
liability as a result of new tax law enacted in 1993.
(b) Distributions from unconsolidated subsidiaries and equity method investees
were $726 million, $335 million and $332 million in 1995, 1994 and 1993,
respectively.
(c) Cash payments made for interest amounted to $628 million, $539 million and
$268 million in 1995, 1994 and 1993, respectively. U.S. federal and state
income and foreign withholding tax payments were $195 million, $299 million
and $137 million in 1995, 1994 and 1993, respectively, and related tax
refunds were $19 million, $44 million and $44 million, respectively.
(d) For information with respect to certain noncash investing and financing
activities of Time Warner, see Note 15 to the Time Warner consolidated
financial statements. In addition, noncash investing activities of Time
Warner with its unconsolidated subsidiaries included noncash capital
distributions (contributions), net, of $2.450 billion, ($176) million and
$3.049 billion in 1995, 1994 and 1993, respectively, and a $3 billion loan
to an unconsolidated subsidiary in 1993.
See accompanying notes.
F-58
<PAGE>
<PAGE>
TIME WARNER INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO UNCONSOLIDATED (PARENT-ONLY) CONDENSED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
Time Warner's investments in and amounts due to and from unconsolidated
subsidiaries and equity method investees are stated at cost plus equity in the
undistributed income (loss) of subsidiaries and equity method investees, before
U.S. federal and state income and foreign withholding taxes, since dates of
acquisition. Time Warner's share of the income (loss) of unconsolidated
subsidiaries and equity method investees, before federal and state income and
foreign withholding taxes, is included in the statement of operations using the
equity method. The unconsolidated (parent-only) financial statements should be
read in conjunction with the accompanying consolidated financial statements of
Time Warner. Capitalized terms are as defined in the Time Warner consolidated
financial statements.
2. LONG-TERM DEBT
The principal terms and amounts of the long-term debt of Time Warner
(parent-only) are set forth in Note 6 to the Time Warner consolidated financial
statements. Time Warner (parent-only) long-term debt excludes unconsolidated
subsidiary debt of $1.440 billion and $28 million at December 31, 1995 and 1994,
respectively, of which $1.265 billion is due in 2000.
3. SUBORDINATED NOTES AND DEBENTURES
In August 1995, Time Warner issued $385 million principal amount of 4%
subordinated notes due December 23, 1997 (the '4% Notes') to a wholly-owned
subsidiary in support of such subsidiary's issuance of the PERCS. The amount
payable by Time Warner upon the maturity of each 4% Note is equal to the lesser
of $54.41, and the market value of a share of common stock of Hasbro on December
17, 1997, payable in cash or, at Time Warner's option, Hasbro common stock held
by a subsidiary of Time Warner. Time Warner has the right to redeem the 4% Notes
at any time prior to December 23, 1997, at an amount per 4% Note equal to $54.41
(or in certain limited circumstances the lesser of such amount and the market
value of a share of Hasbro common stock at the time of redemption) plus accrued
and unpaid interest thereon and a declining premium, payable in cash or, at Time
Warner's option, Hasbro common stock.
In December 1995, Time Warner issued $592 million principal amount of
8 7/8% subordinated debentures due December 31, 2025 (the '8 7/8% Debentures')
to a wholly-owned subsidiary in support of such subsidiary's issuance of the
Preferred Trust Securities. Interest payments on the 8 7/8% Debentures may be
deferred at the election of Time Warner for any period not exceeding 20
consecutive quarters. Time Warner has the right to redeem the 8 7/8% Debentures,
in whole or in part, on or after December 31, 2000, or in other certain
circumstances, in each case at an amount equal to the principal amount of 8 7/8%
Debentures to be redeemed plus accrued and unpaid interest thereon.
F-59
<PAGE>
<PAGE>
TIME WARNER INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ------------------------------------------------------------ ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Reserves deducted from accounts receivable:
Allowance for doubtful accounts........................ $ 157 $ 230 $ (199)(a) $ 188
Reserves for sales returns and allowances.............. 611 2,217 (2,230)(b)(c) 598
---------- ---------- ---------- ---------
Total............................................. $ 768 $ 2,447 $ (2,429) $ 786
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Reserves deducted from amounts due to publishers
(accounts payable)
Allowance for magazine and book returns................ $ (159) $ (1,015) $ 1,011(c) $(163)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
1994:
Reserves deducted from accounts receivable:
Allowance for doubtful accounts........................ $ 131 $ 197 $ (171)(a) $ 157
Reserves for sales returns and allowances.............. 545 1,822 (1,756)(b)(c) 611
---------- ---------- ---------- ---------
Total............................................. $ 676 $ 2,019 $ (1,927) $ 768
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Reserves deducted from amounts due to publishers (accounts
payable)
Allowance for magazine and book returns................ $ (154) $ (905) $ 900(c) $(159)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
1993:
Reserves deducted from accounts receivable:
Allowance for doubtful accounts........................ $ 122 $ 194 $ (185)(a) $ 131
Reserves for sales returns and allowances.............. 522 1,631 (1,608)(b)(c) 545
---------- ---------- ---------- ---------
Total............................................. $ 644 $ 1,825 $ (1,793) $ 676
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Reserves deducted from amounts due to publishers (accounts
payable)
Allowance for magazine and book returns................ $ (146) $ (855) $ 847(c) $(154)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
- ------------
(a) Represents uncollectible receivables charged against reserve.
(b) Represents returns or allowances applied against reserve.
(c) The distribution of magazines not owned by Time Warner results in a
receivable recorded at the sales price and a corresponding liability to
the publisher recorded at the sales price less the distribution commission
recognized by Time Warner as revenue. Therefore, changes in reserves for
magazine returns also result in corresponding changes to the reserve
against the liability due to the publishers.
F-60
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TWE is engaged principally in two fundamental areas of business:
Entertainment, consisting principally of interests in filmed entertainment,
broadcasting, theme parks and cable television programming; and
Telecommunications, consisting principally of interests in cable television
systems. TWE also manages the telecommunications properties owned by Time Warner
and the combined cable television operations are conducted under the name of
Time Warner Cable. Capitalized terms are as defined and described in the
accompanying consolidated financial statements, or elsewhere herein.
STRATEGIC INITIATIVES
SIGNIFICANT TRANSACTIONS
During 1995, TWE embarked on a program to improve its financial condition
and increase its overall financial flexibility through asset sales and the
refinancing of its bank debt. In conjunction with Time Warner, TWE also pursued
significant, strategic objectives during 1995 through its cable television
operations. These objectives are part of a continuing strategy to further
enhance the strength of TWE's interests in entertainment and to attempt to use
existing and acquired cable television systems to establish an enterprise that
will be responsible for the overall management and financing of its and Time
Warner's cable and telecommunications interests. In pursuit of these strategic
objectives, TWE completed a number of transactions in 1995 that have had a
significant effect on its results of operations and financial condition. Such
transactions include:
The formation by TWE of the TWE-Advance/Newhouse Partnership which,
together with certain cable acquisitions by Time Warner, strengthened the
geographic clusters of the cable television systems and substantially
increased the number of cable subscribers managed by Time Warner Cable.
The execution of a new $8.3 billion credit agreement, under which $2.6
billion of pre-existing bank debt was refinanced by TWE; and
The sale by TWE of certain assets under an asset sales program, which
raised approximately $1.1 billion for debt reduction, including the sale
of 51% of TWE's interest in Six Flags (the 'Six Flags Transaction') and
the sale or expected sale or transfer of certain unclustered cable
television systems owned by TWE (the 'Unclustered Cable Transactions').
The nature of these transactions and their impact on the results of operations
and financial condition of TWE are further discussed below.
TELECOMMUNICATIONS STRATEGY
In 1994, TWE and Time Warner embarked on a strategy to expand their cable
television business, leading to the formation of the TWE-Advance/Newhouse
Partnership and the acquisition by Time Warner of certain cable television
systems, which increased the number of subscribers under TWE's management by
approximately 3.7 million. This strategy was based on management's expectation
that there would be a signficant increase in the value of cable television
systems related, in part, to a future convergence of the cable and telephone
industries, which would provide cable companies with an opportunity to operate
large geographic clusters of cable television systems for purposes of maximizing
the development and distribution of new and improved services on a cost
efficient basis, such as increased channel capacity, high speed data
transmission and telephony services.
In early 1996, TWE and Time Warner completed their plans for the expansion
of their cable television business, thereby strengthening their geographic
clusters of cable television systems as previously envisioned. Along with
internal growth, the formation of the TWE-Advance/Newhouse Partnership, and Time
Warner's acquisitions of Summit Communications Group, Inc. ('Summit'), KBLCOM
Incorporated ('KBLCOM') and Cablevision Industries Corporation ('CVI') and
related companies, increased the total number of subscribers under the
management of Time Warner Cable to over 11.7 million, as compared to 7.5 million
subscribers at the
F-61
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
end of 1994. Time Warner Cable has also extended its reach of cable television
systems to neighborhoods passing 18 million homes or close to 20% of television
homes in the U.S. In addition, there are now 35 geographic clusters of cable
television systems managed by Time Warner Cable serving over 100,000 subscribers
each, including key markets such as New York City and State, central Florida and
North Carolina. Excluding Time Warner's systems, TWE owns or manages cable
television systems serving 9.5 million subscribers, with 31 geographic clusters
serving over 100,000 subscribers each. TWE and Time Warner do not currently plan
to make any more significant acquisitions of cable television systems, but
instead intends to continue to refine their geographic clusters by exchanging
certain unclustered cable television systems for geographically-strategic ones
or by selling non-strategic cable television systems as part of their continuing
asset sales program. Management continues to believe that the increased size and
concentration of its subscriber base will provide for sustained revenue growth
from new and improved services, and provide certain economies of scale relating
to the upgrade of the technological capabilities of Time Warner Cable's cable
television systems.
Management believes that the future convergence of the cable and telephone
industries has been substantially confirmed through various events within the
industry, including the February 1996 enactment into law of sweeping
telecommunications industry reform. Among other features, the Telecommunications
Act of 1996 effectively removes regulatory barriers that historically prohibited
cable television companies and local and long-distance telephone companies from
competing in each other's business. In addition, the new law eliminates most
cable rate pricing restrictions in 1999, and earlier under certain
circumstances. TWE expects that the relaxation of cable rate regulation in 1999,
along with permitted cable rate price increases for certain regulated services
that went into effect on January 1, 1996 under a separate Time Warner Cable
agreement with the Federal Communications Commission (the 'FCC'), will provide
enhanced pricing flexibility that will help finance its cable and telephony
expansion plans.
The next phase of TWE and Time Warner's telecommunications strategy is to
simplify the structure of its cable and telecommunications properties by
bringing such properties together, so far as practicable and on a tax-efficient
basis, into an enterprise that will be responsible for the overall management
and financing of these interests. The first step of this process was completed
in 1995 when ITOCHU and Toshiba exchanged their interests in TWE for equity
interests in Time Warner. The restructuring process depends, among other things,
upon successful negotiations with U S WEST and certain creditors, and the
receipt of franchise and other regulatory approvals. Accordingly, there can be
no assurance that the effort will succeed. In the interim, as contemplated by
the TWE-Advance/Newhouse Partnership agreement, Time Warner may transfer certain
of its newly-acquired cable systems to the TWE-Advance/Newhouse Partnership on a
tax-efficient basis. Such transfers, if they are made, are expected to be
structured so that the systems will be transferred subject to a portion of Time
Warner's debt, thereby increasing the under-leveraged capitalization of the TWE-
Advance/Newhouse Partnership and consequently, TWE.
USE OF EBITDA
The following comparative discussion of the results of operations and
financial condition of TWE includes, among other factors, an analysis of changes
in the operating income of the business segments before depreciation and
amortization ('EBITDA') in order to eliminate the effect on the operating
performance of the filmed entertainment and cable businesses of significant
amounts of amortization of intangible assets recognized in Time Warner's $14
billion acquisition of WCI in 1989, the $1.3 billion acquisition of the ATC
minority interest in 1992 and other business combinations accounted for by the
purchase method. Financial analysts generally consider EBITDA to be an important
measure of comparative operating performance for the businesses of TWE, and when
used in comparison to debt levels or the coverage of interest expense, as a
measure of liquidity. However, EBITDA should be considered in addition to, not
as a substitute for, operating
F-62
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
income, net income, cash flow and other measures of financial performance and
liquidity reported in accordance with generally accepted accounting principles.
RESULTS OF OPERATIONS
1995 VS. 1994
TWE had revenues of $9.517 billion, income of $97 million before an
extraordinary loss on the retirement of debt and net income of $73 million for
the year ended December 31, 1995, compared to revenues of $8.460 billion and net
income of $161 million for the year ended December 31, 1994. The decrease in net
income in 1995 was principally related to a $24 million extraordinary loss on
the retirement of debt and higher depreciation and amortization relating to
increased capital spending.
As discussed more fully below, TWE's operating results in 1995 reflect an
overall increase in operating income generated by its business segments
(including the contribution by the TWE-Advance/Newhouse Partnership) and an
increase in investment-related income resulting from gains on the sale of
certain unclustered cable systems and other investments, offset in part by
minority interest expense related to the consolidation of the operating results
of the TWE-Advance/Newhouse Partnership effective as of April 1, 1995.
On a pro forma basis, giving effect to (i) the formation of the
TWE-Advance/Newhouse Partnership, (ii) the refinancing of approximately $2.6
billion of pre-existing bank debt, (iii) the consolidation of Paragon, (iv) the
Six Flags Transaction, (v) the Unclustered Cable Transactions and (vi) the
reacquisition of the Time Warner Service Partnership Assets, as if each of such
transactions had occurred at the beginning of the periods, TWE would have
reported for the years ended December 31, 1995 and 1994, revenues of $9.682
billion and $8.779 billion, depreciation and amortization of $1.069 billion and
$1.035 billion, operating income of $962 million and $884 million, income before
extraordinary item of $172 million and $143 million and net income of $148
million and $143 million, respectively. The 1995 to 1994 comparison of pro forma
results are similarly affected by any underlying historical trends unrelated to
the transactions given pro forma effect to therein. The increase in pro forma
over historical net income for 1995 principally results from the pro forma
effects of a full year contribution by the TWE-Advance/Newhouse Partnership, the
contribution of net income related to the Time Warner Service Partnership
Assets, and interest savings associated with the refinancing of TWE's bank debt
and lower debt levels resulting from asset sales. The decrease in pro forma over
historical net income for 1994 principally results from the pro forma effects of
the contribution of net losses related to the Time Warner Service Partnership
Assets, which exceeded the positive pro forma effects of a full year
contribution by the TWE-Advance/Newhouse Partnership, and interest savings
associated with the refinancing of TWE's bank debt and lower debt levels
resulting from asset sales.
As a U.S. partnership, TWE is not subject to U.S. federal and state income
taxation. Income and withholding taxes of $86 million in the year ended December
31, 1995, and $40 million in the year ended December 31, 1994, have been
provided in respect of the operations of TWE's domestic and foreign subsidiary
corporations.
F-63
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
EBITDA and operating income for TWE in 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
OPERATING
EBITDA INCOME
----------------- -------------
1995 1994 1995 1994
------ ------ ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
Filmed Entertainment...................................................... $ 459 $ 407 $228 $201
Six Flags Theme Parks..................................................... 60 135 29 56
Broadcasting-The WB Network............................................... (66) -- (66) --
Programming-HBO........................................................... 291 255 274 236
Cable..................................................................... 1,255 994 495 355
------ ------ ---- ----
Total..................................................................... $1,999 $1,791 $960 $848
------ ------ ---- ----
------ ------ ---- ----
</TABLE>
Filmed Entertainment. Revenues increased to $5.069 billion, compared to
$4.476 billion in 1994. EBITDA increased to $459 million from $407 million.
Depreciation and amortization, including amortization related to the purchase of
WCI, amounted to $231 million in 1995 and $206 million in 1994. Operating income
increased to $228 million from $201 million. Revenues benefited from increases
in worldwide theatrical, home video, consumer products and television
distribution operations. Worldwide theatrical and domestic home video revenues
in 1995 were led by the success of Batman Forever. EBITDA and operating income
benefited from the revenue gains and increased income from licensing operations.
Six Flags Theme Parks. As a result of TWE's sale of 51% of its interest in
Six Flags, the operating results of Six Flags have been deconsolidated effective
as of June 23, 1995 and TWE's remaining 49% interest in Six Flags is accounted
for under the equity method of accounting. Accordingly, revenues decreased to
$227 million, compared to $557 million in 1994. EBITDA decreased to $60 million
from $135 million. Depreciation and amortization amounted to $31 million in 1995
and $79 million in 1994. Operating income decreased to $29 million from $56
million.
Broadcasting-The WB Network. The WB Network was launched in January 1995,
and generated $66 million of operating losses on $33 million of revenues. The
operating loss was mitigated by a favorable legal settlement, as well as by
funding from a limited partner admitted as of August 1995. Due to the start-up
nature of this new national broadcast operation, losses are expected to
continue.
Programming-HBO. Revenues increased to $1.593 billion, compared to $1.494
billion in 1994. EBITDA increased to $291 million from $255 million.
Depreciation and amortization amounted to $17 million in 1995 and $19 million in
1994. Operating income increased to $274 million from $236 million. Revenues
benefited primarily from an increase in subscriptions to 29.7 million from 27
million at the end of 1994, as well as from higher pay-TV rates. EBITDA and
operating income improved principally as a result of the revenue gains.
Cable. Revenues increased to $3.005 billion, compared to $2.220 billion in
1994. EBITDA increased to $1.255 billion from $994 million. Depreciation and
amortization, including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $760 million in 1995 and
$639 million in 1994. Operating income increased to $495 million from $355
million. Revenues and operating results benefited from the formation of the
TWE-Advance/Newhouse Partnership on April 1, 1995 and the consolidation of
Paragon effective as of July 6, 1995. Excluding such effects, revenues benefited
from a 3% increase in basic cable subscribers and increases in nonregulated
revenues, including pay-TV, pay-per-view and advertising. Excluding the positive
contributions from the TWE-Advance/Newhouse Partnership and the consolidation of
Paragon, EBITDA and operating income increased as a result of the revenue gains,
offset in part by the full year impact of the second round of cable rate
regulations that went into effect in July 1994, higher start-up costs for
F-64
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
telephony operations and, with respect to operating income only, higher
depreciation and amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, decreased to $580
million in 1995, compared to $587 million in 1994. Interest expense increased to
$571 million, compared to $563 million in 1994, principally as a result of
higher short-term, floating-rates of interest paid on borrowings under TWE's
former and existing bank credit agreements, offset in part by interest savings
in the last quarter of 1995 on lower debt levels related to management's asset
sales program. Other expense, net, decreased to $9 million in 1995 from $24
million in 1994, principally because of an increase in investment-related income
related to gains on the sale of certain unclustered cable systems and other
investments.
1994 VS. 1993
TWE had revenues of $8.460 billion and net income of $161 million in 1994,
compared to revenues of $7.946 billion and net income of $198 million in 1993.
The decrease in net income principally relates to the effects of cable rate
regulation, offset in part by the absence of an extraordinary loss on the
retirement of debt of $10 million recorded in 1993. As discussed more fully
below, the Entertainment Group's operating results in 1994 reflected an overall
decrease in operating income generated by its business segments, principally
relating to lower Cable results due to cable rate regulation, and an increase in
investment-related and foreign currency contract losses, offset in part by an
increase in interest income.
EBITDA and operating income for TWE in 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
OPERATING
EBITDA INCOME
----------------- -------------
1994 1993 1994 1993
------ ------ ---- ----
(MILLIONS)
<S> <C> <C> <C> <C>
Filmed Entertainment...................................................... $ 407 $ 399 $201 $210
Six Flags Theme Parks..................................................... 135 122 56 53
Programming-HBO........................................................... 255 230 236 213
Cable..................................................................... 994 1,034 355 407
------ ------ ---- ----
Total..................................................................... $1,791 $1,785 $848 $883
------ ------ ---- ----
------ ------ ---- ----
</TABLE>
Filmed Entertainment. Revenues increased to $4.476 billion, compared to
$4.024 billion in 1993. EBITDA increased to $407 million from $399 million.
Depreciation and amortization, including amortization related to the purchase of
WCI, amounted to $206 million in 1994 and $189 million in 1993. Operating income
decreased to $201 million from $210 million. Worldwide home video, syndication
and consumer products revenues increased at Warner Bros., offset in part by
lower worldwide theatrical revenues. EBITDA and operating income margins
decreased principally as a result of lower theatrical results in comparison to
the exceptionally strong theatrical results in 1993.
Six Flags Theme Parks. Revenues increased to $557 million, compared to
$533 million in 1993. EBITDA increased to $135 million from $122 million.
Depreciation and amortization amounted to $79 million in 1994 and $69 million in
1993. Operating income increased to $56 million from $53 million. Revenues
increased as a result of overall attendance growth and higher revenues per
visitor. EBITDA and operating income improved principally as a result of the
revenues gains.
Programming-HBO. Revenues increased to $1.494 billion, compared to $1.435
billion in 1993. EBITDA increased to $255 million from $230 million.
Depreciation and amortization amounted to $19 million in 1994 and $17 million in
1993. Operating income increased to $236 million from $213 million. Revenues
benefited
F-65
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
from an increase in subscriptions and higher pay-TV rates. EBITDA, operating
income and operating margins improved principally as a result of the revenue
gains.
Cable. Revenues increased to $2.220 billion, compared to $2.205 billion in
1993. EBITDA decreased to $994 million from $1.034 billion. Depreciation and
amortization, including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $639 million in 1994 and
$627 million in 1993. Operating income decreased to $355 million from $407
million. Revenues and operating results in 1994 were adversely affected by two
rounds of cable rate regulation that in general reduced the rates cable
operators are allowed to charge for regulated services, the first of which went
into effect in September 1993 and the second of which went into effect in July
1994. The unfavorable effects of rate regulation were offset in part by an
increase in subscribers and nonregulated revenues. Actions that were undertaken
to mitigate the impact of rate regulation included a number of cost containment
measures and a continued emphasis on near and long-term strategies to increase
revenues from unregulated services.
Interest and Other, Net. Interest and other, net, increased to $587
million in 1994, compared to $551 million in 1993. Interest expense decreased to
$563 million, compared with $573 million in 1993. There was other expense, net,
of $24 million in 1994, compared to other income, net, of $22 million in 1993.
Investment-related and foreign currency contract losses in 1994 exceeded an
increase in interest income on higher cash balances and the interest-bearing
note receivable from U S WEST. In 1993, other income, net benefited from a gain
on the sale of certain assets and other investment-related income, which more
than offset investment losses.
FINANCIAL CONDITION AND LIQUIDITY
DECEMBER 31, 1995
1995 FINANCIAL CONDITION
The financial condition of TWE at December 31, 1995 was affected by the
formation of the TWE-Advance/Newhouse Partnership, the Six Flags Transaction and
the consolidation of Paragon. TWE had $6.2 billion of debt, $1.4 billion of Time
Warner General Partners' senior priority capital and $6.5 billion of partners'
capital (net of the $169 million uncollected portion of the note receivable from
U S WEST) at December 31, 1995, compared to $7.2 billion of debt, $1.7 billion
of Time Warner General Partners' senior priority capital and $6.2 billion of
partners' capital at December 31, 1994. The $1 billion reduction in debt
resulted principally from the Six Flags Transaction. In addition, principally as
a result of the payment of over $1 billion of distributions to Time Warner in
1995, cash and equivalents decreased to $209 million at December 31, 1995,
compared to $1.1 billion at December 31, 1994, reducing the debt-net-of-cash
amounts for TWE to $6 billion and $6.1 billion, respectively.
CREDIT AGREEMENT REFINANCING
In connection with the cable transactions, TWE, the TWE-Advance/Newhouse
Partnership and TWI Cable executed a five-year revolving credit facility in June
1995. The New Credit Agreement enabled such entities to refinance certain
indebtedness assumed in the cable acquisitions, to refinance TWE's indebtedness
under a pre-existing bank credit agreement and to finance the ongoing working
capital, capital expenditure and other corporate needs of each borrower.
The New Credit Agreement permits borrowings in an aggregate amount of up to
$8.3 billion, with no scheduled reductions in credit availability prior to
maturity. Borrowings are limited to $4 billion in the case of TWI Cable, $5
billion in the case of the TWE-Advance/Newhouse Partnership and $8.3 billion in
the case of TWE, subject in each case to certain limitations and adjustments.
Such borrowings bear interest at specific rates for each of the three borrowers,
generally equal to LIBOR plus a margin initially ranging from 50 to 87.5 basis
points, which margin will vary based on the credit rating or financial leverage
of the applicable borrower.
F-66
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Unused credit is available for general business purposes and to support any
commercial paper borrowings. Each borrower is required to pay a commitment fee
initially ranging from .2% to .35% per annum on the unused portion of its
commitment. The New Credit Agreement contains certain covenants for each
borrower relating to, among other things, additional indebtedness; liens on
assets; cash flow coverage and leverage ratios; and loans, advances,
distributions and other cash payments or transfers of assets from the borrowers
to their respective partners or affiliates.
In July 1995, TWE borrowed approximately $2.6 billion under the New Credit
Agreement to repay and terminate its pre-existing bank credit agreement.
ASSET SALES
In conjunction with Time Warner and as part of a continuing strategy to
enhance the financial position and credit statistics of TWE, an asset sales
program was initiated by Time Warner and TWE in 1995. Including the sale of 51%
of TWE's interest in Six Flags in June 1995 and the sale or expected sale of
certain unclustered cable systems, TWE has completed or entered into
transactions that raised approximately $1.1 billion for debt reduction, all of
which were completed in 1995 except for certain transactions aggregating
approximately $170 million which are expected to close in 1996.
CREDIT STATISTICS
The combination of asset sales and the debt refinancing is intended to
strengthen the financial position of TWE and, when taken together with EBITDA
growth, is expected to continue the improvement of TWE's overall credit
statistics. These credit statistics consist of commonly-used liquidity measures
such as leverage and coverage ratios. The leverage ratio represents the ratio of
total debt, less cash ('Net debt') to total business segment EBITDA, less
corporate expenses ('Adjusted EBITDA'). The coverage ratio represents the ratio
of Adjusted EBITDA to total interest expense. Those ratios, on a pro forma basis
for 1995 and on an historical basis for 1994 and 1993, are as set forth below.
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA -------------
1995(A) 1994 1993
--------- ---- ----
<S> <C> <C> <C>
Net debt/Adjusted EBITDA.............................................................. 3.0x 3.5x 3.4x
Adjusted EBITDA/Interest.............................................................. 3.7x 3.1x 3.0x
</TABLE>
- ------------
(a) Pro forma ratios for 1995 give effect to the formation of the
TWE-Advance/Newhouse Partnership, the refinancing of approximately $2.6
billion of pre-existing bank debt, the consolidation of Paragon, the Six
Flags Transaction and the Unclustered Cable Transactions, as if each of such
transactions had occurred at the beginning of 1995. Historical ratios for
1995 are not meaningful and have not been presented because they reflect the
operating results of acquired or disposed entities for only a portion of the
year in comparison to year-end net debt levels.
Such ratios may be adversely affected upon the transfer of certain of Time
Warner's newly-acquired cable systems to the TWE-Advance/Newhouse Partnership,
which, if completed, is expected to be structured so that the systems will be
transferred subject to a portion of Time Warner's debt, thereby increasing the
under-leveraged capitalization of the TWE-Advance/Newhouse Partnership and
consequently, TWE.
CASH FLOWS
In 1995, TWE's cash provided by operations amounted to $1.519 billion and
reflected $1.999
billion of EBITDA from the Filmed Entertainment, Six Flags Theme Parks,
Broadcasting-The WB Network, Programming-HBO and Cable businesses and $230
million related to a reduction in working capital requirements, other balance
sheet accounts and noncash items, less $571 million of interest payments, $75
F-67
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
million of income taxes and $64 million of corporate expenses. Cash provided by
operations of $1.296 billion in 1994 reflected $1.791 billion of business
segment EBITDA and $155 million related to a reduction in working capital
requirements, other balance sheet accounts and noncash items, less $521 million
of interest payments, $69 million of income taxes and $60 million of corporate
expenses.
Cash used by investing activities decreased to $688 million in 1995,
compared to $1.659 billion in 1994, principally as a result of a $1 billion
increase in investment proceeds relating to management's asset sales program.
Capital expenditures increased to $1.535 billion in 1995, compared to $1.153
billion in 1994, principally as a result of higher capital spending by the Cable
Division.
Cash used by financing activities was $1.693 billion in 1995, compared to
cash provided by financing activities of $96 million in 1994, principally as a
result of an approximate $1 billion reduction in debt in 1995 and a $918 million
increase in distributions paid to Time Warner, offset in part by a $368 million
increase in collections on the note receivable from U S WEST that were used to
partially finance the capital spending requirements of the Cable Division.
Management believes that TWE's operating cash flow, cash and equivalents,
collections on the U S WEST Note and additional borrowing capacity are
sufficient to fund its capital and liquidity needs for the foreseeable future.
CABLE CAPITAL SPENDING
Since the beginning of 1994, Time Warner Cable has been engaged in a plan
to upgrade the technological capability and reliability of its cable television
systems and develop new services, which it believes will position the business
for sustained, long-term growth. Capital spending by TWE's Cable division
amounted to $1.178 billion in 1995, compared to $699 million in 1994, and was
financed in part through collections on the note receivable from U S WEST of
$602 million in 1995 and $234 million in 1994. Capital spending by TWE's Cable
division for 1996 is budgeted to be approximately $1.3 billion and is expected
to be funded principally by cable operating cash flow and $169 million of
collections on the remaining portion of the note receivable from U S WEST. In
exchange for certain flexibility in establishing cable rate pricing structures
for regulated services that went into effect on January 1, 1996 and consistent
with Time Warner Cable's long-term strategic plan, Time Warner Cable has agreed
with the FCC to invest a total of $4 billion in capital costs in connection with
the upgrade of its cable infrastructure, which is expected to be substantially
completed over the next five years. The agreement with the FCC covers all of the
cable operations of Time Warner Cable, including the owned or managed cable
television systems of TWE, the TWE-Advance/Newhouse Partnership and Time Warner.
Management expects to continue to finance such level of investment principally
through the growth in cable operating cash flow derived from increases in
subscribers and cable rates, borrowings under the New Credit Agreement and the
development of new revenue streams from expanded programming options, high speed
data transmission, telephony and other services.
OFF-BALANCE SHEET ASSETS
As discussed below, TWE believes that the value of certain off-balance
sheet assets should be considered, along with other factors discussed elsewhere
herein, in evaluating TWE's financial condition and prospects for future results
of operations, including its ability to meet its capital and liquidity needs.
INTANGIBLE ASSETS
As a creator and distributor of branded information and entertainment
copyrights, TWE has a significant amount of internally-generated intangible
assets whose value is not fully reflected in the consolidated balance
F-68
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
sheet. Such intangible assets extend across TWE's principal business interests,
but are best exemplified by its interest in Warner Bros.' and HBO's copyrighted
film and television product libraries, and the creation or extension of brands,
as in the case of The WB Network. Generally accepted accounting principles do
not recognize the value of such assets, except at the time they may be acquired
in a business combination accounted for by the purchase method of accounting.
Because TWE owns the copyrights to such creative material, it continually
generates revenue through the sale of such products across different media and
in new and existing markets. The value of film and television-related
copyrighted product and trademarks is continually realized by the licensing of
films and television series to secondary markets and the licensing of
trademarks, such as the Looney Tunes characters and Batman, to the retail
industry and other markets. In addition, technological advances, such as the
introduction of the home videocassette in the 1980's and potentially the digital
versatile disc in the future, have historically generated significant revenue
opportunities through the repackaging and sale of such copyrighted products
under the new technological format. Accordingly, such intangible assets have
significant off-balance sheet asset value that is not fully reflected in TWE's
consolidated balance sheet.
WARNER BROS. BACKLOG
Warner Bros.' backlog, representing the amount of future revenue not yet
recorded from cash contracts for the licensing of theatrical and television
product for pay cable, network, basic cable and syndicated television
exhibition, amounted to $1.056 billion at December 31, 1995, compared to $852
million at December 31, 1994 (including amounts relating to HBO of $175 million
at each date). Because such contracts are for the licensing of theatrical and
television product which have already been produced, the recognition of revenue
is principally only dependent upon the commencement of the availability period
for telecast under the terms of the related licensing agreement. In addition,
cash licensing fees are collected periodically over the term of the related
licensing agreements. Accordingly, the portion of backlog for which cash
advances have not already been received has significant off-balance sheet asset
value as a source of future funding. The backlog excludes advertising barter
contracts, which are also expected to result in the future realization of cash
through the sale of advertising spots received under such contracts.
FOREIGN CURRENCY RISK MANAGEMENT
Time Warner uses foreign exchange contracts primarily to hedge the risk
that unremitted or future license fees owed to TWE domestic companies for the
sale or anticipated sale of U.S. copyrighted products abroad may be adversely
affected by changes in foreign currency exchange rates. As part of its overall
strategy to manage the level of exposure to the risk of foreign currency
exchange rate fluctuations, Time Warner hedges a portion of its foreign currency
exposures anticipated over the ensuing twelve month period, including those
related to TWE. At December 31, 1995, Time Warner has effectively hedged
approximately half of TWE's total estimated foreign currency exposures that
principally relate to anticipated cash flows to be remitted to the U.S. over the
ensuing twelve month period, using foreign exchange contracts that generally
have maturities of three months or less, which generally are rolled over to
provide continuing coverage throughout the year. TWE is reimbursed by or
reimburses Time Warner for Time Warner contract gains and losses related to
TWE's foreign currency exposure. Time Warner often closes foreign exchange sale
contracts by purchasing an offsetting purchase contract. At December 31, 1995,
Time Warner had contracts for the sale of $504 million and the purchase of $140
million of foreign currencies at fixed rates and maturities of three months or
less. Of Time Warner's $364 million net sale contract position, none of the
foreign exchange purchase contracts and $113 million of the foreign exchange
sale contracts related to TWE's foreign currency exposure, primarily Japanese
yen (21% of net contract position related to TWE), French francs (22%), German
marks (12%) and Canadian dollars (21%), compared to a net sale contract position
of $188 million of foreign currencies at December 31, 1994.
F-69
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- (CONTINUED)
Unrealized gains or losses related to foreign exchange contracts are
recorded in income as the market value of such contracts change; accordingly,
the carrying value of foreign exchange contracts approximates market value. The
carrying value of foreign exchange contracts was not material at December 31,
1995 and 1994. No cash is required to be received or paid with respect to the
realization of such gains and losses until the related foreign exchange
contracts are settled, generally at their respective maturity dates. In 1995 and
1994, TWE had $11 million and $20 million, respectively, of net losses on
foreign exchange contracts, which were or are expected to be offset by
corresponding increases in the dollar value of foreign currency license fee
payments that have been or are anticipated to be received in cash from the sale
of U.S. copyrighted products abroad. Time Warner places foreign currency
contracts with a number of major financial institutions in order to minimize
credit risk.
Based on Time Warner's outstanding foreign exchange contracts related to
TWE's exposure at December 31, 1995, each 5% devaluation of the U.S. dollar as
compared to the level of foreign exchange rates for currencies under contract at
December 31, 1995 would result in approximately $6 million of unrealized losses
on foreign exchange contracts. Conversely, a 5% appreciation of the U.S. dollar
as compared to the level of foreign exchange rates for currencies under contract
at December 31, 1995 would result in $6 million of unrealized gains on
contracts. Consistent with the nature of the economic hedge provided by such
foreign exchange contracts, such unrealized gains or losses would be offset by
corresponding decreases or increases, respectively, in the dollar value of
future foreign currency license fee payments that would be received in cash
within the ensuing twelve month period from the sale of U.S. copyrighted
products abroad.
F-70
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
(MILLIONS)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents.......................................................................... $ 209 $ 1,071
Receivables, including $354 and $266 due from Time Warner,
less allowances of $365 and $306............................................................ 1,635 1,426
Inventories................................................................................... 904 956
Prepaid expenses.............................................................................. 161 120
------- -------
Total current assets.......................................................................... 2,909 3,573
Noncurrent inventories........................................................................ 1,909 1,807
Loan receivable from Time Warner.............................................................. 400 400
Investments................................................................................... 383 666
Land and buildings............................................................................ 732 841
Cable television equipment.................................................................... 5,859 3,619
Furniture, fixtures and other equipment....................................................... 1,752 1,588
------- -------
8,343 6,048
Less accumulated depreciation................................................................. (3,138) (2,264)
------- -------
Property, plant and equipment................................................................. 5,205 3,784
Cable television franchises................................................................... 3,360 3,236
Goodwill...................................................................................... 4,119 4,433
Other assets.................................................................................. 620 763
------- -------
Total assets.................................................................................. $18,905 $18,662
------- -------
------- -------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable.............................................................................. $ 697 $ 514
Participations and programming costs.......................................................... 1,090 857
Other current liabilities, including $334 due to Time Warner at December 31, 1994............. 1,427 1,486
------- -------
Total current liabilities..................................................................... 3,214 2,857
Long-term debt................................................................................ 6,137 7,160
Other long-term liabilities, including $198 and $89 due to Time Warner........................ 924 749
Minority interests............................................................................ 726 --
Time Warner General Partners' senior priority capital......................................... 1,426 1,663
PARTNERS' CAPITAL
Contributed capital........................................................................... 7,522 7,398
Undistributed partnership earnings (deficit).................................................. (875) (394)
Note receivable from U S WEST................................................................. (169) (771)
------- -------
Total partners' capital....................................................................... 6,478 6,233
------- -------
Total liabilities and partners' capital....................................................... $18,905 $18,662
------- -------
------- -------
</TABLE>
See accompanying notes.
F-71
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
(MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Revenues (a).......................................................................... $9,517 $8,460 $7,946
Cost of revenues (a)(b)............................................................... 6,597 5,976 5,679
Selling, general and administrative (a)(b)............................................ 1,960 1,636 1,384
------ ------ ------
Operating expenses.................................................................... 8,557 7,612 7,063
------ ------ ------
Business segment operating income..................................................... 960 848 883
Interest and other, net (a)........................................................... (580) (587) (551)
Minority interest..................................................................... (133) -- --
Corporate services (a)................................................................ (64) (60) (60)
------ ------ ------
Income before income taxes............................................................ 183 201 272
Income taxes.......................................................................... (86) (40) (64)
------ ------ ------
Income before extraordinary item...................................................... 97 161 208
Extraordinary loss on retirement of debt, net of $7 million income tax benefit in 1993
related to a taxable subsidiary..................................................... (24) -- (10)
------ ------ ------
Net income............................................................................ $ 73 $ 161 $ 198
------ ------ ------
------ ------ ------
</TABLE>
- ------------
(a) Includes the following income (expenses) resulting from transactions with
the partners of TWE and other related companies for the years ended December
31, 1995, 1994 and 1993, respectively: revenues-$56 million, $112 million
and $67 million; cost of revenues-$(54) million, $(70) million and $(88)
million; selling, general and administrative-$(61) million, $(72) million
and $(38) million; interest and other, net-$24 million, $21 million and $3
million; and corporate expenses-$(64) million, $(60) million and $(60)
million (Note 13).
<TABLE>
<S> <C> <C> <C>
(b) Includes depreciation and amortization expense of:................................ $1,039 $ 943 $ 902
------ ------ ------
------ ------ ------
</TABLE>
See accompanying notes.
F-72
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
(MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
OPERATIONS
Net income.......................................................................... $ 73 $ 161 $ 198
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt............................................ 24 -- 10
Depreciation and amortization....................................................... 1,039 943 902
Equity in (income) losses of investee companies, net of distributions............... 84 58 (21)
Changes in operating assets and liabilities:
Receivables..................................................................... (159) (192) 1
Inventories..................................................................... (118) (76) (158)
Accounts payable and other liabilities.......................................... 679 400 260
Other balance sheet changes..................................................... (103) 2 79
------- ------- -------
Cash provided by operations......................................................... 1,519 1,296 1,271
------- ------- -------
INVESTING ACTIVITIES
Investments and acquisitions........................................................ (203) (156) (347)
Capital expenditures................................................................ (1,535) (1,153) (613)
Investment proceeds................................................................. 1,050 50 180
Loan to Time Warner................................................................. -- (400) --
------- ------- -------
Cash used by investing activities................................................... (688) (1,659) (780)
------- ------- -------
FINANCING ACTIVITIES
Borrowings.......................................................................... 2,484 977 3,075
Debt repayments..................................................................... (3,596) (945) (3,734)
Capital contributions, including collections on note receivable from U S WEST....... 602 234 1,548
Capital distributions............................................................... (1,088) (170) (33)
Other............................................................................... (95) -- (45)
------- ------- -------
Cash provided (used) by financing activities........................................ (1,693) 96 811
------- ------- -------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS......................................... (862) (267) 1,302
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD......................................... 1,071 1,338 36
------- ------- -------
CASH AND EQUIVALENTS AT END OF PERIOD............................................... $ 209 $ 1,071 $ 1,338
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes.
F-73
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL
(MILLIONS)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL
TIME WARNER ---------------------------------------------------
GENERAL UNDISTRIBUTED
PARTNERS' PARTNERSHIP U S TOTAL
SENIOR CONTRIBUTED EARNINGS WEST PARTNERS'
CAPITAL CAPITAL (DEFICIT) NOTE CAPITAL
----------- ----------- ------------- ------ ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992...................... $ -- $ 6,451 $ (14) $ -- $ 6,437
Net income........................................ 198 198
Admission of USW:
Contributions................................. 2,553 (1,021) 1,532
Time Warner General Partners' senior priority
capital..................................... 1,501 (1,501) (1,501)
Distributions (a)................................. (539) (539)
Distribution of Time Warner Service
Partnership Assets (b).......................... (95) (95)
Allocation of income.............................. 35 (35) (35)
Collections....................................... 16 16
Other............................................. (10) (3) (13)
----------- ----------- ----- ------ ---------
BALANCE AT DECEMBER 31, 1993...................... 1,536 7,398 (393) (1,005) 6,000
Net income........................................ 161 161
Distributions (a)................................. (46) (46)
Allocation of income.............................. 127 (127) (127)
Collections....................................... 234 234
Other............................................. 11 11
----------- ----------- ----- ------ ---------
BALANCE AT DECEMBER 31, 1994...................... 1,663 7,398 (394) (771) 6,233
Net income........................................ 73 73
Distributions (a)................................. (366) (421) (421)
Reacquisition of Time Warner Service
Partnership Assets (b).......................... 124 124
Allocation of income.............................. 129 (129) (129)
Collections....................................... 602 602
Other............................................. (4) (4)
----------- ----------- ----- ------ ---------
BALANCE AT DECEMBER 31, 1995...................... $ 1,426 $ 7,522 $(875) $ (169) $ 6,478
----------- ----------- ----- ------ ---------
----------- ----------- ----- ------ ---------
</TABLE>
- ------------
(a) Distributions in 1995, 1994 and 1993 included $346 million, $173 million and
$252 million, respectively, of accrued tax-related distributions, and $25
million, $50 million and $13 million of cash distributions to the Time
Warner Service Partnerships, respectively. Stock option distributions of $50
million and $274 million were accrued in 1995 and 1993, respectively,
because of an increase in the market price of Time Warner common stock and
$177 million of previously-accrued stock option distributions were reversed
in 1994 because the market price of Time Warner common stock declined during
the period. In addition, Time Warner General Partners' senior priority
capital was reduced in 1995 by a $366 million distribution of partnership
income previously allocated to such interest.
(b) Time Warner General Partners' junior priority capital was reduced in 1993
for the $95 million historical cost of the Time Warner Service Partnership
Assets distributed to the Time Warner General Partners and was increased in
1995 by the $124 million historical cost of the Time Warner Service
Partnership Assets reacquired by TWE.
See accompanying notes.
F-74
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Time Warner Entertainment Company, L.P., a Delaware limited partnership
('TWE'), is engaged principally in two fundamental areas of business:
Entertainment, consisting principally of interests in filmed entertainment,
broadcasting, theme parks and cable television programming; and
Telecommunications, consisting principally of interests in cable television
systems.
Each of the business interests within Entertainment and Telecommunications
is important to TWE's objective of increasing partner value through the
creation, extension and distribution of recognizable brands and copyrights
throughout the world. Such brands and copyrights include (1) the unique and
extensive film and television libraries of Warner Bros. and trademarks such as
the Looney Tunes characters and Batman, (2) The WB Network, a new national
broadcasting network launched in 1995 as an extension of the Warner Bros. brand
and as an additional distribution outlet for Warner Bros.' collection of
children cartoons and television programming, (3) Six Flags, the largest
regional theme park operator in the United States, in which TWE owns a 49%
interest, (4) HBO and Cinemax, the leading pay television services and (5) Time
Warner Cable, the second largest operator of cable television systems in the
U.S.
The operating results of TWE's various business interests are presented
herein as an indication of financial performance (Note 12). Except for start-up
losses incurred in an effort to create value in a branded national broadcasting
network, TWE's principal business interests generate significant operating
income and cash flow from operations. The cash flow from operations generated by
such business interests is significantly greater than their operating income due
to significant amounts of noncash amortization of intangible assets recognized
principally in Time Warner Inc.'s ('Time Warner') $14 billion acquisition of
Warner Communications Inc. ('WCI') in 1989 and $1.3 billion acquisition of the
minority interest in American Television and Communications Corporation ('ATC')
in 1992, a portion of which cost was allocated to TWE in accordance with the
pushdown method of accounting. Non-cash amortization of intangible assets
recorded by TWE's businesses amounted to $444 million in 1995, $478 million in
1994 and $476 million in 1993.
Subsidiaries of Time Warner are the general partners of TWE ('Time Warner
General Partners'). During 1995, Time Warner acquired the aggregate 11.22%
limited partnership interests previously held by subsidiaries of each of ITOCHU
Corporation and Toshiba Corporation. As a result, Time Warner and certain of its
wholly-owned subsidiaries collectively own 74.49% of the pro rata priority
capital and residual equity partnership interests in TWE, and certain priority
capital interests senior and junior to the pro rata priority capital interests.
The remaining 25.51% pro rata priority capital and residual equity limited
partnership interests are held by a subsidiary of U S WEST, Inc. ('U S WEST'),
which acquired such interests in 1993 for $1.532 billion of cash and a $1.021
billion 4.4% note (the 'U S WEST Note').
In lieu of contributing certain assets to the partnership at its
capitalization in 1992 (the 'Beneficial Assets'), the Time Warner General
Partners assigned to TWE the net cash flow generated by such assets or agreed to
pay an amount equal to the net cash flow generated by such assets. TWE has the
right to receive from the Time Warner General Partners, at the limited partners'
option, an amount equal to the fair value of the Beneficial Assets, net of
associated liabilities, that have not been contributed to TWE by June 30, 1996,
rather than continuing to receive the net cash flow, or an amount equal to the
net cash flow, generated by such Beneficial Assets. The consolidated financial
statements include the assets and liabilities of the businesses contributed by
the Time Warner General Partners, including the Beneficial Assets and associated
liabilities, all at Time Warner's historical cost basis of accounting.
The consolidated financial statements reflect (i) the consolidation by TWE
of the TWE-Advance/Newhouse Partnership resulting from the formation of such
partnership (Note 2), (ii) the deconsolidation of Six Flags Entertainment
Corporation ('Six Flags') as a result of the disposition by TWE of a 51%
interest in Six Flags effective as of June 23, 1995 (Note 3) and (iii) the
consolidation of Paragon Communications ('Paragon') as a
F-75
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
result of an increase in TWE's control over the management of such entity
effective as of July 6, 1995. Certain other reclassifications have been made to
the prior year's financial statements to conform to the 1995 presentation.
BASIS OF CONSOLIDATION AND
ACCOUNTING FOR INVESTMENTS
The consolidated financial statements include 100% of the assets,
liabilities, revenues, expenses, income, loss and cash flows of TWE and all
companies in which TWE has a direct and indirect controlling voting interest
('subsidiaries'), as if TWE and its subsidiaries were a single company.
Significant intercompany accounts and transactions between the consolidated
companies have been eliminated. Significant accounts and transactions between
TWE and its partners and affiliates are disclosed as related party transactions
(Note 14).
Investments in companies in which TWE has significant influence but less
than a controlling voting interest are accounted for using the equity method.
Under the equity method, only TWE's investment in and amounts due to and from
the equity investee are included in the consolidated balance sheet, only TWE's
share of the investee's earnings is included in the consolidated operating
results, and only the dividends, cash distributions, loans or other cash
received from the investee, less any additional cash investment, loan repayments
or other cash paid to the investee are included in the consolidated cash flows.
In accordance with Financial Accounting Standards Board ('FASB') Statement
No. 115, 'Accounting For Certain Investments in Debt and Equity Securities',
investments in companies in which TWE does not have the controlling interest or
an ownership and voting interest so large as to exert significant influence are
accounted for at market value if the investments are publicly traded and there
are no resale restrictions, or at cost, if the sale of a publicly-traded
investment is restricted or if the investment is not publicly traded. Unrealized
gains and losses on investments accounted for at market value are reported in
partners' capital until the investment is sold, at which time, the realized gain
or loss is included in income. Dividends and other distributions of earnings
from both market value and cost method investments are included in income when
declared.
FOREIGN CURRENCY
The financial position and operating results of substantially all of the
foreign operations of TWE are consolidated using the local currency as the
functional currency. Local currency assets and liabilities are translated at the
rates of exchange on the balance sheet date, and local currency revenues and
expenses are translated at average rates of exchange during the period.
Resulting translation gains or losses, which have not been material, are
included in partners' capital. Foreign currency transaction gains and losses,
which have not been material, are included in operating results.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
footnotes thereto. Actual results could differ from those estimates.
Significant estimates inherent in the preparation of the accompanying
consolidated financial statements include management's forecast of anticipated
revenues from the distribution of theatrical and television product in order to
evaluate the ultimate recoverability of film inventory recorded as an asset in
the consolidated balance sheet. Management periodically reviews such estimates
and it is reasonably possible that management's assessment of recoverability of
individual films and television product may change based on actual results and
other factors.
F-76
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUES AND COSTS
Feature films are produced or acquired for initial exhibition in theaters
followed by distribution in the home video, pay cable, broadcast network, basic
cable and syndicated television markets. Generally, distribution to the
theatrical, home video and pay cable markets (the primary markets) is
principally completed within eighteen months of initial release and thereafter
with respect to distribution to the basic cable, broadcast network and
syndicated television markets (the secondary markets). Theatrical revenues are
recognized as the films are exhibited. Home video revenues, less a provision for
returns, are recognized when the home videos are sold. Revenues from the
distribution of theatrical product to cable, broadcast network and syndicated
television markets are recognized when the films are available to telecast.
Television films and series are initially produced for the networks or
first-run television syndication (the primary markets) and may be subsequently
licensed to foreign or domestic cable and syndicated television markets (the
secondary markets). Revenues from the distribution of television product are
recognized when the films or series are available to telecast, except for barter
agreements where the recognition of revenue is deferred until the related
advertisements are exhibited.
License agreements for the telecast of theatrical and television product in
the cable, broadcast network and syndicated television markets are routinely
entered into well in advance of their available date for telecast, which is
generally determined by the telecast privileges granted under previous license
agreements. Accordingly, there are significant contractual rights to receive
cash and barter upon which revenues will not be recognized until such product is
available for telecast under the contractual terms of the related license
agreement. Such contractual rights for which revenue is not yet recognizable is
referred to as 'backlog.' Excluding advertising barter contracts, Warner Bros.'
backlog amounted to $1.056 billion and $852 million at December 31, 1995 and
1994, respectively (including amounts relating to the licensing of film product
to HBO of $175 million at each date).
Inventories of theatrical and television product are stated at the lower of
amortized cost or net realizable value. Cost includes direct production and
acquisition costs, production overhead and capitalized interest. A portion of
the cost to acquire WCI was allocated to its theatrical and television product
as of December 31, 1989, including an allocation to product that had been
exhibited at least once in all markets ('Library'). Individual films and series
are amortized, and the related participations and residuals are accrued, based
on the proportion that current revenues from the film or series bear to an
estimate of total revenues anticipated from all markets. These estimates are
revised periodically and losses, if any, are provided in full. WCI acquisition
cost allocated to the Library is amortized on a straight-line basis over twenty
years. Current film inventories include the unamortized cost of completed
feature films allocated to the primary markets, television films and series in
production pursuant to a contract of sale, film rights acquired for the home
video market and advances pursuant to agreements to distribute third-party films
in the primary markets. Noncurrent film inventories include the unamortized cost
of completed theatrical and television films allocated to the secondary markets,
theatrical films in production and WCI acquisition cost allocated to the
Library.
A significant portion of cable system and cable programming revenues are
derived from subscriber fees, which are recorded as revenue in the period the
service is provided. The cost of rights to exhibit feature films and other
programming on pay cable services during one or more availability periods
('programming costs') generally is recorded when the programming is initially
available for exhibition, and is allocated to the appropriate availability
periods and amortized as the programming is exhibited.
ADVERTISING
In accordance with FASB Statement No. 53, 'Financial Reporting by Producers
and Distributors of Motion Picture Films,' advertising costs for theatrical and
television product are capitalized and amortized over the related revenue
streams in each market for which such costs are intended to benefit, which
generally does not
F-77
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exceed three months. Other advertising costs are expensed upon the first
exhibition of the advertisement. Advertising expense, excluding theatrical and
television product, amounted to $241 million in 1995, $190 million in 1994 and
$169 million in 1993.
CASH EQUIVALENTS
Cash equivalents consist of commercial paper and other investments that are
readily convertible into cash, and have original maturities of three months or
less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Additions to cable
property, plant and equipment generally include material, labor, overhead and
interest. Depreciation is provided generally on the straight-line method over
useful lives ranging up to twenty-five years for buildings and improvements and
up to fifteen years for furniture, fixtures, cable television equipment and
other equipment.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' ('FAS 121')
effective for fiscal years beginning after December 15, 1995. The new rules
establish standards for the recognition and measurement of impairment losses on
long-lived assets and certain intangible assets. TWE expects that the adoption
of FAS 121 will not have a material effect on its financial statements.
INTANGIBLE ASSETS
As a creator and distributor of branded information and entertainment
copyrights, TWE has a significant and growing amount of intangible assets,
including goodwill, cable television franchises and other copyrighted products
and trademarks. In accordance with generally accepted accounting principles, TWE
does not recognize the fair value of internally-generated intangible assets.
Costs incurred to create and produce copyrighted product, such as feature films
and television series, are generally either expensed as incurred, or capitalized
as tangible assets, as in the case of cash advances and inventoriable product
costs. However, accounting recognition is not given to any increasing asset
value that may be associated with the collection of the underlying copyrighted
material. Additionally, costs incurred to create or extend brands, such as the
start-up of The WB Network, generally result in losses over an extended
development period and are recognized as a reduction of income as incurred,
while any corresponding brand value created is not recognized as an intangible
asset in the consolidated balance sheet. On the other hand, intangible assets
acquired in business combinations accounted for by the purchase method of
accounting are capitalized and amortized over their expected useful life as a
noncash charge against future results of operations. Accordingly, the intangible
assets reported in the consolidated balance sheet do not reflect the fair value
of TWE's internally-generated intangible assets, but rather are limited to
intangible assets resulting from certain acquisitions in which the cost of the
acquired companies exceeded the fair value of their tangible assets at the time
of acquisition.
TWE amortizes goodwill over periods up to forty years using the
straight-line method. Cable television franchises and other intangible assets
are amortized over periods up to twenty years using the straight-line method. In
1995, 1994 and 1993, amortization of goodwill amounted to $127 million, $129
million and $132 million, respectively; amortization of cable television
franchises amounted to $223 million, $208 million and $222 million,
respectively; and amortization of other intangible assets amounted to $94
million, $141 million and $122 million, respectively. Accumulated amortization
of intangible assets at December 31, 1995 and 1994 amounted to $2.337 billion
and $1.867 billion, respectively.
F-78
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWE separately reviews the carrying value of acquired intangible assets for
each acquired entity on a quarterly basis to determine whether an impairment may
exist. TWE considers relevant cash flow and profitability information, including
estimated future operating results, trends and other available information, in
assessing whether the carrying value of intangible assets can be recovered. Upon
a determination that the carrying value of intangible assets will not be
recovered from the undiscounted future cash flows of the acquired business, the
carrying value of such intangible assets would be considered impaired and will
be reduced by a charge to operations in the amount of the impairment. Impairment
is measured as any deficiency in estimated undiscounted future cash flows of the
acquired business to recover the carrying value related to the intangible
assets.
INCOME TAXES
As a Delaware limited partnership, TWE is not subject to U.S. federal and
state income taxation. However, certain of TWE's operations are conducted by
subsidiary corporations that are subject to domestic or foreign taxation. Income
taxes are provided on the income of such corporations using the liability method
of accounting for income taxes prescribed by FASB Statement No. 109, 'Accounting
for Income Taxes.'
2. TWE-ADVANCE/NEWHOUSE PARTNERSHIP
On April 1, 1995, TWE formed a cable television joint venture with the
Advance/Newhouse Partnership ('Advance/Newhouse') to which Advance/Newhouse and
TWE contributed cable television systems (or interests therein) serving
approximately 4.5 million subscribers, as well as certain foreign cable
investments and programming investments that included Advance/Newhouse's 10%
interest in Primestar Partners, L.P. ('Primestar'). TWE owns a two-thirds equity
interest in the TWE-Advance/Newhouse Partnership and is the managing partner.
TWE consolidates the partnership and the one-third equity interest owned by
Advance/Newhouse is reflected in TWE's consolidated financial statements as
minority interest. In accordance with the partnership agreement,
Advance/Newhouse can require TWE to purchase its equity interest for fair market
value at specified intervals following the death of both of its principal
shareholders. Beginning in the third year, either partner can initiate a
dissolution in which TWE would receive two-thirds and Advance/Newhouse would
receive one-third of the partnership's net assets. The assets contributed by TWE
and Advance/Newhouse to the partnership were recorded at their predecessor's
historical cost, which, with respect to Advance/Newhouse, consisted of assets
contributed to the partnership of approximately $338 million and liabilities
assumed by the partnership of approximately $9 million. No gain was recognized
by TWE upon the capitalization of the partnership.
The accompanying consolidated statement of operations includes the
operating results of the Advance/Newhouse businesses from the date of
contribution to the partnership. On a pro forma basis, giving effect to (i) the
formation of the TWE-Advance/Newhouse Partnership, (ii) the consolidation of
Paragon, (iii) the reacquisition of the Time Warner Service Partnership Assets
(Note 8), (iv) TWE's debt refinancing (Note 6) and (v) TWE's asset sales,
including the sale of 51% of its interest in Six Flags and the sale or expected
sale or transfer of certain unclustered cable television systems, as if each of
such transactions had occurred at the beginning of the periods, TWE would have
reported for the years ended December 31, 1995 and 1994, revenues of $9.682
billion and $8.779 billion, depreciation and amortization of $1.069 billion and
$1.035 billion, operating income of $962 million and $884 million, income before
extraordinary item of $172 million and $143 million and net income of $148
million and $143 million, respectively.
3. SIX FLAGS
On June 23, 1995, TWE sold 51% of its interest in Six Flags to an
investment group led by Boston Ventures for $204 million and received $640
million in additional proceeds from Six Flags, representing
F-79
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payment of certain intercompany indebtedness and licensing fees. As a result of
the transaction, Six Flags has been deconsolidated and TWE's remaining 49%
interest in Six Flags is accounted for under the equity method of accounting.
TWE reduced debt by approximately $850 million in connection with the
transaction, and a portion of the income on the transaction has been deferred by
TWE principally as a result of its guarantee of certain third-party, zero-coupon
indebtedness of Six Flags due in 1999.
TWE had owned all of Six Flags since September 1993 when it provided $136
million in funds to Six Flags to repurchase the remaining 50% common stock
interest held by other stockholders and preferred stock of certain subsidiaries.
4. INVESTMENTS
TWE's investments consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Equity method investments.................................................................... $ 335 $ 629
Cost method investments...................................................................... 48 37
------ ------
Total........................................................................................ $ 383 $ 666
------ ------
------ ------
</TABLE>
Companies accounted for using the equity method include Comedy Partners,
L.P. (50% owned), certain cable system joint ventures (generally 50% owned),
Primestar (31% owned in 1995), Six Flags (49% owned in 1995 when
deconsolidated), certain international cable and programming joint ventures
(generally 25% owned in 1995 and 1994) and Courtroom Television Network (33%
owned in 1995). A summary of combined financial information as reported by the
equity investees of TWE is set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
Revenues.......................................................................... $1,450 $ 722 $ 596
Depreciation and amortization..................................................... 195 125 97
Operating income (loss)........................................................... (9) 11 115
Net income (loss)................................................................. (168) (53) 80
Current assets.................................................................... 455 192 72
Total assets...................................................................... 2,416 1,281 1,054
Current liabilities............................................................... 405 305 163
Long-term debt.................................................................... 1,778 554 613
Total liabilities................................................................. 2,323 926 794
Total shareholders' equity or partners' capital................................... 93 355 260
</TABLE>
F-80
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
TWE's inventories consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1995 1994
---------------------- ----------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
(MILLIONS)
<S> <C> <C> <C> <C>
Film costs:
Released, less amortization................................ $ 529 $ 437 $ 585 $ 347
Completed and not released................................. 74 22 123 24
In process and other....................................... 11 396 18 361
Library, less amortization................................. -- 717 -- 769
Programming costs, less amortization............................ 219 337 149 306
Merchandise..................................................... 71 -- 81 --
------- ---------- ------- ----------
Total........................................................... $ 904 $1,909 $ 956 $1,807
------- ---------- ------- ----------
------- ---------- ------- ----------
</TABLE>
Excluding the Library, the unamortized cost of completed films at December
31, 1995 amounted to $1.062 billion, more than 90% of which is expected to be
amortized within three years after release. Excluding the effects of accounting
for the acquisition of WCI, the total cost incurred in the production of
theatrical and television films amounted to $2.011 billion in 1995, $1.667
billion in 1994 and $1.784 billion in 1993; and the total cost amortized
amounted to $2 billion, $1.640 billion and $1.619 billion, respectively.
6. LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
------- ----------
(MILLIONS)
<S> <C> <C>
Credit agreement, weighted average interest rates of 6.4% and 6.5%........................ $2,185 $2,550
Commercial paper, weighted average interest rates of 6.2% and 6.2%........................ 157 649
Six Flags 9.25% zero coupon notes due December 15, 1999................................... -- 123
9 5/8% notes due May 1, 2002.............................................................. 600 600
7 1/4% debentures due September 1, 2008................................................... 599 599
10.15% notes due May 1, 2012.............................................................. 250 250
8 7/8% notes due October 1, 2012.......................................................... 347 347
8 3/8% debentures due March 15, 2023...................................................... 991 990
8 3/8% debentures due July 15, 2033....................................................... 994 994
Other..................................................................................... 14 58
------- ----------
Total..................................................................................... $6,137 $7,160
------- ----------
------- ----------
</TABLE>
In June 1995, TWE, the TWE-Advance/Newhouse Partnership and a wholly-owned
subsidiary of Time Warner ('TWI Cable') executed a five-year revolving credit
facility (the 'New Credit Agreement'). The New Credit Agreement enabled such
entities to refinance certain indebtedness assumed in certain cable
acquisitions, to refinance TWE's indebtedness under a pre-existing bank credit
agreement and to finance the ongoing working capital, capital expenditure and
other corporate needs of each borrower.
The New Credit Agreement permits borrowings in an aggregate amount of up to
$8.3 billion, with no scheduled reductions in credit availability prior to
maturity. Borrowings are limited to $4 billion in the case of TWI Cable, $5
billion in the case of the TWE-Advance/Newhouse Partnership and $8.3 billion in
the case of
F-81
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWE, subject in each case to certain limitations and adjustments. Such
borrowings bear interest at specific rates for each of the three borrowers,
generally equal to LIBOR plus a margin initially ranging from 50 to 87.5 basis
points, which margin will vary based on the credit rating or financial leverage
of the applicable borrower. Unused credit is available for general business
purposes and to support any commercial paper borrowings. Each borrower is
required to pay a commitment fee initially ranging from .2% to .35% per annum on
the unused portion of its commitment. The New Credit Agreement contains certain
covenants for each borrower relating to, among other things, additional
indebtedness; liens on assets; cash flow coverage and leverage ratios; and
loans, advances, distributions and other cash payments or transfers of assets
from the borrowers to their respective partners or affiliates.
In July 1995, TWE borrowed approximately $2.6 billion under the New Credit
Agreement to repay and terminate its pre-existing bank credit agreement. In
connection therewith, TWE recognized an extraordinary loss of $24 million to
write-off deferred financing costs related to the former credit agreement.
As a result of the Six Flags transaction, long-term debt was reduced by
approximately $850 million in 1995, including the deconsolidation of Six Flags'
9.25% zero coupon notes due in 1999. Such zero coupon notes have been guaranteed
by TWE. In addition, TWE recognized an extraordinary loss of $10 million in 1993
in connection with the retirement by Six Flags of certain of its indebtedness.
Each Time Warner General Partner has guaranteed a pro rata portion of
approximately $6 billion of TWE's debt and accrued interest thereon based on the
relative fair value of the net assets each Time Warner General Partner
contributed to TWE (the 'Time Warner General Partner Guarantees'). Such
indebtedness is recourse to each Time Warner General Partner only to the extent
of its guarantee. The indenture pursuant to which TWE's notes and debentures
have been issued (the 'Indenture') requires the unanimous consent of the holders
of the notes and debentures to terminate the Time Warner General Partner
Guarantees prior to June 30, 1997, and the consent of a majority of such holders
to effect a termination thereafter. There are generally no restrictions on the
ability of the Time Warner General Partner guarantors to transfer material
assets, other than TWE assets, to parties that are not guarantors.
Interest expense was $571 million in 1995, $563 million in 1994 and $573
million in 1993. The weighted average interest rate on TWE's total debt was 7.7%
and 7.6% at December 31, 1995 and 1994, respectively.
TWE has the intent and the ability under the New Credit Agreement to
continue to refinance its commercial paper borrowings on a long-term basis. TWE
is not obligated to repay any portion of its long-term debt until the year 2000
when the New Credit Agreement expires and all borrowings thereunder, including
commercial paper supported by the New Credit Agreement, are required to be
repaid.
7. INCOME TAXES
Domestic and foreign pretax income (loss) are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Domestic......................................................................... $191 $242 $271
Foreign.......................................................................... (8) (41) 1
---- ---- ----
Total............................................................................ $183 $201 $272
---- ---- ----
---- ---- ----
</TABLE>
F-82
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a partnership, TWE is not subject to U.S. federal, state or local income
taxation. However, certain of TWE's operations are conducted by subsidiary
corporations that are subject to domestic or foreign taxation. Income taxes
(benefits) of TWE and subsidiary corporations are as set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Federal:
Current(1).................................................................. $ 7 $ 6 $ 10
Deferred.................................................................... (5) (2) (12)
Foreign:
Current(2).................................................................. 74 53 68
Deferred.................................................................... 6 (16) (4)
State and local:
Current..................................................................... 7 14 20
Deferred.................................................................... (3) (15) (18)
---- ---- ----
Total income taxes............................................................... $ 86 $ 40 $ 64
---- ---- ----
---- ---- ----
</TABLE>
- ------------
(1) Includes utilization of Six Flags' tax carryforwards in the amount of $16
million in 1995, $35 million in 1994 and $75 million in 1993.
(2) Includes foreign withholding taxes of $60 million in 1995, $44 million in
1994 and $59 million in 1993.
The financial statement basis of TWE's assets exceeds the corresponding tax
basis by $8.8 billion at December 31, 1995, principally as a result of
differences in accounting for depreciable and amortizable assets for financial
statement and income tax purposes.
8. TWE PARTNERS' CAPITAL
Each partner's interest in TWE consists of the initial priority capital and
residual equity amounts that were assigned to that partner or its predecessor
based on the estimated fair value of the net assets each contributed to the
partnership, as adjusted for the fair value of certain Time Warner Service
Partnership Assets (as defined below) distributed by TWE to the Time Warner
General Partners in 1993 which were not subsequently reacquired by TWE in 1995
('Contributed Capital'), plus, with respect to the priority capital interests
only, any undistributed priority capital return. The priority capital return
consists of net partnership income allocated to date in accordance with the
provisions of the TWE partnership agreement and the right to be allocated
additional partnership income which, together with any previously allocated net
partnership income, provides for the various priority capital rates of return
specified in the table below. The sum of Contributed Capital and the
undistributed priority capital return is referred to as 'Cumulative Priority
Capital.' Cumulative Priority Capital is not necessarily indicative of the fair
value of the underlying priority capital interests principally due to above-
market rates of return on certain priority capital interests as compared to
securities of comparable credit risk and maturity, such as the 13.25% rate of
return on the junior priority capital interest owned by subsidiaries of Time
Warner. Furthermore, the ultimate realization of Cumulative Priority Capital
could be affected by the fair value of TWE, which is subject to fluctuation.
F-83
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the priority of Contributed Capital, ownership of Contributed
Capital and Cumulative Priority Capital at December 31, 1995 and priority
capital rates of return thereon is set forth below:
<TABLE>
<CAPTION>
PRIORITY TIME LIMITED PARTNERS
CUMULATIVE CAPITAL WARNER ---------------------
CONTRIBUTED PRIORITY RATES OF GENERAL U S
PRIORITY OF CONTRIBUTED CAPITAL CAPITAL(A) CAPITAL RETURN(B) PARTNERS TIME WARNER WEST
- ------------------------------------------ ----------- ---------- ------------ -------- ------------- -----
(BILLIONS) (% PER ANNUM (OWNERSHIP %)
COMPOUNDED
QUARTERLY)
<S> <C> <C> <C> <C> <C> <C>
Senior priority capital................... $ 1.4 $1.4(c) 8.00% 100.00% -- --
Pro rata priority capital................. 5.6 8.7 13.00%(d) 63.27% 11.22% 25.51%
Junior priority capital................... 2.9 4.6 13.25%(e) 100.00% -- --
Residual equity capital................... 3.3 3.3(f) --(f) 63.27% 11.22% 25.51%
</TABLE>
- ------------
(a) Excludes partnership income or loss allocated thereto.
(b) Income allocations related to priority capital rates of return are based on
partnership income after any special tax allocations.
(c) Net of $366 million of partnership income distributed in 1995 representing
the priority capital return thereon through June 30, 1995.
(d) 11.00% to the extent concurrently distributed.
(e) 11.25% to the extent concurrently distributed.
(f) Residual equity capital is not entitled to stated priority rates of return
and, as such, its Cumulative Priority Capital is equal to its Contributed
Capital. However, in the case of certain events such as the liquidation or
dissolution of TWE, residual equity capital is entitled to any excess of the
fair value of the net assets of TWE over the aggregate amount of Cumulative
Priority Capital and special tax allocations. The residual equity
Contributed Capital has priority over the priority returns on junior and pro
rata priority capital.
Because Contributed Capital is based on the fair value of the net assets
that each partner contributed to the partnership, the aggregate of such amounts
is significantly higher than TWE's partners' capital as reflected in the
consolidated financial statements, which is based on the historical cost of the
contributed net assets. For purposes of allocating partnership income or loss to
the partners, partnership income or loss is based on the fair value of the net
assets contributed to the partnership and results in significantly less
partnership income, or results in partnership losses, in contrast to the net
income reported by TWE for financial statement purposes, which is also based on
the historical cost of contributed net assets.
Under the TWE partnership agreement, partnership income, to the extent
earned, is first allocated to the partners so that the economic burden of the
income tax consequences of partnership operations is borne as though the
partnership were taxed as a corporation ('special tax allocations'), then to the
senior priority, pro rata priority and junior priority capital interests, in
order of priority, at rates of return ranging from 8% to 13.25% per annum, and
finally to the residual equity interests. Partnership losses generally are
allocated first to eliminate prior allocations of partnership income to, and
then to reduce the Contributed Capital of, the residual equity, junior priority
capital and pro rata priority capital interests, in that order, then to reduce
the Time Warner General Partners' senior priority capital, including partnership
income allocated thereto, and finally to reduce any special tax allocations. To
the extent partnership income is insufficient to satisfy all special allocations
in a particular accounting period, the right to receive additional partnership
income necessary to provide for the various priority capital rates of return is
carried forward until satisfied out of future partnership income, including any
partnership income that may result from any liquidation or dissolution of TWE.
The TWE partnership agreement provides, under certain circumstances, for
the distribution of partnership income allocated to the senior priority capital
owned by the Time Warner General Partners ('Senior Priority Capital
Distributions'). Pursuant to such provision, $366 million of partnership income
was distributed to the Time Warner General Partners in 1995. The senior priority
capital and, to the extent not previously distributed, partnership income
allocated thereto is required to be distributed in three annual installments
beginning on July 1, 1997. The junior priority capital owned by subsidiaries of
Time Warner may be increased if certain operating performance targets are
achieved over a five-year period ending on December 31, 1996 and a ten-year
F-84
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period ending on December 31, 2001. Although satisfaction of the ten-year
operating performance target is indeterminable at this time, it is not expected
that the five-year target will be attained.
U S WEST has an option to obtain up to an additional 6.33% of pro rata
priority capital and residual equity interests, depending on cable operating
performance. The option is exercisable between January 1, 1999 and on or about
May 31, 2005 at a maximum exercise price ranging from $1.25 billion to $1.8
billion, depending on the year of exercise. Either U S WEST or TWE may elect
that the exercise price be paid with partnership interests rather than cash.
Distributions and loans to the partners are subject to partnership and
credit agreement limitations. Generally, TWE must be in compliance with the cash
flow coverage and leverage ratios, restricted payment limitations and other
credit agreement covenants in order to make such distributions or loans.
In September 1993, certain assets of TWE were distributed to the Time
Warner General Partners and were owned and operated by other partnerships (the
'Time Warner Service Partnerships') in order to ensure compliance with the
Modification of Final Judgment entered on August 24, 1982 by the United States
District Court for the District of Columbia applicable to U S WEST and its
affiliated companies, which may have included TWE. This distribution was
recorded for financial statement purposes based on the $95 million historical
cost of such assets and, for partnership agreement purposes, Time Warner General
Partners' junior priority capital was reduced by approximately $300 million. In
1994, U S WEST received a judicial order that TWE was no longer prohibited from
owning or operating substantially all of such assets. Accordingly, in September
1995, TWE reacquired substantially all of the assets of the Time Warner Service
Partnerships, subject to the liabilities relating thereto, (the 'Time Warner
Service Partnership Assets') in exchange for junior priority capital interests
in TWE equal to approximately $400 million. The reacquisition was recorded for
financial statement purposes based on the $124 million historical cost of the
Time Warner Service Partnership Assets. Prior to the reacquisition of the Time
Warner Service Partnership Assets in September 1995, TWE was required to make
quarterly cash distributions of junior priority capital in the amount of $12.5
million to the Time Warner General Partners ('TWSP Distributions'), which the
General Partners were then required to contribute to the Time Warner Service
Partnerships. TWE paid TWSP Distributions to the Time Warner General Partners in
the amount of $25 million, $50 million and $12.5 million in 1995, 1994 and 1993,
respectively, which were recorded as reductions of Time Warner General Partners'
junior priority capital.
TWE reimburses Time Warner for the amount by which the market price on the
exercise date of Time Warner common stock options exercised by employees of TWE
exceeds the exercise price or, with respect to options granted prior to the TWE
capitalization, the greater of the exercise price and $27.75, the market price
of the common stock at the time of the TWE capitalization on June 30, 1992
('Stock Option Distributions'). TWE accrues Stock Option Distributions and a
corresponding liability with respect to unexercised options when the market
price of Time Warner common stock increases during the accounting period, and
reverses previously-accrued Stock Option Distributions and the corresponding
liability when the market price of Time Warner common stock declines. Stock
Option Distributions are paid when the options are exercised. At December 31,
1995 and 1994, TWE had recorded a liability for Stock Option Distributions of
$122 million and $89 million, respectively, based on the unexercised options and
the market prices at such dates of $37.875 and $35.125, respectively, per Time
Warner common share. TWE paid Stock Option Distributions to Time Warner in the
amount of $17 million, $5 million and $20 million in 1995, 1994 and 1993,
respectively.
Cash distributions are required to be made to the partners to permit them
to pay income taxes at statutory rates based on their allocable taxable income
from TWE ('Tax Distributions'), including any taxable income generated by the
Beneficial Assets, subject to limitations referred to herein. The aggregate
amount of such Tax Distributions is computed generally by reference to the taxes
that TWE would have been required to pay if it were a corporation. Tax
Distributions were previously subject to restrictions until July 1995 and are
now paid to the Time Warner General Partners on a current basis. TWE paid $680
million of such Tax Distributions to the
F-85
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Time Warner General Partners in 1995 (of which $334 million was accrued at
December 31, 1994), compared to $115 million in 1994.
In addition to Stock Option Distributions, Tax Distributions and Senior
Priority Capital Distributions, quarterly cash distributions may be made to the
partners to the extent of excess cash, as defined in the TWE partnership
agreement ('Excess Cash Distribution'). Assuming that no additional partnership
interests are issued to new partners and that certain cash distribution
thresholds are met, cash distributions other than Stock Option Distributions,
Tax Distributions and Senior Priority Capital Distributions will in the
aggregate be made 63.27% to the Time Warner General Partners, 11.22% to Time
Warner and 25.51% to U S WEST prior to June 30, 1998; thereafter, the Time
Warner General Partners will be entitled to additional distributions with
respect to junior priority capital. If aggregate distributions made to the
limited partners, generally from all sources, have not reached approximately
$800 million by June 30, 1997, cash distributions to the Time Warner General
Partners with respect to the Time Warner General Partners' pro rata priority and
residual equity capital, other than Stock Option Distributions and Tax
Distributions, will be deferred until such threshold is met. Similarly, if such
aggregate distributions to the limited partners have not reached approximately
$1.6 billion by June 30, 1998, cash distributions with respect to junior
priority capital will be deferred until such threshold is met. If any such
deferral occurs, a portion of the corresponding partnership income allocations
with respect to such deferred amounts will be made at a rate higher than
otherwise would have been the case. As of December 31, 1995, no cash
distributions have been made to the limited partners. In addition, if a division
of TWE or a substantial portion thereof is sold, the net proceeds of such sale,
less expenses and proceeds used to repay outstanding debt, will be required to
be distributed with respect to the partners' partnership interests. Similar
distributions are required to be made in the event of a financing or refinancing
of debt. Subject to any limitations on the incurrence of additional debt
contained in the TWE partnership and credit agreements, and the Indenture, TWE
may borrow funds to make distributions.
9. STOCK OPTION PLANS
Options to purchase Time Warner common stock under various stock option
plans have been granted to employees of TWE at, or in excess of, fair market
value at the date of grant. Generally, the options become exercisable over a
three-year vesting period and expire ten years from the date of grant. A summary
of stock option activity with respect to employees of TWE is as follows:
<TABLE>
<CAPTION>
THOUSANDS OF SHARES
OF TIME WARNER EXERCISE PRICE
COMMON STOCK PER SHARE
------------------- --------------
<S> <C> <C>
Outstanding at January 1, 1995............................................... 30,198 $ 8-45
Granted...................................................................... 2,141 34-45
Exercised.................................................................... (1,316) 8-38
Cancelled (a)................................................................ (2,488) 17-45
-------
Balance at December 31, 1995................................................. 28,535 $17-45
-------
-------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1994
------------------- --------------
(THOUSANDS)
<S> <C> <C>
Exercisable.................................................................. 21,846 21,318
------- --------------
------- --------------
</TABLE>
- ------------
(a) Includes all options cancelled and forfeited during the year, as well as
options related to employees who have been transferred out of and into TWE
to and from other Time Warner divisions.
F-86
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TWE reimburses Time Warner for the use of Time Warner stock options on the
basis described in Note 8. There were 437 thousand options exercised in 1994 and
1.9 million options exercised in 1993, at prices ranging from $8-$36 per share
in each year.
10. BENEFIT PLANS
TWE and its divisions have defined benefit pension plans covering
substantially all domestic employees. Pension benefits are based on formulas
that reflect the employees' years of service and compensation levels during
their employment period. Qualifying plans are funded in accordance with
government pension and income tax regulations. Plan assets are invested in
equity and fixed income securities.
Pension expense included the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------
1995 1994 1993
---- ---- ----
(MILLIONS)
<S> <C> <C> <C>
Service cost........................................................................... $ 20 $ 26 $ 21
Interest cost.......................................................................... 21 24 19
Actual return on plan assets........................................................... (55) 4 (21)
Net amortization and deferral.......................................................... 37 (21) 5
---- ---- ----
Total.................................................................................. $ 23 $ 33 $ 24
---- ---- ----
---- ---- ----
</TABLE>
The status of funded pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1994
---- ----
(MILLIONS)
<S> <C> <C>
Accumulated benefit obligation (89% vested)...................................................... $213 $172
Effect of future salary increases................................................................ 111 91
---- ----
Projected benefit obligation..................................................................... 324 263
Plan assets at fair value........................................................................ 247 225
---- ----
Projected benefit obligation in excess of plan assets............................................ (77) (38)
Unamortized actuarial losses..................................................................... 60 24
Unamortized plan changes......................................................................... 5 4
Other............................................................................................ (3) (4)
---- ----
Accrued pension liability........................................................................ $(15) $(14)
---- ----
---- ----
</TABLE>
The following assumptions were used in accounting for pension plans:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate......................................................... 7.25% 8.5% 7.5%
Return on plan assets.................................................................. 9% 9% 9%
Rate of increase in compensation levels................................................ 6% 6% 6%
</TABLE>
Certain domestic employees of TWE participate in multiemployer pension
plans as to which the expense amounted to $21 million in 1995, $18 million in
1994 and $19 million in 1993. Employees in foreign countries participate to
varying degrees in local pension plans, which in the aggregate are not
significant.
Certain domestic employees also participate in Time Warner's 401(k) savings
plans and other savings and profit sharing plans as to which the expense
amounted to $25 million in 1995, $23 million in 1994 and $20 million in 1993.
Contributions to the 401(k) and other savings plans are based upon a percentage
of the
F-87
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees' elected contributions. Contributions to the profit sharing plans are
generally determined by management.
11. FINANCIAL INSTRUMENTS
The carrying value of TWE's financial instruments approximates fair value,
except for differences with respect to long-term, fixed-rate debt and certain
differences related to cost method investments and other financial instruments
which are not significant. The fair value of financial instruments, such as
long-term debt and investments, is generally determined by reference to market
values resulting from trading on a national securities exchange or in an
over-the-counter market. In cases where quoted market prices are not available,
such as for derivative financial instruments, fair value is based on estimates
using present value or other valuation techniques.
LONG-TERM DEBT
Based on the level of interest rates prevailing at December 31, 1995, the
fair value of TWE's fixed-rate debt exceeded its carrying value by $386 million
which represents an unrealized loss. Based on TWE's fixed-rate debt outstanding
at December 31, 1995, each 25 basis point increase or decrease in the level of
interest rates prevailing at December 31, 1995 would result in a reduction or
increase in the unrealized loss of $95 million, respectively. Based on the level
of interest rates prevailing at December 31, 1994, the fair value of TWE's
fixed-rate debt was $460 million less than its carrying value which represents
an unrealized gain. Unrealized gains or losses related to the differences in the
fair value and carrying value of TWE's long-term debt are not recognized unless
such debt is retired prior to its maturity.
FOREIGN CURRENCY RISK MANAGEMENT
Foreign exchange contracts are used primarily by Time Warner to hedge the
risk that unremitted or future license fees owed to TWE domestic companies for
the sale or anticipated sale of U.S. copyrighted products abroad may be
adversely affected by changes in foreign currency exchange rates. As part of its
overall strategy to manage the level of exposure to the risk of foreign currency
exchange rate fluctuations, Time Warner hedges a portion of its and TWE's
combined foreign currency exposures anticipated over the ensuing twelve month
period, including those related to TWE. At December 31, 1995, Time Warner has
effectively hedged approximately half of TWE's total estimated foreign currency
exposures that principally relate to anticipated cash flows to be remitted to
the U.S. over the ensuing twelve month period, using foreign exchange contracts
that generally have maturities of three months or less, which generally are
rolled over to provide continuing coverage throughout the year. TWE is
reimbursed by or reimburses Time Warner for Time Warner contract gains and
losses related to TWE's exposure. Time Warner often closes foreign exchange sale
contracts by purchasing an offsetting purchase contract. At December 31, 1995,
Time Warner had contracts for the sale of $504 million and the purchase of $140
million of foreign currencies at fixed rates and maturities of three months or
less. Of Time Warner's $364 million net sale contract position, none of the
foreign exchange purchase contracts and $113 million of the foreign exchange
sale contracts related to TWE's foreign currency exposure, primarily Japanese
yen (21% of net contract position related to TWE), French francs (22%), German
marks (12%) and Canadian dollars (21%), compared to a net sale contract position
of $188 million of foreign currencies at December 31, 1994.
Unrealized gains or losses related to foreign exchange contracts are
recorded in income as the market value of such contracts change; accordingly,
the carrying value of foreign exchange contracts approximates market value. The
carrying value of foreign exchange contracts was not material at December 31,
1995 and 1994 and is included in other current liabilities. No cash is required
to be received or paid with respect to the realization of such gains and losses
until the related foreign exchange contracts are settled, generally at their
respective
F-88
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maturity dates. In 1995 and 1994, TWE had $11 million and $20 million,
respectively, of net losses on foreign exchange contracts, which were or are
expected to be offset by corresponding increases in the dollar value of foreign
currency license fee payments that have been or are anticipated to be received
in cash from the sale of U.S. copyrighted products abroad. Time Warner places
foreign currency contracts with a number of major financial institutions in
order to minimize credit risk.
Based on Time Warner's outstanding foreign exchange contracts related to
TWE's exposure at December 31, 1995, each 5% devaluation of the U.S. dollar as
compared to the level of foreign exchange rates for currencies under contract at
December 31, 1995 would result in approximately $6 million of unrealized losses
on foreign exchange contracts. Conversely, a 5% appreciation of the U.S. dollar
would result in $6 million of unrealized gains on contracts. Consistent with the
nature of the economic hedge provided by such foreign exchange contracts, such
unrealized gains or losses would be offset by corresponding decreases or
increases, respectively, in the dollar value of future foreign currency license
fee payments that would be received in cash within the ensuing twelve month
period from the sale of U.S. copyrighted products abroad.
12. SEGMENT INFORMATION
TWE's businesses are conducted in two fundamental areas of business:
Entertainment, consisting principally of interests in filmed entertainment,
broadcasting, theme parks and cable television programming; and
Telecommunications, consisting principally of interests in cable television
systems.
Information as to the operations of TWE in different business segments is
as set forth below. Cable business segment information reflects the
consolidation by TWE of the TWE-Advance/Newhouse Partnership effective as of
April 1, 1995 and Paragon effective as of July 6, 1995. The operating results of
Six Flags have been deconsolidated effective as of June 23, 1995 and results
prior to that date are reported separately to facilitate comparability.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
REVENUES(1)
Filmed Entertainment.............................................................. $5,069 $4,476 $4,024
Six Flags Theme Parks............................................................. 227 557 533
Broadcasting-The WB Network....................................................... 33 -- --
Programming-HBO................................................................... 1,593 1,494 1,435
Cable............................................................................. 3,005 2,220 2,205
Intersegment elimination.......................................................... (410) (287) (251)
------ ------ ------
Total............................................................................. $9,517 $8,460 $7,946
------ ------ ------
------ ------ ------
</TABLE>
- ------------
(1) Substantially all operations outside of the United States support the export
of domestic products. Revenues include export sales of $1.982 billion in
1995, $1.693 billion in 1994 and $1.650 billion in 1993. Approximately 58%
of export revenues are from sales to European customers.
F-89
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
OPERATING INCOME
Filmed Entertainment.............................................................. $ 228 $ 201 $ 210
Six Flags Theme Parks............................................................. 29 56 53
Broadcasting-The WB Network....................................................... (66) -- --
Programming-HBO................................................................... 274 236 213
Cable............................................................................. 495 355 407
------ ------ ------
Total............................................................................. $ 960 $ 848 $ 883
------ ------ ------
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ------
(MILLIONS)
<S> <C> <C> <C>
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Filmed Entertainment.............................................................. $ 107 $ 71 $ 46
Six Flags Theme Parks............................................................. 20 51 41
Broadcasting-The WB Network....................................................... -- -- --
Programming-HBO................................................................... 16 13 14
Cable............................................................................. 452 330 325
------ ------ ------
Total............................................................................. $ 595 $ 465 $ 426
------ ------ ------
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
AMORTIZATION OF INTANGIBLE ASSETS(1)
Filmed Entertainment.......................................................... $ 124 $ 135 $ 143
Six Flags Theme Parks......................................................... 11 28 28
Broadcasting-The WB Network................................................... -- -- --
Programming-HBO............................................................... 1 6 3
Cable......................................................................... 308 309 302
------- ------- -------
Total......................................................................... $ 444 $ 478 $ 476
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Amortization includes amortization relating to the acquisitions of WCI in
1989 and the ATC minority interest in 1992 and to other business
combinations accounted for by the purchase method.
F-90
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information as to the assets and capital expenditures of TWE is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
ASSETS
Filmed Entertainment.......................................................... $ 7,334 $ 7,133 $ 6,677
Six Flags Theme Parks......................................................... -- 814 848
Broadcasting-The WB Network................................................... 63 -- --
Programming-HBO............................................................... 935 895 855
Cable......................................................................... 9,842 8,191 8,041
Corporate(1).................................................................. 731 1,629 1,542
------- ------- -------
Total......................................................................... $18,905 $18,662 $17,963
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Consists principally of cash, cash equivalents and other investments.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ------- -------
(MILLIONS)
<S> <C> <C> <C>
CAPITAL EXPENDITURES
Filmed Entertainment.......................................................... $ 294 $ 395 $ 210
Six Flags Theme Parks......................................................... 43 46 34
Broadcasting-The WB Network................................................... -- -- --
Programming-HBO............................................................... 20 13 17
Cable(1)...................................................................... 1,178 699 352
------- ------- -------
Total......................................................................... $ 1,535 $ 1,153 $ 613
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) Cable capital expenditures were funded in part through collections on the
U S WEST Note in the amount of $602 million in 1995, $234 million in 1994
and $16 million in 1993 (Note 1).
13. COMMITMENTS AND CONTINGENCIES
Total rent expense amounted to $176 million in 1995, $143 million in 1994
and $119 million in 1993. The minimum rental commitments under noncancellable
long-term operating leases are: 1996-$158 million; 1997-$156 million; 1998-$149
million; 1999-$143 million; 2000-$132 million and after 2000-$826 million.
Minimum commitments and guarantees under certain programming, licensing,
franchise and other agreements at December 31, 1995 aggregated approximately $8
billion, which are payable principally over a five-year period.
Pending legal proceedings are substantially limited to litigation
incidental to the businesses of TWE. In the opinion of counsel and management,
the ultimate resolution of these matters will not have a material effect on the
consolidated financial statements.
14. RELATED PARTY TRANSACTIONS
In the normal course of conducting their businesses, TWE units have had
various transactions with Time Warner units, generally on terms resulting from a
negotiation among the affected parties that in management's view results in
reasonable allocations. Employees of TWE participate in various Time Warner
medical, stock option and other benefit plans for which TWE is charged its
allocable share of plan expenses, including
F-91
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
administrative costs. Time Warner's corporate group provides various other
services to TWE. The Music division of WCI provides home videocassette
distribution services to certain TWE operations, and certain TWE units have
placed advertising in magazines published by Time Warner's Publishing division.
TWE is required to pay a $130 million advisory fee to U S WEST over a
five-year period ending September 15, 1998 for U S WEST's expertise in
telecommunications, telephony and information technology, and its participation
in the management and upgrade of the cable systems to Full Service Network'tm'
capacity.
In 1995, TWE and certain subsidiaries of Time Warner entered into
management services agreements, pursuant to which TWE receives fees for the
management of all cable television systems owned by Time Warner. Management fees
received from Time Warner in 1995 were not material.
Time Warner provides TWE with certain corporate support services for which
Time Warner was paid $60 million per year through June 30, 1995, with increasing
annual amounts as adjusted for inflation thereafter. The corporate services
agreement runs through June 30, 1997, and may be extended by agreement of both
parties. Management believes that the corporate services fee is representative
of the cost of corporate services that would be necessary for the stand-alone
operations of TWE.
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. Time
Warner borrowed $400 million in 1994 under the credit agreement.
Prior to TWE's reacquisition of the Time Warner Service Partnership Assets
in September 1995, TWE had service agreements with the Time Warner Service
Partnerships for program signal delivery and transmission services, and TWE
provided billing, collection and marketing services to the Time Warner Service
Partnerships. TWE also has distribution and merchandising agreements with Time
Warner Entertainment Japan Inc., a company owned by certain former and existing
partners of TWE to conduct TWE's businesses in Japan.
In addition to transactions with its partners, TWE has had transactions
with Comedy Partners, L.P., Six Flags and its other equity investees and with
Turner Broadcasting System, Inc., The Columbia House Company partnerships,
Cinamerica Theatres, L.P. and other equity investees of Time Warner, generally
with respect to sales of product in the ordinary course of business.
15. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash flows is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
---- ------ ------
(MILLIONS)
<S> <C> <C> <C>
Cash payments made for interest..................................................... $571 $ 521 $ 450
Cash payments made for income taxes, net............................................ 75 69 70
Noncash capital contributions, net.................................................. 50 4 384
</TABLE>
Noncash investing activities in 1995 included the formation of the
TWE-Advance/Newhouse Partnership in April 1995 (Note 2) and the reacquisition of
the Time Warner Service Partnership Assets in September 1995 (Note 8).
F-92
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other current liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------ ------
(MILLIONS)
<S> <C> <C>
Accrued expenses............................................................................. $ 937 $ 827
Accrued compensation......................................................................... 216 143
Deferred revenues............................................................................ 227 150
Tax Distributions due to Time Warner General Partners........................................ -- 334
Debt due within one year..................................................................... 47 32
------ ------
Total........................................................................................ $1,427 $1,486
------ ------
------ ------
</TABLE>
F-93
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE PARTNERS OF
TIME WARNER ENTERTAINMENT COMPANY, L.P.
We have audited the accompanying consolidated balance sheet of Time Warner
Entertainment Company, L.P. ('TWE') as of December 31, 1995 and 1994, and the
related consolidated statements of operations, cash flows and partnership
capital for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
TWE's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TWE at December
31, 1995 and 1994, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 6, 1996
F-94
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
SELECTED FINANCIAL INFORMATION
The selected financial information for each of the five years in the period
ended December 31, 1995 set forth below has been derived from and should be read
in conjunction with the consolidated financial statements and other financial
information presented elsewhere herein. Capitalized terms are as defined and
described in such consolidated financial statements, or elsewhere herein. The
selected historical financial information for 1995 reflects the consolidation by
TWE of the TWE-Advance/Newhouse Partnership resulting from the formation of such
partnership, effective as of April 1, 1995, and the consolidation of Paragon
effective as of July 6, 1995. The selected historical financial information
gives effect to the consolidation of Six Flags Entertainment Corporation ('Six
Flags') effective as of January 1, 1993 as a result of an increase in TWE's
ownership of Six Flags from 50% to 100% in September 1993, and the subsequent
deconsolidation of Six Flags resulting from the disposition by TWE of a 51%
interest in Six Flags effective as of June 23, 1995.
The selected historical financial information for 1993 also gives effect to
the admission of U S WEST as an additional limited partner of TWE as of
September 15, 1993 and the issuance of $2.6 billion of TWE debentures during the
year to reduce indebtedness under the former 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. Time Warner's cost to acquire the ATC minority interest is reflected
in the consolidated financial statements of TWE under the pushdown method of
accounting.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
SELECTED OPERATING STATEMENT INFORMATION 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 9,517 $ 8,460 $ 7,946 $ 6,761 $ 6,068
Depreciation and amortization.............................. 1,039 943 902 782 733
Business segment operating income.......................... 960 848 883 795 712
Interest and other, net.................................... 580 587 551 525 520
Income before extraordinary item........................... 97 161 208 160 97
Net income................................................. 73 161 198 160 97
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
SELECTED BALANCE SHEET INFORMATION 1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(MILLIONS)
<S> <C> <C> <C> <C> <C>
Total assets............................................... $18,905 $18,662 $17,963 $15,848 $14,230
Debt due within one year................................... 47 32 24 7 878
Long-term debt............................................. 6,137 7,160 7,125 7,171 4,571
Time Warner General Partners' senior priority capital...... 1,426 1,663 1,536 -- --
Partners' capital.......................................... 6,478 6,233 6,000 6,437 6,717
</TABLE>
F-95
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
OPERATING
INCOME OF NET
BUSINESS INCOME
QUARTER REVENUES SEGMENTS (LOSS)
- ---------------------------------------------------------------------------------- -------- --------- ------
(MILLIONS)
<S> <C> <C> <C>
1995
1st............................................................................... $2,046 $ 191 $ 4
2nd............................................................................... 2,392 266 56
3rd (a)........................................................................... 2,324 268 23
4th............................................................................... 2,755 235 (10)
Year (a).......................................................................... 9,517 960 73
1994
1st............................................................................... $1,919 $ 203 $ 48
2nd............................................................................... 2,055 227 56
3rd............................................................................... 2,203 235 41
4th............................................................................... 2,283 183 16
Year.............................................................................. 8,460 848 161
</TABLE>
- ------------
(a) Net income for the third quarter of 1995 includes an extraordinary loss on
the retirement of debt of $24 million.
F-96
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------------------------------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Reserves deducted from accounts receivable:
Allowance for doubtful accounts............................. $188 $104 $ (96)(a) $ 196
Reserves for sales returns and allowances................... 118 218 (167)(b) 169
---------- ---------- ---------- ---------
Total.................................................. $306 $322 $ (263) $ 365
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
1994:
Reserves deducted from accounts receivable:
Allowance for doubtful accounts............................. $161 $ 49 $ (22)(a) $ 188
Reserves for sales returns and allowances................... 96 164 (142)(b) 118
---------- ---------- ---------- ---------
Total.................................................. $257 $213 $ (164) $ 306
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
1993:
Reserves deducted from accounts receivable:
Allowance for doubtful accounts............................. $166 $ 27 $ (32)(a) $ 161
Reserves for sales returns and allowances................... 74 131 (109)(b) 96
---------- ---------- ---------- ---------
Total.................................................. $240 $158 $ (141) $ 257
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
</TABLE>
- ------------
(a) Represents uncollectible receivables charged against the reserve.
(b) Represents returns or allowances applied against the reserve.
F-97
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
2.1 Amended and Restated Agreement and Plan of Merger dated as of September 22, 1995 among the *
Registrant, TW Inc., Time Warner Acquisition Corp., TW Acquisition Corp. and Turner
Broadcasting System, Inc. (which is incorporated herein by reference to Exhibit 2(a) to the
Registrant's Current Report on Form 8-K dated December 1, 1995 (the 'December 1995 Form
8-K')).
2.2 Shareholders' Agreement dated as of September 22, 1995 among the Registrant, R.E. Turner *
and certain associates and affiliates of R.E. Turner (which is incorporated herein by
reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated September
22, 1995 (the 'September 1995 Form 8-K')).
2.3 Amended and Restated LMC Agreement dated as of September 22, 1995, among the Registrant, TW *
Inc., Liberty Media Corporation ('Liberty'), TCI Turner Preferred, Inc., Communication
Capital Corp. and United Turner Investment, Inc. (which is incorporated herein by reference
to Exhibit 10(a) to the December 1995 Form 8-K).
3.(i)(a) Restated Certificate of Incorporation of the Registrant as filed with the Secretary of *
State of the State of Delaware on May 26, 1993 (which is incorporated herein by reference
to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1993 (the 'June 1993 Form 10-Q').
3.(i)(b) Certificate of Ownership and Merger merging TWE Holdings Inc. into Time Warner Inc. as *
filed with the Secretary of State of the State of Delaware on October 13, 1993 (which is
incorporated herein by reference to Exhibit 3.(i)(b) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 (the '1993 Form 10-K')).
3.(i)(c) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating, *
Optional and Other Special Rights and Qualifications, Limitations or Restrictions of Series
A Participating Cumulative Preferred Stock of the Registrant as filed with the Secretary of
State of the State of Delaware on January 26, 1994 (which is incorporated herein by
reference to Exhibit 3.(i)(c) to the 1993 Form 10-K).
3.(i)(d) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof,
of Series C Convertible Preferred Stock of the Registrant as filed with the Secretary of
State of the State of Delaware on May 1, 1995.
3.(i)(e) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof,
of Series D Convertible Preferred Stock of the Registrant as filed with the Secretary of
State of the State of Delaware on July 6, 1995.
3.(i)(f) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof,
of Series E Convertible Preferred Stock of the Registrant as filed with the Secretary of
State of the State of Delaware on January 4, 1996.
3.(i)(g) Certificate of the Voting Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications, Limitations or Restrictions thereof,
of Series F Convertible Preferred Stock of the Registrant as filed with the Secretary of
State of the State of Delaware on January 4, 1996.
3.(i)(h) Certificate of Designations of Series G Convertible Preferred Stock of the Registrant as *
filed with the Secretary of State of the State of Delaware on September 5, 1995 (which is
incorporated herein by reference to Exhibit 4(a) to Registrant's Current Report on Form 8-K
dated August 31, 1995 (the 'August 1995 Form 8-K')).
3.(i)(i) Certificate of Designations of Series H Convertible Preferred Stock of the Registrant as *
filed with the Secretary of State of the State of Delaware on September 5, 1995 (which is
incorporated herein by reference to Exhibit 4(b) to the August 1995 Form 8-K).
3.(i)(j) Certificate of Designations of Series I Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware on October 2, 1995.
3.(ii) By-laws of the Registrant, as amended through March 18, 1993 (which is incorporated herein *
by reference to Exhibit 3.3 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992 (the '1992 Form 10-K')).
</TABLE>
i
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
4.1 Specimen Certificate of the Registrant's Common Stock (which is incorporated herein by *
reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991 (the '1991 Form 10-K').
4.2 Amended and Restated Declaration of Trust of Time Warner Financing Trust (the 'Financing
Trust') dated as of August 15, 1995, among the trustees of the Financing Trust, the
Registrant and the holders of undivided beneficial interests in assets of the Financing
Trust, relating to the $1.24 Preferred Exchangeable Redemption Cumulative Securities of the
Financing Trust (the 'PERCS'), including, as exhibits thereto, the Restated Certificate of
Trust of the Financing Trust, the Terms of the Preferred Securities (including the Form of
Certificate) and the Terms of the Common Securities (including the Form of Certificate).
4.3 Indenture dated as of August 15, 1995, between the Registrant and Chemical Bank, as
trustee, relating to the Registrant's 4% Subordinated Notes due December 23, 1997, issued
in connection with the PERCS, including, as Exhibit A thereto, the Form of Note.
4.4 Guarantee Agreement dated as of August 15, 1995, executed and delivered by the Registrant,
as guarantor, and The First National Bank of Chicago, as trustee, for the benefit of the
holders of the PERCS.
4.5 Amended and Restated Declaration of Trust of Time Warner Capital I ('Time Warner Capital')
dated as of December 5, 1995, among the trustees of Time Warner Capital, the Registrant and
the holders of undivided beneficial interests in the assets of Time Warner Capital,
relating to the 8 7/8% Preferred Trust Securities of Time Warner Capital (the 'Preferred
Trust Securities'), including, as exhibits thereto, the Certificate of Trust of Time Warner
Capital, the Terms of the Preferred Securities (including the Form of Certificate) and the
Terms of the Common Securities (including the Form of Certificate).
4.6 Indenture dated as of December 5, 1995, between the Registrant and Chemical Bank, as
trustee, relating to the issuance of the Preferred Trust Securities.
4.7 First Supplemental Indenture dated as of December 5, 1995, between the Registrant and
Chemical Bank, as trustee, relating to the Registrant's 8 7/8% Subordinated Debentures due
December 31, 2025, issued in connection with the Preferred Trust Securities, including, as
Exhibit A thereto, the Form of Debenture.
4.8 Guarantee Agreement dated as of December 5, 1995, executed and delivered by the Registrant,
as guarantor, and The First National Bank of Chicago, as trustee, for the benefit of the
holders of the Preferred Trust Securities.
4.9 Rights Agreement dated as of January 20, 1994 between the Registrant and Chemical Bank, as *
Rights Agent (which is incorporated herein by reference to Exhibit 4(a) to the Registrant's
Current Report on Form 8-K dated January 20, 1994).
4.10 Indenture dated as of April 30, 1992, as amended by the First Supplemental Indenture, dated *
as of June 30, 1992, among Time Warner Entertainment Company, L.P. ('TWE'), the Registrant,
certain of its subsidiaries party thereto and The Bank of New York, as Trustee (which is
incorporated herein by reference to Exhibits 10(g) and 10(h) to the Registrant's Current
Report on Form 8-K dated July 14, 1992 (the 'July 1992 Form 8-K').
4.11 Second Supplemental Indenture dated as of December 9, 1992 among TWE, the Registrant, *
certain of its subsidiaries party thereto and The Bank of New York, as Trustee (which is
incorporated herein by reference to Exhibit 4.2 to Amendment No. 1 to the Registration
Statement on Form S-4 Reg. No. 33-67688 of TWE filed with the Securities and Exchange
Commission (the 'Commission') on October 25, 1993 (the '1993 TWE S-4')).
4.12 Third Supplemental Indenture dated as of October 12, 1993 among TWE, the Registrant, *
certain of its subsidiaries party thereto and The Bank of New York, as Trustee (which is
incorporated herein by reference to Exhibit 4.3 to the 1993 TWE S-4).
4.13 Fourth Supplemental Indenture dated as of March 29, 1994 among TWE, the Registrant, certain *
of its subsidiaries party thereto and The Bank of New York, as Trustee (which is
incorporated herein by reference to Exhibit 4.4 to TWE's Annual Report on Form 10-K for the
year ended December 31, 1993 ('TWE's 1993 Form 10-K')).
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
4.14 Fifth Supplemental Indenture dated as of December 28, 1994 among TWE, the Registrant, *
certain of its subsidiaries party thereto and The Bank of New York, as Trustee (which is
incorporated herein by reference to Exhibit 4.5 to TWE's Annual Report on Form 10-K for the
year ended December 31, 1994 ('TWE's 1994 Form 10-K')).
4.15 Indenture dated as of October 15, 1985 between the Registrant and Marine Midland Bank, *
N.A., as successor Trustee (which is incorporated herein by reference to Exhibit 4(a) to
the Registrant's Registration Statement on Form S-3 Reg. No. 33-724 filed with the
Commission on October 8, 1985).
4.16 Indenture dated as of October 15, 1992, as amended by the First Supplemental Indenture *
dated as of December 15, 1992, as supplemented by the Second Supplemental Indenture dated
as of January 15, 1993, between the Registrant and Chemical Bank, as Trustee (which is
incorporated herein by reference to Exhibit 4.10 to the 1992 Form 10-K).
4.17 Indenture dated as of January 15, 1993 between the Registrant and Chemical Bank, as Trustee *
(which is incorporated herein by reference to Exhibit 4.11 to the 1992 Form 10-K).
4.18 First Supplemental Indenture dated as of June 15, 1993, between the Registrant and Chemical *
Bank, as Trustee, to the Indenture dated as of January 15, 1993 between the Registrant and
Chemical Bank, as Trustee, including as Exhibit A the Form of Liquid Yield Option Note due
2013 (which is incorporated herein by reference to Exhibit 4 to the June 1993 Form 10-Q).
10.1 Time Warner 1981 Stock Option Plan, as amended through May 14, 1991 (which is incorporated *
herein by reference to Exhibit 10.1 to the 1991 Form 10-K).
10.2 Time Warner 1986 Stock Option Plan, as amended through May 14, 1991 (which is incorporated *
herein by reference to Exhibit 10.2 to the 1991 Form 10-K).
10.3 1988 Stock Incentive Plan of Time Warner Inc., as amended through May 14, 1991 (which is *
incorporated herein by reference to Exhibit 10.3 to the 1991 Form 10-K).
10.4 Time Warner 1989 Stock Incentive Plan, as amended through May 14, 1991 (which is *
incorporated herein by reference to Exhibit 10.4 to the 1991 Form 10-K).
10.5 Time Warner 1989 WCI Replacement Stock Option Plan, as amended through February 14, 1995 *
(which is incorporated herein by reference to Exhibit 10.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994 (the '1994 Form 10-K')).
10.6 Time Warner 1989 Lorimar Non-Employee Replacement Stock Option Plan, as amended through May *
14, 1991 (which is incorporated herein by reference to Exhibit 10.6 to the Registrant's
1991 Form 10-K).
10.7 Time Warner 1994 Stock Option Plan, as amended through November 17, 1994 (which is *
incorporated herein by reference to Exhibit 10.7 to the 1994 Form 10-K).
10.8 Time Warner Corporate Group Stock Incentive Plan, as amended through May 14, 1991 (which is *
incorporated herein by reference to Exhibit 10.8 to the 1994 Form 10-K).
10.9 Time Warner 1988 Restricted Stock Plan for Non-Employee Directors, as amended through *
November 18, 1993 (which is incorporated herein by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (the '1993
Form 10-K').
10.10 Deferred Compensation Plan for Directors of Time Warner, as amended through November 18, *
1993 (which is incorporated herein by reference to Exhibit 10.9 to the 1993 Form 10-K).
10.11 Time Warner Retirement Plan for Outside Directors, as amended through September 21, 1989 *
(which is incorporated herein by reference to Exhibit 10.10 to the 1991 Form 10-K).
10.12 Amended and Restated Time Warner Inc. Annual Bonus Plan for Executive Officers (which is *
incorporated by reference to Annex A to the Registrant's definitive Proxy Statement dated
March 30, 1995, used in connection with the Registrant's 1995 Annual Meeting of
Stockholders).
</TABLE>
iii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
10.13 Amended and Restated Employment and Termination Agreement dated as of March 3, 1989, as *
amended and restated as of January 10, 1990, between the Registrant and J. Richard Munro
(which is incorporated herein by reference to Exhibit 10.26 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989).
10.14 Amended and Restated Employment Agreement dated as of November 15, 1990, between the *
Registrant and Gerald M. Levin (which is incorporated herein by reference to Exhibit 10.26
to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.
10.15 Employment Agreement made as of May 17, 1995 between the Registrant and Peter R. Haje *
(which is incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995).
10.16 Employment Agreement made as of November 2, 1994 between the Registrant and Richard D. *
Parsons (which is incorporated herein by reference to Exhibit 10.17 to the 1994 Form 10-K).
10.17 Employment Agreement effective as of January 1, 1995 between the Registrant and Richard J. *
Bressler (which is incorporated herein by reference to Exhibit 10.18 to the 1994 Form
10-K).
10.18 Amended and Restated Employment Agreement effective as of January 1, 1994 between the *
Registrant and Tod R. Hullin (which is incorporated herein by reference to Exhibit 10.19 to
the 1994 Form 10-K).
10.19 Amended and Restated Employment Agreement effective as of January 1, 1994 between the *
Registrant and Philip R. Lochner, Jr. (which is incorporated herein by reference to Exhibit
10.20 to the 1994 Form 10-K).
10.20 Employment Agreement dated as of February 1, 1992 between the Registrant and Timothy A. *
Boggs (which is incorporated herein by reference to Exhibit 10.21 to the 1992 Form 10-K).
10.21 The Time Warner Deferred Compensation Plan (Amended and Restated as of November 1, 1995).
10.22 Travel and Accident Insurance Policy issued by INA Life Insurance Company of New York *
(which is incorporated by reference to Exhibit 10.44 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988).
10.23 Credit Agreement dated as of June 30, 1995 among TWE, Time Warner Entertainment- *
Advance/Newhouse Partnership ('TWE-AN Partnership') and TWI Cable Inc., as borrowers,
Chemical, as administrative agent, Bank of America National Trust and Savings Association,
The Bank of New York and Morgan Guaranty Trust Company of New York, as documentation and
syndication agents, and the lending institutions named therein (which is incorporated
herein by reference to Exhibit 10(a) to the Registrant's Current Report on Form 8-K dated
July 6, 1995).
10.24 Agreement of Limited Partnership, dated as of October 29, 1992, as amended by the Letter *
Agreement, dated February 11, 1992, and the Letter Agreement dated June 23, 1992, among the
Registrant and certain of its subsidiaries, ITOCHU Corporation ('ITOCHU') and Toshiba
Corporation ('Toshiba') (which is incorporated herein by reference to Exhibit (A) to the
Registrant's Current Report on Form 8-K dated October 29, 1991 and Exhibits 10(b) and 10(c)
to the July 1992 Form 8-K).
10.25 Admission Agreement, dated as of May 16, 1993 between TWE and U S WEST, Inc. (which is *
incorporated herein by reference to Exhibit 10(a) to TWE's Current Report on Form 8-K dated
May 16, 1993 (the 'TWE May 1993 Form 8-K')).
10.26 Amendment Agreement, dated as of September 14, 1993, among ITOCHU, Toshiba, the Registrant, *
US WEST, Inc. and certain of their respective subsidiaries, amending the TWE Partnership
Agreement, as amended (which is incorporated herein by reference to Exhibit 3.2 to TWE's
1993 Form 10-K).
10.27 Letter Agreement, dated May 16, 1993, between the Registrant and ITOCHU (which is *
incorporated herein by reference to Exhibit 10(b) to the TWE May 1993 Form 8-K).
10.28 Letter Agreement, dated May 16, 1993, between the Registrant and Toshiba (which is *
incorporated herein by reference to Exhibit 10(c) to the TWE May 1993 Form 8-K).
</TABLE>
iv
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
10.29 Restructuring Agreement dated as of August 31, 1995 among the Registrant, ITOCHU and ITOCHU *
Entertainment Inc. (which is incorporated herein by reference to Exhibit 2(a) to the August
1995 Form 8-K).
10.30 Restructuring Agreement dated as of August 31, 1995 between the Registrant and Toshiba *
(including Form of Registration Rights Agreement, between the Registrant and Toshiba)
(which is incorporated herein by reference to Exhibit 2(b) to the August 1995 Form 8-K).
10.31 Option Agreement, dated as of September 15, 1993 between TWE and U S WEST, Inc. (which is *
incorporated herein by reference to Exhibit 10.9 to TWE's 1993 Form 10-K).
10.32 Promissory Note of U S WEST Cable Corporation, dated September 15, 1993 (which is *
incorporated herein by reference to Exhibit 10.10 to TWE's 1993 Form 10-K).
10.33 Guarantee, dated as of September 15, 1993, by U S WEST, Inc. of the Promissory Note of U S *
WEST Cable Corporation, dated September 15, 1993 (which is incorporated herein by reference
to Exhibit 10.11 to TWE's 1993 Form 10-K).
10.34 Contribution Agreement dated as of September 9, 1994 among TWE, Advance Publications, Inc., *
Newhouse Broadcasting Corporation, Advance/Newhouse Partnership ('Advance/Newhouse'), and
TWE-A/N Partnership (which is incorporated herein by reference to Exhibit 10(a) to TWE's
Current Report on Form 8-K dated September 9, 1994 ('TWE's September 1994 Form 8-K')).
10.35 Partnership Agreement, dated as of September 9, 1994 between TWE and Advance/Newhouse *
(which is incorporated herein by reference to Exhibit 10(b) to TWE's September 1994 Form
8-K).
10.36 Letter Agreement dated April 1, 1995 among TWE, Advance/Newhouse, Advance Publications, *
Inc. and Newhouse Broadcasting Corporation (which is incorporated herein by reference to
Exhibit 10(c) to TWE's Current Report on Form 8-K dated April 1, 1995).
10.37 Agreement and Plan of Merger dated as of January 26, 1995, among KBLCOM Incorporated, *
Houston Industries Incorporated, Registrant and TW KBLCOM Acquisition Sub (which is
incorporated herein by reference to Exhibit 2(a) to the Registrant's Current Report on Form
8-K dated January 26, 1995).
10.38 Agreement and Plan of Merger dated as of February 6, 1995, among Cablevision Industries *
Corporation ('CVI'), Alan Gerry, Registrant and TW CVI Acquisition Corp. ('TWCVI') (which
is incorporated herein by reference to Exhibit 2(a) to the Registrant's Current Report on
Form 8-K dated February 6, 1995 (the 'February 1995 Form 8-K')).
10.39 Agreement and Plan of Merger dated as of February 6, 1995 among Cablevision Properties *
Inc., Alan Gerry and Registrant (which is incorporated herein by reference to Exhibit 2(b)
to the February 1995 Form 8-K).
10.40 Agreement and Plan of Merger dated as of February 6, 1995 among Cablevision Management *
Corporation of Philadelphia, Alan Gerry and Registrant (which is incorporated herein by
reference to Exhibit 2(c) to the February 1995 Form 8-K).
10.41 Agreement and Plan of Merger dated as of December 8, 1995 among Cablevision Industries of *
Middle Florida, Inc., Alan Gerry, the Registrant and CVI (which is incorporated herein by
reference to Exhibit 2(c) to the Registrant's Current Report on Form 8-K dated January 4,
1996 (the 'January 1996 Form 8-K')).
10.42 Purchase Agreement dated as of February 6, 1995, as amended and restated as of December 8, *
1995 among Alan Gerry, the corporations and partnerships listed on the signature pages
thereof as the Purchase Gerry Companies and the Direct Holders, and the Registrant (which
is incorporated herein by reference to Exhibit 2(d) to the January 1996 Form 8-K).
10.43 Purchase Agreement dated as of February 6, 1995 among Alan Gerry, Cablevision Industries of *
Delaware, Inc., ARA Cablevision Inc., Cablevision Industries Limited Partnership,
Cablevision Industries of Tennessee L.P., Cablevision Industries of Saratoga Associates,
Cablevision of Fairhaven/Acushnet, Cablevision Industries of Middle Florida, Inc.,
Cablevision Industries of Florida, Inc. and Registrant (which is incorporated herein by
reference to Exhibit 2(d) to the February 1995 Form 8-K).
</TABLE>
v
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- ------------------------------------------------------------------------------------------- ----------
<C> <S> <C>
10.44 Supplemental Agreement dated as of February 6, 1995 including Annex A thereto, among *
Cablevision Industries Corporation, Cablevision Industries of Delaware, Inc., ARA
Cablevision Inc., Cablevision Industries Limited Partnership, Cablevision Industries of
Tennessee L.P., Cablevision Industries of Saratoga Associates, Cablevision of
Fairhaven/Acushnet, Cablevision Industries of Middle Florida, Inc., Cablevision Industries
of Florida, Inc., Alan Gerry, Registrant and TW CVI Acquisition Sub. ('TWCVI') (which is
incorporated herein by reference to Exhibit 2(e) to the February 1995 Form 8-K).
10.45 Amendment Agreement dated as of December 8, 1995 to the Supplemental Agreement dated as of *
February 6, 1995, including Annex A thereto, among CVI, the corporations and partnerships
listed on the signature pages thereof as the Gerry Companies and the Direct Holders, Alan
Gerry, the Registrant and TWCVI (which is incorporated herein by reference to Exhibit 2(f)
to the January 1996 Form 8-K).
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Price Waterhouse LLP, Independent Accountants.
24 Powers of Attorney, dated as of March 21, 1996.
27 Financial Data Schedule.
99.1 The 1994 financial statements of the Time Warner Service Partnerships and the report of *
independent auditors thereon (which is incorporated herein by reference to TWE's 1994 Form
10-K).
99.2 The unaudited financial statements of the Time Warner Service Partnerships for the *
quarterly period ended September 30, 1995 (which is incorporated herein by reference to the
Current Report on Form 8-K of TWE dated November 28, 1995 ('TWE's November 1995 Form
8-K')).
99.3 The 1994 financial statements and financial statement schedule of Paragon Communications *
and the report of independent accountants thereon (which is incorporated herein by
reference to TWE's 1994 10-K).
99.4 The unaudited financial statements of Paragon Communications for the quarterly period ended *
June 30, 1995 (which is incorporated herein by reference to TWE's November 1995 Form 8-K).
99.5 Complaint in U S WEST, Inc. et al. v. Time Warner Inc., et al. (Civil Action No. 14555) *
filed by U S WEST, Inc. in the Court of Chancery of the State of Delaware in and for New
Castle County (which is incorporated herein by reference to Exhibit 99(c) to the September
1995 Form 8-K).
99.6 Amended and Supplemental Complaint in U S WEST, Inc., et al. v. Time Warner Inc., et al.
(Civil Action No. 14555) filed by U S WEST, Inc. in the Court of Chancery of the State of
Delaware in and for New Castle County.
99.7 Annual Report on Form 11-K of the Time Warner Employees' Savings Plan for the year ended
December 30, 1995 (to be filed by amendment).
99.8 Annual Report on Form 11-K of the Time Warner Thrift Plan for the year ended December 31,
1995 (to be filed by amendment).
99.9 Annual Report on Form 11-K of the Cable Employees Savings Plan for the year ended December
31, 1995 (to be filed by amendment).
99.10 Annual Report on Form 11-K of the Paragon Communications Employees Stock Savings Plan for
the year ended December 31, 1995 (to be filed by amendment).
</TABLE>
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* Incorporated by reference.
The Registrant hereby agrees to furnish to the Securities and Exchange
Commission at its request copies of long-term debt instruments defining the
rights of holders of the Registrant's outstanding long-term debt that are not
required to be filed herewith.
vi
<PAGE>
<PAGE>
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES C CONVERTIBLE
PREFERRED STOCK
OF
TIME WARNER INC.
____________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
____________________
TIME WARNER INC., a corporation organized and
existing by virtue of the General Corporation Law of the
State of Delaware (the "Corporation"), does hereby certify
that the following resolution was duly adopted by action of
the Board of Directors of the Corporation at a meeting duly
held on March 16, 1995.
RESOLVED that pursuant to the authority expressly
granted to and vested in the Board of Directors of the
Corporation by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the
Corporation, as amended from time to time (the "Certificate
of Incorporation"), and Section 151(g) of the General
Corporation Law of the State of Delaware, such Board of
Directors hereby creates, from the authorized shares of
Preferred Stock, par value $1.00 per share (the "Preferred
Stock"), of the Corporation authorized to be issued
pursuant to the Certificate of Incorporation, a series of Preferred
Stock, and hereby fixes the voting powers, designations,
preferences and relative, participating, optional or other
special rights, and qualifications, limitations or
restrictions thereof, of the shares of such series as
follows:
The series of Preferred Stock hereby established
shall consist of 3,350,000 shares designated as Series C
Convertible Preferred Stock or such higher number of shares
(not in excess of the total number of shares of authorized
Preferred Stock then available for issuance) as shall be
determined from time to time by the Board of Directors. The
<PAGE>
<PAGE>
2
rights, preferences and limitations of such series shall
be as follows:
1. Definitions. As used herein, the following
terms shall have the indicated meanings:
1.1 "Board of Directors" shall mean the
Board of Directors of the Corporation or, with respect to
any action to be taken by the Board of Directors, any com-
mittee of the Board of Directors duly authorized to take
such action.
1.2 "Certificate" shall mean the
certificate of the voting powers, designations, preferences and
relative, participating, optional or other special rights,
and qualifications, limitations or restrictions thereof, of
Series C Convertible Preferred Stock filed with respect to
this resolution with the Secretary of State of the State of
Delaware pursuant to Section 151 of the General Corporation
Law of the State of Delaware.
1.3 "Closing Price" of the Common Stock
shall mean the last reported sale price of the Common Stock
(regular way) as shown on the Composite Tape of the NYSE,
or, in case no such sale takes place on such day, the
average of the closing bid and asked prices on the NYSE,
or, if the Common Stock is not listed or admitted to trading
on the NYSE, on the principal national securities exchange on
which such stock is listed or admitted to trading, or, if
it is not listed or admitted to trading on any national
securities exchange, the last reported sale price of the Common
Stock, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, in either
case as reported by NASDAQ.
1.4 "Common Stock" shall mean the class of
Common Stock, par value $1.00 per share, of the Corporation
authorized at the date of the Certificate, or any other
class of stock resulting from (x) successive changes or
reclassifications of such Common Stock consisting solely of
changes in par value, or from par value to no par value or
(y) a subdivision or combination, and in any such case
including any shares thereof authorized after the date of
the Certificate.
1.5 "Conversion Price" shall have the
meaning set forth in Section 3.1 hereof.
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<PAGE>
3
1.6 "Conversion Rate" shall have the
meaning set forth in Section 3.1 hereof.
1.7 "Converting Holder" shall have the
meaning assigned to such term in Section 3.5 hereof.
1.8 "Current Market Price" of the Common
Stock on any date shall mean the average of the daily
Closing Prices per share of the Common Stock for the five
(5) consecutive Trading Days ending on the Trading Day
immediately preceding the applicable conversion, redemption
or exchange date referred to in Section 3 or Section 4.
1.9 "Dividend Payment Date" shall have the
meaning set forth in Section 2.1 hereof.
1.10 "Effective Time" shall mean the time
as of which the merger described in the Merger Agreement
shall become effective pursuant to the Merger Agreement and the
General Corporation Law of the State of Delaware.
1.11 "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
1.12 "Junior Stock" shall mean the Common
Stock, the Series A Stock and the shares of any other class
or series of stock of the Corporation which, by the terms
of the Certificate of Incorporation or of the instrument by
which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall
be junior to the Series C Stock in respect of the right to
receive dividends or to participate in any distribution of
assets other than by way of dividends.
1.13 "Liquidation Value" shall have the
meaning set forth in Section 6.1 hereof.
1.14 "Merger Agreement" shall mean the
Agreement and Plan of Merger dated as of September 12, 1994, as
the same may be amended from time to time, among the
Corporation, Summit Communications Group, Inc., a Delaware
corporation and the stockholders of Summit Communications
Group, Inc. named therein.
1.15 "NASDAQ" shall mean the National
Association of Securities Dealers Automated Quotation
System.
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<PAGE>
4
1.16 "NYSE" shall mean the New York Stock
Exchange, Inc.
1.17 "Parity Stock" shall mean the Series B
Stock and the shares of any other class or series of stock
of the Corporation which, by the terms of the Certificate
of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Cer-
tificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall, in the event
that the stated dividends thereon are not paid in full, be
entitled to share ratably with the Series C Stock in the
payment of dividends, including accumulations, if any, in
accordance with the sums which would be payable on such
shares if all dividends were declared and paid in full, or
shall, in the event that the amounts payable thereon on
liquidation are not paid in full, be entitled to share rat-
ably with the Series C Stock in any distribution of assets
other than by way of dividends in accordance with the sums
which would be payable in such distribution if all sums pay-
able were discharged in full; provided, however, that the
term "Parity Stock" shall be deemed to refer (i) in
Section 2.2 hereof, to any stock which is Parity Stock in respect
of dividend rights; (ii) in Section 6 hereof, to any stock
which is Parity Stock in respect of the distribution of
assets; and (iii) in Sections 5.2 and 5.3 hereof, to any
stock which is Parity Stock in respect of either dividend
rights or the distribution of assets and which, pursuant to
the Certificate of Incorporation or any instrument in which
the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall so designate,
is entitled to vote with the holders of Series C Stock.
1.18 "Preferred Stock" shall mean the class
of Preferred Stock, par value $1.00 per share, of the Corpo-
ration authorized at the date of the Certificate, including
any shares thereof authorized after the date of the Certifi-
cate.
1.19 "Pro Rata Repurchase" shall mean the
purchase of shares of Common Stock by the Corporation or by
any of its subsidiaries, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an
offer made available to all holders of Common Stock, but
excluding any purchase made in open market transactions
that satisfies the conditions of clause (b) of Rule 10b-18
under the Exchange Act or has been designed (as reasonably
determined by the Board of Directors or a committee
thereof) to prevent such purchase from having a material effect on
<PAGE>
<PAGE>
5
the trading market of the Common Stock. The "Effective
Date" of a Pro Rata Repurchase shall mean the applicable
expiration date (including all extensions thereof) of any
tender or exchange offer which is a Pro Rata Repurchase or
the date of purchase with respect to any Pro Rata
Repurchase which is not a tender or exchange offer.
1.20 "Record Date" shall have the meaning
set forth in Section 2.1 hereof.
1.21 "Redemption Price" shall have the
meaning set forth in Section 4.1 hereof.
1.22 "Redemption Rescission Event" shall
mean the occurrence of (a) any general suspension of
trading in, or limitation on prices for, securities on the
principal national securities exchange on which shares of
Common Stock are registered and listed for trading (or, if
shares of Common Stock are not registered and listed for
trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6-1/2) consecutive
trading hours, (b) any decline in either the Dow Jones
Industrial Average or the Standard & Poor's Index of 400
Industrial Companies (or any successor index published by
Dow Jones & Company, Inc. or Standard & Poor's Corporation)
by either (i) an amount in excess of 10%, measured from the
close of business on any Trading Day to the close of
business on the next succeeding Trading Day during the
period commencing on the Trading Day preceding the day
notice of any redemption or exchange of shares of this
Series is given (or, if such notice is given after the
close of business on a Trading Day, commencing on such
Trading Day) and ending at the earlier of (x) the time and
date fixed for redemption or exchange in such notice and
(y) the time and date at which the Corporation shall have
irrevocably deposited funds with a designated bank or trust
company pursuant to Section 3.5 or (ii) an amount in excess
of 15% (or, if the time and date fixed for redemption or
exchange is more than 15 days following the date on which
notice of redemption or exchange is given, 20%), measured
from the close of business on the Trading Day preceding the
day notice of such redemption or exchange is given (or, if
such notice is given after the close of business on a
Trading Day, from such Trading Day) to the close of
business on any Trading Day on or prior to the earlier of
the dates specified in clauses (x) and (y) above, (c) a
declaration of a banking moratorium or any suspension of
payments in respect of banks by Federal or state
authorities in the United States or (d) the commencement of
a war or armed hostilities or other national
<PAGE>
<PAGE>
6
or international calamity directly or indirectly involving the
United States which in the reasonable judgment of the
Corporation could have a material adverse effect on the
market for the Common Stock.
1.23 "Rescission Date" shall have the
meaning set forth in Section 4.5 hereof.
1.24 "Senior Stock" shall mean the shares
of any class or series of stock of the Corporation which, by
the terms of the Certificate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation,
shall fix the relative rights, preferences and limitations
thereof, shall be senior to the Series C Stock in respect
of the right to receive dividends or to participate in any
distribution of assets other than by way of dividends.
1.25 "Series A Stock" shall mean the series
of Preferred Stock authorized and designated as Series A
Participating Preferred Stock at the date of the Certifi- cate,
including any shares thereof authorized and designated
after the date of the Certificate.
1.26 "Series B Stock" shall mean the series
of Preferred Stock authorized and designated as Series B
6.40% Preferred Stock at the date of the Certificate,
including any shares thereof authorized and designated
after the date of the Certificate.
1.27 "Series C Stock" and "this Series"
shall mean the series of Preferred Stock authorized and
designated as the Series C Convertible Preferred Stock,
including any shares thereof authorized and designated
after the date of the Certificate.
1.28 "Surrendered Shares" shall have the
meaning set forth in Section 3.5 hereof.
1.29 "Trading Day" shall mean, so long as
the Common Stock is listed or admitted to trading on the
NYSE, a day on which the NYSE is open for the transaction
of business, or, if the Common Stock is not listed or
admitted to trading on the NYSE, a day on which the principal
national securities exchange on which the Common Stock is
listed is open for the transaction of business, or, if the
Common Stock is not so listed or admitted for trading on
any national securities exchange, a day on which the National
<PAGE>
<PAGE>
7
Market System of NASDAQ is open for the transaction of
business.
2. Cash Dividends.
2.1 The holders of the outstanding Series C
Stock shall be entitled to receive quarter-annual
dividends, as and when declared by the Board of Directors out of
funds legally available therefor. Each quarter-annual dividend
shall be an amount per share equal to (i) in the case of
each Dividend Payment Date (as defined below) occurring
after the Effective Time through the Dividend Payment Date
coinciding with the fifth anniversary of the Effective
Time, the greater of (A) $.9375 per $100 in Liquidation Value of
Series C Stock (which is equivalent to $3.75 per annum) and
(B) an amount per $100 in Liquidation Value of Series C
Stock equal to the product of (1) the Conversion Rate and
(2) the aggregate per share amount of regularly scheduled
dividends paid in cash on the Common Stock during the
period from but excluding the immediately preceding Dividend
Payment Date to and including such Dividend Payment Date
and (ii) in the case of each Dividend Payment Date occurring
thereafter, an amount per $100 in Liquidation Value of
Series C Stock equal to the product of (1) the Conversion
Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during
the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend
Payment Date. All dividends shall be payable in cash on or about
the first day of February, May, August and November in each
year, beginning on the first such date that is more than 15
days after the Effective Time, as fixed by the Board of
Directors, or such other dates as are fixed by the Board of
Directors (provided that the fifth anniversary of the
Effective Time shall be a Dividend Payment Date) (each a
"Dividend Payment Date"), to the holders of record of
Series C Stock at the close of business on or about the 15th day
of the month next preceding such first day of February,
May, August and November (or fifth anniversary of the
Effective Time), as the case may be, as fixed by the Board
of Directors, or such other dates as are fixed by the Board
of Directors (each a "Record Date"). In the case of
dividends payable in respect of periods prior to the fifth
anniversary of the Effective Time, (i) such dividends shall
accrue on each share on a day-to-day basis, whether or not
earned or declared, from and after the day immediately suc-
ceeding the Effective Time and (ii) any such dividends that
become payable for any partial dividend period shall be
computed on the basis of the actual days elapsed in such
<PAGE>
<PAGE>
8
period. From and after the fifth anniversary of the
Effective Time, dividends on the Series C Stock (determined
as to amount as provided herein) shall accrue to the
extent, but only to the extent, that regularly scheduled cash
dividends are declared by the Board of Directors on the
Common Stock with a payment date after the fifth
anniversary of the Effective Time (or, in the case of Series C Stock
originally issued after the fifth anniversary of the
Effective Time, after the Dividend Payment Date next
preceding such date of original issuance). All dividends
that accrue in accordance with the foregoing provisions
shall be cumulative from and after the day immediately suc-
ceeding the Effective Time. The amount payable to each
holder of record on any Dividend Payment Date shall be
rounded to the nearest cent.
2.2 Except as hereinafter provided in this
Section 2.2, unless all dividends on the outstanding shares
of Series C Stock and any Parity Stock that shall have
accrued and become payable as of any date shall have been
paid, or declared and funds set apart for payment thereof,
no dividend or other distribution (payable other than in
shares of Junior Stock) shall be paid to the holders of
Junior Stock or Parity Stock, and no shares of Series C
Stock, Parity Stock or Junior Stock shall be purchased or
redeemed by the Corporation or any of its subsidiaries
(except by conversion into or exchange for, or out of the
net cash proceeds from the concurrent sale of, Junior
Stock), nor shall any monies be paid or made available for
a sinking fund for the purchase or redemption of any
Series C Stock, Junior Stock or Parity Stock; provided, however,
that nothing herein shall prevent the Corporation from
completing the purchase of Series C Stock, Parity Stock or
Junior Stock for which a purchase contract was entered
into, or the notice of redemption of which was originally
published, prior to the date on which any such dividends
were first required to be paid. When dividends are not
paid in full upon the shares of this Series and any Parity
Stock, all dividends declared upon shares of this Series
and all Parity Stock shall be declared pro rata so that the
amount of dividends declared per share on this Series and
all such Parity Stock shall in all cases bear to each other
the same ratio that accrued dividends per share on the
shares of this Series and all such Parity Stock bear to
each other. Holders of shares of this Series shall not be
entitled to any dividends, whether payable in cash,
property or stock, in excess of the full amount of dividends
that become payable pursuant to the terms of this Section 2. No
interest, or sum of money in lieu of interest, shall be
<PAGE>
<PAGE>
9
payable in respect of any dividend payment or payments on
this Series which may be in arrears.
3. Conversion Rights.
3.1 Each holder of a share of this Series
shall have the right at any time or, as to any share of
this Series called for redemption or exchange, at any time
prior to the close of business on the date fixed for redemption
or exchange (unless the Corporation defaults in the payment
of the Redemption Price, fails to exchange the shares of
this Series for the applicable number of shares of Common
Stock and any applicable cash amount, or exercises its
right to rescind such redemption or exchange pursuant to
Section 4.5, in which case such right shall not terminate
at the close of business on such date), to convert such
share into fully paid and nonassessable shares of Common
Stock at a rate of 2.08264 shares of Common Stock for each
share of this Series, subject to adjustment as provided in
this Section 3 (such rate, as so adjusted from time to
time, is herein called the "Conversion Rate"). The
"Conversion Price" at any time shall equal $100 divided by
the Conversion Rate in effect at such time (rounded to the
nearest one hundredth of a cent).
3.2 If any shares of this Series are surren-
dered for conversion subsequent to the Record Date
preceding a Dividend Payment Date but on or prior to such Dividend
Payment Date (except shares called for redemption or
exchange on a redemption date or exchange date between such
Record Date and Dividend Payment Date and with respect to
which such redemption or exchange has not been rescinded),
the registered holder of such shares at the close of
business on such Record Date shall be entitled to receive
the dividend, if any, payable on such shares on such
Dividend Payment Date notwithstanding the conversion
thereof. Shares of this Series surrendered for conversion
during the period from the close of business on any Record
Date next preceding any Dividend Payment Date to the
opening of business on such Dividend Payment Date shall (except in
the case of shares which have been called for redemption or
exchange on a redemption date or exchange date within such
period and with respect to which such redemption or
exchange has not been rescinded) be accompanied by payment in New
York Clearing House funds or other funds acceptable to the
Corporation of an amount equal to the dividend payable on
such Dividend Payment Date on the shares being surrendered
for conversion. Except as provided in this Section 3.2, no
adjustments in respect of payments of dividends on shares
<PAGE>
<PAGE>
10
surrendered for conversion or any dividend on the Common
Stock issued upon conversion shall be made upon the conver-
sion of any shares of this Series.
3.3 The Corporation may, but shall not be
required to, in connection with any conversion of shares of
this Series, issue a fraction of a share of Common Stock,
and if the Corporation shall determine not to issue any
such fraction, the Corporation shall, subject to
Section 3.6(f), make a cash payment (rounded to the nearest cent) equal to
such fraction multiplied by the Closing Price of the Common
Stock on the last Trading Day prior to the date of
conversion.
3.4 Any holder of shares of this Series
electing to convert such shares into Common Stock shall sur-
render the certificate or certificates for such shares at
the office of the transfer agent or agents therefor (or at
such other place as the Corporation may designate by notice
to the holders of shares of this Series) during regular
business hours, duly endorsed to the Corporation or in blank,
or accompanied by instruments of transfer to the Cor-
poration or in blank, or in form satisfactory to the Corpo-
ration, and shall give written notice to the Corporation at
such office that such holder elects to convert such shares
of this Series. The Corporation shall, as soon as
practicable (subject to Section 3.6(f)) after such deposit
of certificates for shares of this Series, accompanied by
the written notice above prescribed and the payment of cash
in the amount required by Section 3.2, if any, issue and
deliver at such office to the holder for whose account such
shares were surrendered, or to his nominee, certificates
representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such
conversion.
3.5 Conversion shall be deemed to have been
made as of the date that certificates for the shares of
this Series to be converted, and the written notice and payment
prescribed in Sections 3.2 and 3.4 are received by the
transfer agent or agents for this Series; and the person
entitled to receive the Common Stock issuable upon such con-
version shall be treated for all purposes as the record holder
of such Common Stock on such date. Notwithstanding
anything to the contrary contained herein, in the event the
Corporation shall have rescinded a redemption or exchange
of shares of this Series pursuant to Section 4.5, any holder
of shares of this Series that shall have surrendered shares
of this Series for conversion following the day on which notice
<PAGE>
<PAGE>
11
of the subsequently rescinded redemption or exchange
shall have been given but prior to the later of (a) the
close of business on the Trading Day next succeeding the
date on which public announcement of the rescission of such
redemption or exchange shall have been made and (b) the
date of the mailing of the notice of rescission required by
Section 4.5 (a "Converting Holder") may rescind the
conversion of such shares surrendered for conversion by
(i) properly completing a form prescribed by the Corporation
and mailed to holders of shares of this Series (including
Converting Holders) with the Corporation's notice of
rescission, which form shall provide for the certification
by any Converting Holder rescinding a conversion on behalf
of any beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of shares of this Series that the
beneficial ownership (within the meaning of such Rule) of
such shares shall not have changed from the date on which
such shares were surrendered for conversion to the date of
such certification and (ii) delivering such form to the
Corporation no later than the close of business on that
date which is fifteen (15) Trading Days following the date of
the mailing of the Corporation's notice of rescission. The
delivery of such form by a Converting Holder shall be
accompanied by (x) any certificates representing shares of
Common Stock issued to such Converting Holder upon a
conversion of shares of this Series that shall be rescinded
by the proper delivery of such form (the "Surrendered
Shares"), (y) any securities, evidences of indebtedness or
assets (other than cash) distributed by the Corporation to
such Converting Holder by reason of such Converting
Holder's being a record holder of Surrendered Shares and
(z) payment in New York Clearing House funds or other funds acceptable
to the Corporation of an amount equal to the sum of (I) any
cash such Converting Holder may have received in lieu of
the issuance of fractional shares upon conversion and (II) any
cash paid or payable by the Corporation to such Converting
Holder by reason of such Converting Holder being a record
holder of Surrendered Shares. Upon receipt by the
Corporation of any such form properly completed by a
Converting Holder and any certificates, securities,
evidences of indebtedness, assets or cash payments required
to be returned or made by such Converting Holder to the
Corporation as set forth above, the Corporation shall
instruct the transfer agent or agents for shares of Common
Stock and shares of this Series to cancel any certificates
representing Surrendered Shares (which Surrendered Shares
shall be deposited in the treasury of the Corporation) and
reissue certificates representing shares of this Series to
such Converting Holder (which shares of this Series shall be
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12
deemed to have been outstanding at all times during the
period following their surrender for conversion). The
Corporation shall, as promptly as practicable, and in no
event more than five (5) Trading Days, following the
receipt of any such properly completed form and any such
certificates, securities, evidences of indebtedness, assets
or cash payments required to be so returned or made, pay to
the Converting Holder or as otherwise directed by such
Converting Holder any dividend or other payment made on
such shares during the period from the time such shares shall
have been surrendered for conversion to the rescission of
such conversion. All questions as to the validity, form,
eligibility (including time or receipt) and acceptance of
any form submitted to the Corporation to rescind the
conversion of shares of this Series, including questions as
to the proper completion or execution of any such form or
any certification contained therein, shall be resolved by
the Corporation, whose determination shall be final and
binding. The Corporation shall not be required to deliver
certificates for shares of Common Stock while the stock
transfer books for such stock or for this Series are duly
closed for any purpose or during any period commencing at a
Redemption Rescission Event and ending at either (i) the
time and date at which the Corporation's right of
rescission shall expire pursuant to Section 4.5 if the Corporation
shall not have exercised such right or (ii) the close of
business on that day which is fifteen (15) Trading Days
following the date of the mailing of a notice of rescission
pursuant to Section 4.4 if the Corporation shall have
exercised such right of rescission, but certificates for
shares of Common Stock shall be issued and delivered as
soon as practicable after the opening of such books or the
expiration of such period.
3.6 The Conversion Rate shall be adjusted
from time to time as follows:
(a) In case the Corporation shall, at any
time or from time to time while any of the Series C
Stock is outstanding, (i) pay a dividend in shares of
its Common Stock, (ii) combine its outstanding shares
of Common Stock into a smaller number of shares,
(iii) subdivide its outstanding shares of Common Stock or
(iv) issue by reclassification of its shares of Common
Stock any shares of stock of the Corporation, then the
Conversion Rate in effect immediately before such
action shall be adjusted so that the holders of the
Series C Stock, upon conversion of all shares thereof
immediately following such event, shall be
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13
entitled to receive the kind and amount of shares of capital
stock of the Corporation which they would have owned or been
entitled to receive upon or by reason of such event if
such shares of Series C Stock had been converted
immediately before the record date (or, if no record
date, the effective date) for such event. An
adjustment made pursuant to this Section 3.6(a) 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 or reclassification. For the purposes of
this Section 3.6(a), each holder of Series C Stock
shall be deemed to have failed to exercise any right
to elect the kind or amount of securities receivable
upon the payment of any such dividend, subdivision,
combination or reclassification (provided that if the kind
or amount of securities receivable upon such dividend,
subdivision, combination or reclassification is not
the same for each nonelecting share, then the kind and
amount of securities receivable upon such dividend,
subdivision, combination or reclassification for each
nonelecting share shall be deemed to be the kind and
amount so receivable per share by a plurality of the
nonelecting shares).
(b) In case the Corporation shall, at any
time or from time to time while any of the Series C
Stock is outstanding, issue rights or warrants to all
holders of shares of its Common Stock entitling them
(for a period expiring within 45 days after the record
date for such issuance) to subscribe for or purchase
shares of Common Stock (or securities convertible into
shares of Common Stock) at a price per share less than
the Current Market Price of the Common Stock at such
record date (treating the price per share of the secu-
rities convertible into Common Stock as equal to
(x) the sum of (i) the price for a unit of the security
convertible into Common Stock plus (ii) any additional
consideration initially payable upon the conversion of
such security into Common Stock divided by (y) the num-
ber of shares of Common Stock initially underlying
such convertible security), the Conversion Rate shall be
adjusted so that it shall equal the rate determined by
multiplying the Conversion Rate in effect immediately
prior to the date of issuance of such rights or
warrants by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus the
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14
number of additional shares of Common Stock
offered for subscription or purchase (or into which
the convertible securities so offered are initially
convertible), and the denominator of which shall be
the number of shares of Common Stock outstanding on
the date of issuance of such rights or warrants plus
the number of shares which the aggregate offering
price of the total number of shares so offered for
subscription or purchase (or the aggregate purchase
price of the convertible securities so offered plus
the aggregate amount of any additional consideration
initially payable upon conversion into Common Stock)
would purchase at such Current Market Price of the
Common Stock. Such adjustment shall become effective
retroactively immediately after the record date for
the determination of stockholders entitled to receive
such rights or warrants.
(c) In case the Corporation shall, at any
time or from time to time while any of the Series C
Stock is outstanding, distribute to all holders of
shares of its Common Stock (including any such dis-
tribution made in connection with a consolidation or
merger in which the Corporation is the continuing cor-
poration and the Common Stock is not changed or
exchanged) cash, evidences of its indebtedness,
securities or assets (excluding (i) regularly
scheduled cash dividends in amounts, if any, determined from
time to time by the Board of Directors or
(ii) dividends payable in shares of Common Stock for which
adjustment is made under Section 3.6(a)) or rights or
warrants to subscribe for or purchase securities of
the Corporation (excluding those referred to in
Section 3.6(b)), then in each such case the Conversion Rate
shall be adjusted so that it shall equal the rate
determined by multiplying the Conversion Rate in effect
immediately prior to the date of such distribution by
a fraction, the numerator of which shall be the
Current Market Price of the Common Stock on the record
date referred to below, and the denominator of which
shall be such Current Market Price of the Common Stock
less the then fair market value (as determined by the
Board of Directors of the Corporation, whose
determination shall be conclusive) of the portion of
the cash or assets or evidences of indebtedness or
securities so distributed or of such subscription
rights or warrants applicable to one share of Common
Stock (provided that such denominator shall never be
less than 1.0); provided, however, that no adjustment
shall be made with respect to any distribution of
rights to purchase securities of
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15
the Corporation if the holder of shares of this Series would
otherwise be entitled to receive such rights upon conversion at
any time of shares of this Series into Common Stock unless
such rights are subsequently redeemed by the
Corporation, in which case such redemption shall be
treated for purposes of this Section as a dividend on
the Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become
effective retroactively immediately after the record
date for the determination of stockholders entitled
to receive such distribution.
(d) In case the Corporation or any subsidi-
ary thereof shall, at any time and from time to time
while any of the Series C Stock is outstanding, make a
Pro Rata Repurchase, the Conversion Rate in effect
immediately prior to such action shall be adjusted by
multiplying such Conversion Rate by a fraction, the
numerator of which shall be the product of (i) the
number of shares of Common Stock outstanding
immediately before such Pro Rata Repurchase minus the
number of shares of Common Stock repurchased in such
Pro Rata Repurchase and (ii) the Current Market Price
of the Common Stock as of the day immediately
preceding the first public announcement by the Corporation of
the intent to effect such Pro Rata Repurchase, and the
denominator of which shall be (i) the product of
(x) the number of shares of Common Stock outstanding
immediately before such Pro Rata Repurchase and
(y) the Current Market Price of the Common Stock as of the
day immediately preceding the first public announcement
by the Corporation of the intent to effect such Pro Rata
Repurchase minus (ii) the aggregate purchase price of
the Pro Rata Repurchase (provided that such
denominator shall never be less than 1.0). Such adjustment shall
become effective immediately after the Effective Date
of such Pro Rata Repurchase.
(e) The Corporation shall be entitled to
make such additional adjustments in the Conversion
Rate, in addition to those required by subsec-
tions 3.6(a), 3.6(b), 3.6(c) and 3.6(d), as shall be
necessary in order that any dividend or distribution
in Common Stock, any subdivision, reclassification or
com- bination of shares of Common Stock or any issuance of
rights or warrants referred to above, shall not be tax-
able to the holders of Common Stock for United States
Federal income tax purposes.
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<PAGE>
16
(f) In any case in which this Section 3.6
shall require that any adjustment be made effective as
of or retroactively immediately following a record
date, the Corporation may elect to defer (but only for
five (5) Trading Days following the filing of the
statement referred to in Section 3.6(h)) issuing to the
holder of any shares of this Series converted after
such record date (i) the shares of Common Stock and
other capital stock of the Corporation issuable upon
such conversion over and above (ii) the shares of
Common Stock and other capital stock of the
Corporation issuable upon such conversion on the basis of the
Conversion Rate prior to adjustment; provided,
however, that the Corporation shall deliver to such holder a
due bill or other appropriate instrument evidencing
such holder's right to receive such additional shares
upon the occurrence of the event requiring such
adjustment.
(g) All calculations under this Section 3.6
shall be made to the nearest cent, one-hundredth of a
share or, in the case of the Conversion Rate, one ten-
thousandth. Notwithstanding any other provision of
this Section 3.6, the Corporation shall not be
required to make any adjustment of the Conversion Rate unless
such adjustment would require an increase or decrease
of at least 1.0000% of such rate. Any lesser
adjustment shall be carried forward and shall be made
at the time of and together with the next subsequent
adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to an
increase or decrease of at least 1.0000% in such rate.
Any adjustments under this Section 3.6 shall be made
successively whenever an event requiring such an
adjustment occurs.
(h) Whenever an adjustment in the
Conversion Rate is required, the Corporation shall forthwith
place on file with its transfer agent or agents for
this Series a statement signed by a duly authorized
officer of the Corporation, stating the adjusted
Conversion Rate determined as provided herein. Such
statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and
the manner of computing such adjustment. Promptly
after the adjustment of the Conversion Rate, the
Corporation shall mail a notice thereof to each holder
of shares of this Series.
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17
(i) In the event that at any time as a
result of an adjustment made pursuant to this
Section 3.6, the holder of any share of this Series thereafter
surrendered for conversion shall become entitled to
receive any shares of stock of the Corporation other
than shares of Common Stock, the conversion rate of
such other shares so receivable upon conversion of any
such share of this Series shall be subject to
adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in subpara-
graphs (a) through (h) and (j) of this Section 3.6,
and the provisions of Section 3.1 through 3.5 and 3.7
through 3.10 shall apply on like or similar terms to
any such other shares and the determination of the
Board of Directors as to any such adjustment shall be
conclusive.
(j) No adjustment shall be made pursuant to
this Section 3.6 (i) if the effect thereof would be to
reduce the Conversion Price below the par value of the
Common Stock or (ii) subject to Section 3.6(f) hereof,
with respect to any share of Series C Stock that is
converted, prior to the time such adjustment otherwise
would be made.
3.7 In case of either (a) any consolidation
or merger to which the Corporation is a party, other than a
merger or consolidation in which the Corporation is the sur-
viving or continuing corporation and which does not result
in any reclassification of, or change (other than a change
in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or
combination) in, outstanding shares of Common Stock or
(b) any sale or conveyance of all or substantially all of the
property and assets of the Corporation, then each share of
this Series then outstanding shall be converted in such
merger or consolidation or shall be convertible from and
after such sale or conveyance of property and assets into
the kind and amount of shares of stock or other securities
and property receivable upon such consolidation, merger,
sale or conveyance by a holder of the number of shares of
Common Stock into which such shares of this Series could
have been converted immediately prior to such
consolidation, merger, sale or conveyance, subject to adjustment which
shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (and assuming
such holder of Common Stock failed to exercise his rights
of election, if any, as to the kind or amount of securities,
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18
cash or other property receivable upon such consolidation,
merger, sale or conveyance (provided that if the kind or
amount of securities, cash or other property receivable
upon such consolidation, merger, sale or conveyance is not the
same for each nonelecting share, then the kind and amount
of securities, cash or other property receivable upon such
consolidation, merger, sale or conveyance for each
nonelecting share shall be deemed to be the kind and amount so receiva-
ble per share by a plurality of the nonelecting shares)).
The Corporation shall not enter into any of the
transactions referred to in clauses (a) or (b) of the preceding
sentence unless effective provision shall be made so as to give
effect to the provisions set forth in this Section 3.7.
The provisions of this Section 3.7 shall apply similarly to
successive consolidations, mergers, sales or conveyances.
3.8 The Corporation shall at all times
reserve and keep available, free from preemptive rights,
out of its authorized but unissued stock, for the purpose of
effecting the conversion of the shares of this Series, such
number of its duly authorized shares of Common Stock (or,
if applicable, any other shares of capital stock of the
Corporation) as shall from time to time be sufficient to
effect the conversion of all outstanding shares of this
Series into such Common Stock (or such other shares of
capital stock) at any time (assuming that, at the time of
the computation of such number of shares, all such Common
Stock (or such other shares of capital stock) would be held
by a single holder); provided, however, that nothing
contained herein shall preclude the Corporation from
satisfying its obligations in respect of the conversion of
the shares by delivery of purchased shares of Common Stock
(or such other shares of capital stock) that are held in
the treasury of the Corporation. The Corporation shall from
time to time, in accordance with the laws of the State of
Delaware, use its best efforts to cause the authorized
amount of Common Stock (or such other shares of capital
stock) to be increased if the aggregate of the authorized
amount of the Common Stock (or such other shares of capital
stock) remaining unissued and the issued shares of such
Common Stock (or such other shares of capital stock) in its
treasury (other than any shares of such Common Stock (or
such other shares capital stock) reserved for issuance in
any other connection) shall not be sufficient to permit the
conversion of the shares of this Series into the Common
Stock (or such other shares of capital stock).
3.9 If any shares of Common Stock which
would be issuable upon conversion of shares of this Series
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19
hereunder require registration with or approval of any gov-
ernmental authority before such shares may be issued upon
conversion, the Corporation will in good faith and as expe-
ditiously as possible cause such shares to be duly regis-
tered or approved, as the case may be. The Corporation
will endeavor to list the shares of (or depositary shares repre-
senting fractional interests in) Common Stock required to
be delivered upon conversion of shares of this Series prior
to such delivery upon the principal national securities
exchange upon which the outstanding Common Stock is listed
at the time of such delivery.
3.10 The Corporation shall pay any and all
issue or other taxes that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion
of shares of this Series pursuant hereto. The Corporation
shall not, however, be required to pay any tax which is pay-
able in respect of any transfer involved in the issue or
delivery of Common Stock in a name other than that in which
the shares of this Series so converted were registered, and
no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation
the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been
paid.
3.11 In case (i) of a consolidation or
merger to which the Corporation is a party and in which the
Common Stock is to be exchanged for securities or other
property or of the sale or conveyance to another person or
entity or group of persons or entities acting in concert as
a partnership, limited partnership, syndicate or other
group (within the meaning of Rule 13d-3 under the Exchange Act)
of all or substantially all of the property and assets of
the Corporation, (ii) of the voluntary or involuntary
dissolution, liquidation or winding up of the Corporation,
or (iii) of any Pro Rata Repurchase or other action
triggering an adjustment to the Conversion Rate pursuant to
this Section 3; then, in each case, the Corporation shall
cause to be filed with the transfer agent or agents for the
Series C Stock, and shall cause to be mailed, first-class
postage prepaid, to the holders of record of the
outstanding shares of Series C Stock, at least fifteen (15) days prior
to the applicable record date hereinafter specified, a
notice stating (x) the date on which a record is to be
taken for the purpose of any distribution or grant of rights or
warrants triggering an adjustment to the Common Stock
Conversion Rate pursuant to this Section 3, or, if a record
is not to be taken, the date as of which the holders of
record of Common Stock entitled to such distribution, rights
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20
or warrants are to be determined, or (y) the date on which
any reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation, winding up or Pro
Rata Repurchase triggering an adjustment to the Conversion Rate
pursuant to this Section 3 is expected to become effective,
and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their
Common Stock for securities or other property deliverable
upon such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation, winding up or Pro
Rata Repurchase. Failure to give such notice or any defect
therein shall not affect the legality or validity of the
proceedings described in clause (i), (ii) or (iii) of this
Section 3.11.
4. Redemption or Exchange.
4.1 Redemption or Exchange at the Option of
the Corporation. (a) The Corporation may, at its sole
option, subject to Section 2.2 hereof, from time to time on
and after the fifth anniversary of the Effective Time,
redeem, out of funds legally available therefor, or, as
provided below, exchange shares of Common Stock for, all or
any part of the outstanding shares of this Series. The
redemption or exchange price for each share of this Series
called for redemption or exchange pursuant to clause (i) of
the next sentence of this Section 4.1(a) shall be the
Liquidation Value together in each case with an amount
equal to the accrued and unpaid dividends to the date fixed for
redemption or exchange (hereinafter collectively referred
to as the "Redemption Price"). On the date fixed for
redemption or exchange the Corporation shall, at its
option, effect either
(i)(A) a redemption of the shares of this
Series to be redeemed by way of payment, out of funds
legally available therefor, of cash equal to the
aggregate Redemption Price for the shares of this
Series then being redeemed, (B) an exchange of the
shares of this Series being exchanged for shares of
Common Stock the aggregate Current Market Price of
which shall be equal to the aggregate Redemption Price
of the shares of this Series then being exchanged
(provided that the Corporation shall be entitled to
deliver cash in lieu of any fractional share of Common
Stock (determined in a manner consistent with
Section 3.3)) or (C) any combination thereof with respect
to each share of this Series called for redemption or
exchange; provided, however, that the
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21
Corporation may not redeem or exchange any shares of this
Series pursuant to this clause (i) unless the Closing Price
of the Common Stock shall have equalled or exceeded
125% of the applicable Conversion Price (as determined
in accordance with Section 3) for at least twenty
(20) Trading Days within thirty (30) consecutive Trading
Days ending within fifteen (15) Trading Days prior to
the date notice of redemption is given; or
(ii) an exchange of the shares of this
Series being exchanged for shares of Common Stock at a rate
of exchange per $100 in Liquidation Value of Series C
Stock equal to the Conversion Rate (provided that the
Corporation shall be entitled to deliver cash in lieu
of any fractional share of Common Stock (determined in
a manner consistent with Section 3.3)); provided,
however, that the Corporation may not exchange any
shares of this Series pursuant to this clause (ii)
unless all dividends with respect to such shares
accrued through the Dividend Payment Date immediately
prior to the date fixed for such exchange shall have
been declared and paid in accordance with Section 2
hereof. Except as provided in the proviso in the
previous sentence, upon receipt of shares of Common
Stock in exchange for shares of this Series being
exchanged pursuant to this clause (ii), the holders of
such shares of this Series shall not be entitled to
any accrued and unpaid dividends to the date fixed for
exchange.
(b) Notwithstanding clauses (i)(B), (i)(C) and
(ii) of Section 4.1(a), the Corporation shall be entitled
to effect an exchange of shares of Series C Stock for Common
Stock only to the extent Common Stock shall be available
for issuance (including delivery of previously issued shares
of Common Stock held in the Corporation's treasury) on the
date for exchange and only to the extent shares of Common
Stock are issued and exchanged for shares of this Series on
a timely basis in accordance with the terms of this
Section 4. Certificates for shares of Common Stock issued in
exchange for surrendered shares pursuant to this
Section 4.1 shall be made available by the Corporation not later
than the fifth Trading Day following the date for exchange;
subject, however, to Section 4.2.
4.2 In the event that fewer than all the
outstanding shares of this Series are to be redeemed or
exchanged pursuant to Section 4.1(a), the number of shares
to be redeemed or exchanged from each holder of shares of
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22
this Series shall be determined by the Corporation by lot
or pro rata or by any other method as may be determined by
the Board of Directors in its sole discretion to be equitable,
and the certificate of the Corporation's Secretary or an
Assistant Secretary filed with the transfer agent or
transfer agents for this Series in respect of such
determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall
redeem or exchange shares of this Series pursuant to
Section 4.1(a), notice of such redemption or exchange shall be
given by first class mail, postage prepaid, mailed not less
than fifteen (15) nor more than sixty (60) days prior to
the date fixed for redemption or exchange, as applicable,
to each record holder of the shares to be redeemed or
exchanged, at such holder's address as the same appears on
the books of the Corporation. Each such notice shall
state: (i) whether the shares of this Series are to be
redeemed or exchanged and, if exchanged, whether such
shares are to be exchanged at the Redemption Price or the
Conversion Rate; (ii) the time and date as of which the
redemption or exchange shall occur; (iii) the total number
of shares of this Series to be redeemed or exchanged and,
if fewer than all the shares held by such holder are to be
redeemed or exchanged, the number of such shares to be
redeemed or exchanged from such holder; (iv) the Redemption
Price, if applicable; (v) that shares of this Series called
for redemption or exchange may be converted at any time
prior to the time and date fixed for redemption or exchange
(unless the Corporation shall, in the case of a redemption,
default in payment of the Redemption Price or, in the case
of an exchange, fail to exchange the shares of this Series
for the applicable number of shares of Common Stock and
amount of cash, or shall exercise its right to rescind such
redemption or exchange pursuant to Section 4.5, in which
case such right of conversion shall not terminate at such
time and date); (vi) the applicable Conversion Price or
Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered (A) for
payment of the Redemption Price, in the case of redemption,
or (B) for delivery of certificates representing the shares
of Common Stock and for payment of any applicable cash
amount, in the case of exchange; and (viii) that, in the
case of any redemption or exchange pursuant to Section
4.1(a)(i), dividends on the shares to be redeemed or
exchanged will cease to accrue on such date fixed for
redemption or exchange.
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23
4.4 If notice of redemption or exchange
shall have been given by the Corporation as provided in
Section 4.3, dividends on the shares of this Series so
called for redemption or exchange shall cease to accrue,
such shares shall no longer be deemed to be outstanding,
and all rights of the holders thereof as stockholders of the
Corporation with respect to shares so called for redemption
or exchange (except (i) in the case of redemption, the
right to receive from the Corporation the Redemption Price
without interest and, in the case of exchange, the right to
receive from the Corporation the shares of Common Stock and
cash amount, if any, exchanged therefor and (ii) the right
to convert such shares in accordance with Section 3) shall
cease (including any right to receive dividends otherwise
payable on any Dividend Payment Date that would have
occurred after the time and date of redemption or exchange)
either (i) in the case of a redemption or exchange pursuant
to Section 4.1(a), from and after the time and date fixed
in the notice of redemption or exchange as the time and date
of redemption or exchange (unless the Corporation shall
(x) in the case of a redemption, default in the payment of the
Redemption Price, (y) in the case of an exchange, fail to
exchange the shares of this Series for the applicable
number of shares of Common Stock and any applicable cash amount
pursuant to Section 4.1, or (z) exercise its right to
rescind such redemption pursuant to Section 4.5, in which
case such rights shall not terminate at such time and date)
or (ii) if the Corporation shall so elect and state in the
notice of redemption or exchange, from and after the time
and date (which date shall be the date of redemption or
exchange or an earlier date not less than fifteen (15) days
after the date of mailing of the redemption or exchange
notice) on which the Corporation shall irrevocably deposit
with a designated bank or trust company doing business in
the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such
paying agent, on the redemption date, the Redemption Price,
in the case of redemption, or certificates representing the
shares of Common Stock to be so exchanged and any
applicable cash amount, in the case of an exchange. Any money or
certificates so deposited with any such paying agent which
shall not be required for such redemption or exchange
because of the exercise of any right of conversion or
otherwise shall be returned to the Corporation forthwith.
Upon surrender (in accordance with the notice of redemption
or exchange) of the certificate or certificates for any
shares of this Series to be so redeemed or exchanged
(properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice of redemption or
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24
exchange shall so state), such shares shall be redeemed or
exchanged by the Corporation at the Redemption Price or the
Conversion Rate, as applicable, as set forth in Section 4.1
(unless the Corporation shall have exercised its right to
rescind such redemption or exchange pursuant to
Section 4.5). In case fewer than all the shares represented by any
such certificate are to be redeemed or exchanged, a new
certificate shall be issued representing the unredeemed
shares (or fractions thereof as provided in Section 7.3),
without cost to the holder thereof, together with the
amount of cash, if any, in lieu of fractional shares other than
those issuable in accordance with Section 7.3. Subject to
applicable escheat laws, any moneys so set aside by the
Corporation in the case of redemption 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 shares so called for redemption shall look
only to the general funds of the Corporation for the
payment of the Redemption Price without interest. Any interest
accrued on funds so deposited shall be paid to the
Corporation from time to time.
4.5 In the event that a Redemption
Rescission Event shall occur following any day on which a
notice of redemption or exchange shall have been given
pursuant to Section 4.3 but at or prior to the earlier of
(a) the time and date fixed for redemption or exchange as
set forth in such notice of redemption or exchange and
(b) the time and date at which the Corporation shall have
irrevocably deposited funds or certificates with a
designated bank or trust company pursuant to Section 4.4,
the Corporation may, at its sole option, at any time prior
to the earliest of (i) the close of business on that day
which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for
redemption or exchange as set forth in such notice and
(iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or
trust company, rescind the redemption or exchange to which
such notice of redemption or exchange shall have related by
making a public announcement of such rescission (the date
on which such public announcement shall have been made being
hereinafter referred to as the "Rescission Date"). The
Corporation shall be deemed to have made such announcement
if it shall issue a release to the Dow Jones News Service,
Reuters Information Services or any successor news wire
service. From and after the making of such announcement,
the Corporation shall have no obligation to redeem or
exchange shares of this Series called for redemption or
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25
exchange pursuant to such notice of redemption or exchange
or to pay the redemption or exchange price therefor and all
rights of holders of shares of this Series shall be
restored as if such notice of redemption or exchange had not been
given. The Corporation shall give notice of any such
rescission by first-class mail, postage prepaid, mailed as
promptly as practicable, but in no event later than the
close of business on that date which is five (5) Trading
Days following the Rescission Date to each record holder of
shares of this Series at the close of business on the
Rescission Date and to any other person or entity that was
a record holder of shares of this Series and that shall have
surrendered shares of this Series for conversion following
the giving of notice of the subsequently rescinded
redemption or exchange. Each notice of rescission shall
(w) state that the redemption or exchange described in the
notice of redemption or exchange has been rescinded,
(x) state that any Converting Holder shall be entitled to
rescind the conversion of shares of this Series surrendered
for conversion following the day on which notice of
redemption or exchange was given but on or prior to the
date of the mailing of the Corporation's notice of rescission,
(y) be accompanied by a form prescribed by the Corporation
to be used by any Converting Holder rescinding the
conversion of shares so surrendered for conversion (and
instructions for the completion and delivery of such form,
including instructions with respect to payments that may be
required to accompany such delivery shall be in accordance
with Section 3.5) and (z) state that such form must be
properly completed and received by the Corporation no later
than the close of business on a date that shall be fifteen
(15) Trading Days following the date of the mailing of such
notice of rescission.
5. Voting. The shares of this Series shall have
no voting rights except as required by law or as set forth
below.
5.1 Each share of this Series shall be enti-
tled to vote together with holders of the shares of Common
Stock (and any other class or series which may similarly be
entitled to vote with the shares of Common Stock) as a
single class upon all matters upon which holders of Common
Stock are entitled to vote. In any such vote, the holders
of this Series shall be entitled to two (2) votes per $100
in Liquidation Value of Series C Stock, subject to
adjustment at the same time and in the same manner as each
adjustment of the Conversion Rate pursuant to Section 3.6,
so that the holders of this Series shall be entitled
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26
following such adjustment to the number of votes equal to
the number of votes such holders were entitled to under
this Section 5.1 immediately prior to such adjustment
multiplied by a fraction (x) the numerator of which is the Conversion
Rate as adjusted pursuant to Section 3.6 and (y) the
denominator of which is the Conversion Rate immediately
prior to such adjustment.
5.2(a) So long as any shares of this Series
remain outstanding, unless a greater percentage shall then
be required by law, the Corporation shall not, without the
affirmative vote at a meeting or the written consent with
or without a meeting of the holders of shares of this Series
representing at least 66-2/3% of the aggregate voting power
of shares of this Series then outstanding (i) authorize any
Senior Stock or reclassify any Junior Stock or Parity Stock
as Senior Stock or (ii) amend, alter or repeal any of the
provisions of the Certificate or the Certificate of Incorpo-
ration, so as in any such case to materially and adversely
affect the preferences, special rights, powers or
privileges of the shares of this Series; provided, however, that no
amendment which effects a split of this Series or which
effects a combination of the shares of this Series into a
fewer number of Shares shall be deemed to have any such
material adverse effect.
b) No consent of holders of shares of this
Series shall be required for (i) the creation of any indebt-
edness of any kind of the Corporation, (ii) the authoriza-
tion or issuance of any class of Junior Stock or Parity
Stock, (iii) the authorization, designation or issuance of
additional shares of Series C Stock or (iv) subject to
Section 5.2(a), the authorization or issuance of any other
shares of Preferred Stock.
5.3(a) If and whenever at any time or times
dividends payable on shares of this Series shall have been
in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors
constituting the Board of Directors shall be increased by
two and the holders of shares of this Series, together with
the holders of any shares of any Parity Stock as to which
in each case dividends are in arrears and unpaid in an
aggregate amount equal to or exceeding the amount of
dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately
as a class with such other series, to elect two directors
of the Corporation.
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27
(b) Such voting right may be exercised
initially either by written consent or at a special meeting
of the holders of the Preferred Stock having such voting
right, called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing
directors, and thereafter at each such annual meeting until
such time as all dividends accumulated on the shares of
this Series shall have been paid in full and all dividends
payable on the shares of this Series on four subsequent
consecutive Dividend Payment Dates shall have been paid in
full on such dates or funds shall have been set aside for
the payment thereof, at which time such voting right and
the term of the directors elected pursuant to Section 5.3(a)
shall terminate.
(c) At any time when such voting right
shall have vested in holders of shares of such series of
Preferred Stock described in Section 5.3(a), and if such
right shall not already have been exercised by written
consent, a proper officer of the Corporation may call, and,
upon the written request, addressed to the Secretary of the
Corporation, of the record holders of shares representing
twenty-five percent (25%) of the voting power of the shares
then outstanding of such Preferred Stock having such voting
right, shall call, a special meeting of the holders of such
Preferred Stock having such voting right. Such meeting
shall be held at the earliest practicable date upon the
notice required for annual meetings of stockholders at the
place for holding annual meetings of stockholders of the
Corporation, or, if none, at a place designated by the
Board of Directors. Notwithstanding the provisions of this
Section 5.3(c), no such special meeting shall be called
during a period within 60 days immediately preceding the
date fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of
electing directors at which the holders of such Preferred
Stock shall have the right to elect directors as provided
herein, the presence in person or by proxy of the holders
of shares representing more than fifty percent (50%) in
voting power of the then outstanding shares of such Preferred
Stock having such right shall be required and shall be
sufficient to constitute a quorum of such class for the
election of directors by such class.
(e) Any director elected by holders of
Preferred Stock pursuant to the voting right created under
this Section 5.3 shall hold office until the next annual
meeting of stockholders (unless such term has previously
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28
terminated pursuant to Section 5.3(b)) and any vacancy in
respect of any such director shall be filled only by vote
of the remaining director so elected, or if there be no such
remaining director, by the holders of such Preferred Stock
entitled to elect such director or directors by written
consent or at a special meeting called in accordance with
the procedures set forth in Section 5.3(c), or, if no
special meeting is called or written consent executed, at
the next annual meeting of stockholders. Upon any
termination of such voting right, subject to applicable
law, the term of office of all directors elected by holders of
such Preferred Stock voting separately as a class pursuant
to this Section 5.3 shall terminate.
(f) In exercising the voting rights set
forth in this Section 5.3, each share of this Series shall
have a number of votes equal to its Liquidation Value.
6. Liquidation Rights.
6.1 Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involun-
tary, the holders of the shares of this Series shall be
entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the
holders of, and before any payment or distribution shall be
made on, Junior Stock, the amount of $100 per share (which
amount shall be appropriately adjusted from time to time to
reflect any split or combination of the shares of this
Series) (the "Liquidation Value"), plus an amount equal to
all accrued and unpaid dividends to the date of final
distribution.
6.2 Neither the sale, exchange or other con-
veyance (for cash, shares of stock, securities or other con-
sideration) of all or substantially all the property and
assets of the Corporation nor the merger or consolidation
of the Corporation into or with any other corporation, or the
merger or consolidation of any other corporation into or
with the Corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for
the purposes of this Section 6.
6.3 After the payment to the holders of the
shares of this Series of full preferential amounts provided
for in this Section 6, the holders of this Series as such
shall have no right or claim to any of the remaining assets
of the Corporation.
<PAGE>
<PAGE>
29
6.4 In the event the assets of the Corpora-
tion available for distribution to the holders of shares of
this Series upon any dissolution, liquidation or winding up
of the Corporation, whether voluntary or involuntary, shall
be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Section 6.1, no such dis-
tribution shall be made on account of any shares of any
Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid
on account of the shares of this Series, ratably, in propor-
tion to the full distributable amounts for which holders of
all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
7. Other Provisions.
7.1 All notices from the Corporation to the
holders shall be given by first class mail. With respect
to any notice to a holder of shares of this Series required
to be provided hereunder, neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any
particular holder shall affect the sufficiency of the
notice or the validity of the proceedings referred to in such
notice with respect to the other holders or affect the
legality or validity of any distribution, right, warrant,
reclassification, consolidation, merger, conveyance, trans-
fer, dissolution, liquidation or winding up, or the vote
upon any such action. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to
have been duly given whether or not the holder receives the
notice.
7.2 Any shares of this Series which have
been converted, redeemed, exchanged or otherwise acquired
by the Corporation shall, after such conversion, redemption,
exchange or acquisition, as the case may be, be retired and
the Corporation shall take all appropriate action to cause
such shares to obtain the status of authorized but unissued
shares of Preferred Stock, without designation as to
series, until such shares are once more designated as part of a
particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a
resolution adopted by the Board of Directors that none of
the authorized shares of this Series are outstanding to be
filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all references to
Series C Stock shall be eliminated from the Certificate of
Incorporation and the shares of Preferred Stock designated
hereby as Series C Stock shall have the status of authorized
<PAGE>
<PAGE>
30
and unissued shares of Preferred Stock and may be reissued
as part of any new series of Preferred Stock to be created
by resolution or resolutions of the Board of Directors.
7.3 The shares of this Series shall be issu-
able in whole shares or, if authorized by the Board of
Directors of the Corporation (or any authorized committee
thereof), in any fraction of a whole share so authorized or
any integral multiple of such fraction.
7.4 Subject to Section 7.6, the Corporation
shall be entitled to recognize the exclusive right of a
person registered on its records as the holder of shares of
this Series, and such record holder shall be deemed the
holder of such shares for all purposes.
7.5 All notice periods referred to in the
Certificate shall commence on the date of the mailing of
the applicable notice.
7.6 Certificates for shares of this Series
shall bear such legends as the Corporation shall from time
to time deem appropriate.
IN WITNESS WHEREOF, Time Warner Inc. has
caused this certificate to be signed and attested this 28th
day of April, 1995.
TIME WARNER INC.,
by
----------------------------
Name:
Title:
Attest:
by:
----------------------------
Name:
Title:
<PAGE>
<PAGE>
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES D CONVERTIBLE
PREFERRED STOCK
OF
TIME WARNER INC.
--------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
--------------------
TIME WARNER INC., a corporation organized and existing by virtue
of the General Corporation Law of the State of Delaware (as defined below, the
"Corporation"), does hereby certify that the following resolution was duly
adopted by action of the Board of Directors of the Corporation at a meeting duly
held on the 16th day of March, 1995.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation by the provisions of Section
2 of Article IV of the Restated Certificate of Incorporation of the Corporation,
as amended from time to time (the "Certificate of Incorporation"), and Section
151(g) of the General Corporation Law of the State of Delaware, such Board of
Directors hereby creates, from the authorized shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock"), of the Corporation authorized to
be issued pursuant to the Certificate of Incorporation, a series of Preferred
Stock, and hereby fixes the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of the shares of such series as follows:
The series of Preferred Stock hereby established shall consist of
11,000,000 shares designated as Series D Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
<PAGE>
<PAGE>
2
1. Definitions. As used herein, the following
terms shall have the indicated meanings:
1.1 "Accrued Dividend Amount" shall mean
the aggregate amount of accrued and unpaid dividends on a share of Series D
Stock to and including the Conversion Date, except that if the Conversion Date
shall occur after a Record Date and prior to a related Dividend Payment Date,
the Accrued Dividend Amount shall not include any accrued and unpaid dividends
for the period from and after the most recent Dividend Payment Date.
1.2 "Board of Directors" shall mean the
Board of Directors of the Corporation or, with respect to any action to be taken
by the Board of Directors, any committee of the Board of Directors duly
authorized to take such action.
1.3 "Capital Stock" shall mean any and all
shares of corporate stock of a Person (however designated and whether
representing rights to vote, rights to participate in dividends or distributions
upon liquidation or otherwise with respect to such Person, or any division or
subsidiary thereof, or any joint venture, partnership, corporation or other
entity).
1.4 "Certificate" shall mean the
certificate of the voting powers, designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, of Series D Convertible Preferred Stock filed with
respect to this resolution with the Secretary of State of the State of Delaware
pursuant to Section 151 of the General Corporation Law of the State of Delaware.
1.5 "Change of Control" and "Change of
Control Date" shall have the following meanings: "Change of Control" shall mean
the occurrence of one or both of the following events: (a) individuals who would
constitute a majority of the members of the Board of Directors elected at any
meeting of stockholders or by written consent (without regard to any members of
the Board of Directors elected pursuant to the terms of any series of Preferred
Stock) shall be elected to the Board of Directors and the election or the
nomination for election by the Corporation's stockholders of such directors was
not approved by a vote of at least a majority of the directors in office
immediately prior to such election (in which event "Change of Control
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<PAGE>
3
Date" shall mean the date of such election) or (b) a Person or group of Persons
acting in concert as a partnership, limited partnership, syndicate or other
group within the meaning of Rule 13d-3 under the Exchange Act (the "Acquiring
Person") shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases, share repurchases or redemptions
or otherwise, have become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding shares
of Common Stock (in which event "Change of Control Date" shall mean the date
of the event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock
shall mean the last reported sale price of the Common Stock (regular way) as
shown on the Composite Tape of the NYSE, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices on the NYSE, or, if
the Common Stock is not listed or admitted to trading on the NYSE, on the
principal national securities exchange on which such stock is listed or admitted
to trading, or, if it is not listed or admitted to trading on any national
securi- ties exchange, the last reported sale price of the Common Stock, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, in either case as reported by NASDAQ.
1.7 "Common Dividend Deficiency" shall be
applicable in the event that a Conversion Date shall fall after a record date
and prior to the related payment date for a regularly scheduled cash dividend on
the Common Stock (the "Common Dividend Payment Date"), and in such event shall
mean the product of (i) the Conversion Rate, (ii) the amount per share of Common
Stock of the regularly scheduled cash dividend for which the record date has
been set but a payment date has not yet occurred and (ii) a fraction (A) the
numerator of which is the number of calendar days from and excluding the
Conversion Date (or in the event the Conversion Date falls after a Record Date
and on or prior to a related Dividend Payment Date, from and excluding the
Dividend Payment Date) to and including the Common Dividend Payment Date and (B)
the denominator of which is 91 (provided that such fraction shall not be greater
than one (1)).
1.8 "Common Dividend Excess" shall be
applicable in all circumstances where a Common Dividend Deficiency is not
applicable, and in such event shall mean the product of (i) the Conversion Rate,
(ii) the regular
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<PAGE>
4
quarterly cash dividend per share, if any, paid by the
Corporation on the Common Stock (the "Historical Dividend") on the most recent
dividend payment date for the Common Stock (the "Prior Dividend Payment Date")
occurring during the four months immediately preceding the Conversion Date and
(iii) a fraction (A) the numerator of which is the number of calendar days from
and excluding (1) the Prior Dividend Payment Date to and including (2) the
Conversion Date (or in the event the Conversion Date falls after a Record Date
and on or prior to a related Dividend Payment Date, to and including the
Dividend Payment Date) and (B) the denominator of which is 91 days (provided
that in no event shall the fraction be greater than one (1)).
1.9 "Common Stock" shall mean the class of
Common Stock, par value $1.00 per share, of the Corporation authorized at the
date of the Certificate, or any other class of stock resulting from (x)
successive changes or reclassifications of such Common Stock consisting of
changes in par value, or from par value to no par value, (y) a subdivision or
combination or (z) any other changes for which an adjustment is made under
Section 3.6(a), and in any such case including any shares thereof authorized
after the date of the Certificate, together with any associated rights to
purchase other securities of the Corporation which are at the time represented
by the certificates representing such shares of Common Stock.
1.10 "Conversion Date" shall have the
meaning set forth in Section 3.5 hereof.
1.11 "Conversion Price" at any time shall
mean the Liquidation Value per share divided by the Conversion Rate in effect at
such time (rounded to the nearest one hundredth of a cent).
1.12 "Conversion Rate" shall have the
meaning set forth in Section 3.1 hereof.
1.13 "Converting Holder" shall have the
meaning set forth in Section 3.5 hereof.
1.14 "Corporation" shall mean Time Warner
Inc., a Delaware corporation, and any of its successors by operation of law,
including by merger, consolidation or sale or conveyance of all or substantially
all of its property and assets.
<PAGE>
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5
1.15 "Current Market Price" of the Common
Stock on any date shall mean the average of the daily Closing Prices per share
of the Common Stock for the five (5) consecutive Trading Days ending on the
Trading Day immediately preceding the applicable record date, conversion date,
redemption date or exchange date referred to in
Section 3 or Section 4.
1.16 "Dividend Payment Date" shall have the
meaning set forth in Section 2.1 hereof.
1.17 "Effective Time" shall mean the time
of filing (or if later the time of effectiveness specified therein) of a
certificate of merger with the Secretary of State of the State of Delaware
pursuant to Section 1.03 of the Agreement and Plan of Merger dated as of January
26, 1995, among KBLCOM Incorporated, Houston Industries Incorporated, the
Corporation and TWI Cable Inc. (formerly known as TW KBLCOM Acquisition Corp.),
as the same may be amended from time to time.
1.18 "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
1.19 "Exchange Price" shall have the
meaning set forth in Section 4.1 hereof.
1.20 "Junior Stock" shall mean the Common
Stock, the Series A Stock and the shares of any other class or series of Capital
Stock of the Corporation which, by the terms of the Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall be junior to the Series D
Stock in respect of the right to receive dividends or to participate in any
distribution of assets other than by way of dividends.
1.21 "Liquidation Value" shall have the
meaning set forth in Section 7.1 hereof.
1.22 "NASDAQ" shall mean the National
Association of Securities Dealers Automated Quotation
System.
1.23 "Net Dividend Amount" shall have the
meaning set forth in Section 3.1 hereof.
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6
1.24 "NYSE" shall mean the New York Stock
Exchange, Inc.
1.25 "Parity Stock" shall mean the Series B
Stock and the shares of any other class or series of Capital Stock of the
Corporation which, by the terms of the Certifi- cate of Incorporation or of the
instrument by which the Board of Directors, acting pursuant to authority granted
in the Certificate of Incorporation, shall fix the relative rights, preferences
and limitations thereof, shall, in the event that the stated dividends thereon
are not paid in full, be entitled to share ratably with the Series D Stock in
the payment of dividends, including accumulations, if any, in accordance with
the sums which would be payable on such shares if all dividends were declared
and paid in full, or shall, in the event that the amounts payable thereon on
liquidation are not paid in full, be entitled to share rat- ably with the Series
D Stock in any distribution of assets other than by way of dividends in
accordance with the sums which would be payable in such distribution if all sums
payable were discharged in full; provided, however, that the term "Parity Stock"
shall be deemed to refer (i) in Section 2.2 hereof, to any stock which is Parity
Stock in respect of dividend rights; (ii) in Section 7 hereof, to any stock
which is Parity Stock in respect of the distribution of assets; and (iii) in
Sections 6.2 and 6.3 hereof, to any stock which is Parity Stock in respect of
either dividend rights or the distribution of assets and which, pursuant to the
Certificate of Incorporation or any instrument in which the Board of Directors,
acting pursuant to authority granted in the Certificate of Incorporation, shall
so designate, is entitled to vote with the holders of Series D Stock.
1.26 "Person" shall mean an individual,
corporation, partnership, joint venture, association, trust, unincorporated
organization or other entity.
1.27 "Preferred Stock" shall mean the class
of Preferred Stock, par value $1.00 per share, of the Corporation authorized at
the date of the Certificate, including any shares thereof authorized after the
date of the Certificate.
1.28 "Pro Rata Portion" shall have the
meaning set forth in Section 5.6 hereof.
1.29 "Pro Rata Repurchase" shall mean the
purchase of shares of Common Stock by the Corporation or by
<PAGE>
<PAGE>
7
any of its subsidiaries, whether for cash or other property or securities of the
Corporation, which purchase is subject to Section 13(e) of the Exchange Act or
is made pursuant to an offer made available to all holders of Common Stock, but
excluding any purchase made in open market transactions that satisfies the
conditions of clause (b) of Rule 10b-18 under the Exchange Act or has been
designed (as reasonably determined by the Board of Directors or a committee
thereof) to prevent such purchase from having a material effect on the trading
market of the Common Stock. The "Effective Date" of a Pro Rata Repurchase shall
mean the applicable expiration date (including all extensions thereof) of any
tender or exchange offer which is a Pro Rata Repurchase or the date of purchase
with respect to any Pro Rata Repurchase which is not a tender or exchange offer.
1.30 "Record Date" shall have the meaning
set forth in Section 2.1 hereof.
1.31 "Redemption Price" shall have the
meaning set forth in Section 4.1 hereof.
1.32 "Redemption Rescission Event" shall
mean the occurrence of (a) any general suspension of trading in, or limitation
on prices for, securities on the principal national securities exchange on which
shares of Common Stock are registered and listed for trading (or, if shares of
Common Stock are not registered and listed for trading on any such exchange, in
the over-the-counter market) for more than six-and-one-half (6-1/2) consecutive
trading hours, (b) any decline in either the Dow Jones Industrial Average or the
Standard & Poor's Index of 400 Industrial Companies (or any successor index
published by Dow Jones & Company, Inc. or Standard & Poor's Corporation) by
either (i) an amount in excess of 10%, measured from the close of business on
any Trading Day to the close of business on the next succeeding Trading Day
during the period commencing on the Trading Day preceding the day notice of any
redemption of shares of this Series is given (or, if such notice is given after
the close of business on a Trading Day, commencing on such Trading Day) and
ending at the earlier of (x) the time and date fixed for redemption in such
notice and (y) the time and date at which the Corporation shall have irrevocably
deposited funds with a designated bank or trust company pursuant to Section 4.4
or (ii) an amount in excess of 15% (or, if the time and date fixed for
redemption is more than 15 days following the date on which notice of redemption
is given, 20%), measured from the close of
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<PAGE>
8
business on the Trading Day preceding the day notice of such redemption is given
(or, if such notice is given after the close of business on a Trading Day, from
such Trading Day) to the close of business on any Trading Day on or prior to the
earlier of the dates specified in clauses (x) and (y) above, (c) a declaration
of a banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States or (d) the commencement of a
war or armed hostilities or other national or international calamity directly or
indirectly involving the United States which in the reasonable judgment of the
Corporation could have a material adverse effect on the market for the Common
Stock.
1.33 "Rescission Date" shall have the
meaning set forth in Section 4.5 hereof.
1.34 "Senior Stock" shall mean the shares
of any class or series of Capital Stock of the Corporation which, by the terms
of the Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be senior to the Series D Stock in respect of the right to
receive dividends or to participate in any distribution of assets other than by
way of dividends.
1.35 "Series A Stock" shall mean the series
of Preferred Stock authorized and designated as Series A Participating Preferred
Stock at the date of the Certifi- cate, including any shares thereof authorized
and designated after the date of the Certificate.
1.36 "Series B Stock" shall mean the series
of Preferred Stock authorized and designated as Series B 6.40% Preferred Stock
at the date of the Certificate, including any shares thereof authorized and
designated after the date of the Certificate.
1.37 "Series D Stock" and "this Series"
shall mean the series of Preferred Stock authorized and designated as the Series
D Convertible Preferred Stock, including any shares thereof authorized and
designated after the date of the Certificate.
1.38 "Surrendered Shares" shall have the
meaning set forth in Section 3.5 hereof.
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9
1.39 "Trading Day" shall mean, so long as
the Common Stock is listed or admitted to trading on the NYSE, a day on which
the NYSE is open for the transaction of business, or, if the Common Stock is not
listed or admitted to trading on the NYSE, a day on which the principal national
securities exchange on which the Common Stock is listed is open for the
transaction of business, or, if the Common Stock is not so listed or admitted
for trading on any national securities exchange, a day on which the National
Market System of NASDAQ is open for the transaction of business.
2. Cash Dividends.
2.1 The holders of the outstanding Series D
Stock shall be entitled to receive quarter-annual dividends, as and when
declared by the Board of Directors out of funds legally available therefor. Each
quarter-annual dividend shall be an amount per share equal to (i) in the case of
each Dividend Payment Date (as defined below) occurring after the Effective Time
through the Dividend Payment Date coinciding with the fourth anniversary of the
Effective Time, the greater of (A) $.9375 per $100 of Liquidation Value of
Series D Stock (which is equivalent to $3.75 per annum), and (B) an amount per
$100 of Liquidation Value of Series D Stock equal to the product of (1) the
Conversion Rate and (2) the aggregate per share amount of regularly scheduled
dividends paid in cash on the Common Stock during the period from but excluding
the immediately preceding Dividend Payment Date to and including such Dividend
Payment Date and (ii) in the case of each Dividend Payment Date occurring
thereafter, an amount per $100 of Liquidation Value of Series D Stock equal to
the product of (1) the Conversion Rate and (2) the aggregate per share amount of
regularly scheduled dividends paid in cash on the Common Stock during the period
from but excluding the immediately preceding Dividend Payment Date to and
including such Dividend Payment Date. All dividends shall be payable in cash on
or about the first day of January, April, July and October in each year,
beginning on the first such date that is more than 15 days after the Effective
Time, as fixed by the Board of Directors, or such other dates as are fixed by
the Board of Directors (provided that the fourth
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10
anniversary of the Effective Time shall be a Dividend Payment Date) (each a
"Dividend Payment Date"), to the holders of record of Series D Stock at the
close of business on or about the Trading Day next preceding such first day of
January, April, July or October (or fourth anniversary of the Effective Time) as
the case may be, as fixed by the Board of Directors, or such other dates as are
fixed by the Board of Directors (each a "Record Date"). In the case of dividends
payable in respect of periods prior to the fourth anniversary of the Effective
Time, (i) such dividends shall accrue on each share on a daily basis, whether or
not there are unrestricted funds legally available for the payment of such
dividends and whether or not earned or declared, from and after the day
immediately succeeding the Effective Time and (ii) any such dividends that
become payable for any partial dividend period shall be computed on the basis of
the actual days elapsed in such period. From and after the fourth anniversary of
the Effective Time, dividends on the Series D Stock (determined as to amount as
provided herein) shall accrue to the extent, but only to the extent, that
regularly scheduled cash dividends are declared by the Board of Directors on the
Common Stock with a payment date after the fourth anniversary of the Effective
Time (or, in the case of Series D Stock originally issued after the fourth
anniversary of the Effective Time, after the Dividend Payment Date next
preceding such date of original issuance). All dividends that accrue in
accordance with the foregoing provisions shall be cumulative from and after the
day immediately succeeding the Effective Time (or such date of issuance). The
amount payable to each holder of record on any Dividend Payment Date shall be
rounded to the nearest cent.
2.2 Except as hereinafter provided in this
Section 2.2, unless all dividends on the outstanding shares of Series D Stock
and any Parity Stock that shall have accrued and become payable as of any date
shall have been paid, or declared and funds set apart for payment thereof, no
dividend or other distribution (payable other than in shares of Junior Stock)
shall be paid to the holders of Junior Stock or Parity Stock, and no shares of
Series D Stock, Parity Stock or Junior Stock shall be purchased, redeemed or
otherwise acquired by the Corporation or any of its subsidiaries (except by
conversion into or exchange for Junior Stock), nor shall any monies be paid or
made available for a purchase, redemption or sinking fund for the purchase
or redemption of any Series D Stock, Junior Stock or Parity Stock.
When dividends are not paid in full upon
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11
the shares of this Series and any Parity Stock, all dividends declared upon
shares of this Series and all Parity Stock shall be declared pro rata so that
the amount of dividends declared per share on this Series and all such Parity
Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and all such Parity Stock bear
to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on this Series which may
be in arrears.
2.3 In case the Corporation shall at any
time distribute (other than a distribution in liquidation of the Corporation) to
the holders of its shares of Common Stock any assets or property, including debt
or equity securities of the Corporation (other than Common Stock subject to a
distribution or reclassification covered by Section 3.6(a)) or of any other
Person (including common stock of such Person) or cash (but excluding regularly
scheduled cash dividends payable on shares of Common Stock), or in case the
Corporation shall at any time distribute (other than a distribution in
liquidation of the Corporation) to such holders rights, options or warrants to
subscribe for or purchase shares of Common Stock (including shares held in the
treasury of the Corporation), or rights, options or warrants to subscribe for or
purchase any other security or rights, options or warrants to subscribe for or
purchase any assets or property (in each case, whether of the Corporation or
otherwise, but other than any distribution of rights to purchase securities of
the Corporation if the holder of shares of this Series would otherwise be
entitled to receive such rights upon conversion of shares of this Series for
Common Stock; provided, however, that if such rights are subsequently redeemed
by the Corporation, such redemption shall be treated for purposes of this
Section 2.3 as a cash dividend (but not a regularly scheduled cash dividend) on
the Common Stock), the Corporation shall simultaneously distribute such assets,
property, securities, rights, options or warrants pro rata to the holders of
Series D Stock on the record date fixed for determining holders of Common Stock
entitled to participate in such distribution (or, if no such record date shall
be established, the effective time thereof) in an amount equal to the amount
that such holders of Series D Stock would have been entitled to receive had
their shares of Series D Stock been converted into Common Stock immediately
prior to such record date (or effective time). In the event of a distribution to
holders of Series D Stock
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12
pursuant to this Section 2.3, such holders shall be entitled to receive
fractional shares or interests only to the extent that holders of Common Stock
are entitled to receive the same. The holders of Series D Stock on the
applicable record date (or effective time) shall be entitled to receive in lieu
of such fractional shares or interests the same consideration as is payable to
holders of Common Stock with respect thereto. If there are no fractional shares
or interests payable to holders of Common Stock, the holders of Series D Stock
on the applicable record date (or effective time) shall receive in lieu of such
fractional shares or interests the fair value thereof as determined by the Board
of Directors.
2.4 If a distribution is made in accordance
with the provisions of Section 2.3, anything in Section 3 to the contrary
notwithstanding, no adjustment pursuant to Section 3 shall be effected by reason
of the distribution of such assets, property, securities, rights, options or
warrants or the subsequent modification, exercise, expiration or termination of
such securities, rights, options or warrants.
2.5 In the event that the holders of Common
Stock are entitled to make any election with respect to the kind or amount of
securities or other property receivable by them in any distribution that is
subject to Section 2.3, the kind and amount of securities or other property that
shall be distributable to the holders of the Series D Stock shall be based on
(i) the election, if any, made by the record holder (as of the date used for
determining the holders of Common Stock entitled to make such election) of the
largest number of shares of Series D Stock in writing to the Corporation on or
prior to the last date on which a holder of Common Stock may make such an
election or (ii) if no such election is timely made, an assumption that such
holder failed to exercise any such rights (provided that if the kind or amount
of securities or other property is not the same for each nonelecting holder,
then the kind and amount of securities or other property receivable by holders
of the Series D Stock shall be based on the kind or amount of securities or
other property receivable by a plurality of shares held by the nonelecting
holders of Common Stock). Concurrently with the mailing to holders of Common
Stock of any document pursuant to which such holders may make an election of the
type referred to in this Section, the Corporation shall mail a copy thereof to
the record holders of the Series D Stock as of the date used for determining
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13
the holders of record of Common Stock entitled to such mailing.
3. Conversion Rights.
3.1 Each holder of a share of this Series
shall have the right at any time or as to any share of this Series called for
redemption or exchange, at any time prior to the close of business on the date
fixed for redemption or exchange (unless the Corporation defaults in the payment
of the Redemption Price or fails to exchange the shares of this Series for the
applicable number of shares of Common Stock and any cash portion of the Exchange
Price or exercises its right to rescind such redemption pursuant to Section 4.5,
in which case such right shall not terminate at the close of business on such
date), to convert such share into (i) a number of shares of Common Stock equal
to 2.08264 shares of Common Stock for each share of this Series, subject to
adjustment as provided in this Section 3 (such rate, as so adjusted from time to
time, is herein called the "Conversion Rate") plus (ii) a number of shares of
Common Stock equal to
(A)(1) the Accrued Dividend Amount minus (2) the Common Dividend
Excess, if applicable, or plus (3) the Common Dividend Deficiency, if
applicable (the "Net Dividend Amount"), divided by
(B) the Closing Price of the Common Stock on the
last Trading Day prior to the Conversion Date;
provided, however, that in the event that the Net Dividend Amount is a negative
number, the number of shares deliverable upon conversion of a share of Series D
Stock shall be equal to
(I) the number of shares determined pursuant to
clause (i) minus
(II) a number of shares equal to (x) the absolute value of the
Net Dividend Amount divided by (y) the Closing Price of the Common Stock
on the last Trading Day prior to the Conversion Date;
and provided further that, in the event that the Net Dividend Amount is a
positive number, the Corporation shall have the right to deliver cash equal to
the Net Dividend Amount or any portion thereof, in which case its obligation to
deliver shares of Common Stock pursuant to clause (ii)
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14
shall be reduced by a number of shares equal to (x) the aggregate amount of cash
so delivered divided by (y) the Closing Price of the Common Stock on the last
Trading Day prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Net Dividend Amount, in which case its entire
obligation under clause (ii) shall be discharged. The obligations of the
Corporation to issue the Common Stock or make the cash payments provided by this
Section 3.1 shall be absolute whether or not any accrued dividend by which such
issuance or payment is measured has been declared by the Board of Directors and
whether or not the Corporation would have adequate surplus or net profits to pay
such dividend if declared or is otherwise restricted from making such dividend.
3.2 Except as provided in this Section 3,
no adjustments in respect of payments of dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of this Series (it being understood that
if the Conversion Date for shares of Series D Stock occurs after a Record Date
and on or prior to a Dividend Payment Date, the holder of record on such Record
Date shall be entitled to receive the dividend payable with respect to such
shares on the related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be
required to, in connection with any conversion of shares of this Series, issue a
fraction of a share of Common Stock, and if the Corporation shall determine not
to issue any such fraction, the Corporation shall, subject to Section 3.6(c),
make a cash payment (rounded to the nearest cent) equal to such fraction
multiplied by the Closing Price of the Common Stock on the last Trading Day
prior to the Conversion Date.
3.4 Any holder of shares of this Series
electing to convert such shares into Common Stock shall surrender the
certificate or certificates for such shares at the office of the transfer agent
or agents therefor (or at such other place as the Corporation may designate by
notice to the holders of shares of this Series) during regular business hours,
duly endorsed to the Corporation or in blank, or accompanied by instruments of
transfer to the Corporation or in blank, or in form satisfactory to the
Corporation, and shall give written notice to the Corporation at such office
that such holder elects to convert such shares of this Series. The Corporation
shall, as soon as
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15
practicable (subject to Section 3.6(d)) after such deposit of
certificates for shares of this Series, accompanied by the written notice above
prescribed, issue and deliver at such office to the holder for whose account
such shares were surrendered, or to his nominee, certificates representing the
number of shares of Common Stock and the cash, if any, to which such holder is
entitled upon such conversion.
3.5 Conversion shall be deemed to have been
made as of the date (the "Conversion Date") that certificates for the shares of
this Series to be converted, and the written notice prescribed in Section 3.4
are received by the transfer agent or agents for this Series; and the Person
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such Common Stock on such date.
Notwithstanding anything to the contrary contained herein, in the event the
Corporation shall have rescinded a redemption of shares of this Series pursuant
to Section 4.5, any holder of shares of this Series that shall have surrendered
shares of this Series for conversion following the day on which notice of the
subsequently rescinded redemption shall have been given but prior to the close
of business on the later of (a) the Trading Day next succeeding the date on
which public announcement of the rescission of such redemption shall have been
made and (b) the Trading Day on which the notice of rescission required by
Section 4.5 is deemed given pursuant to Section 8.2 (a "Converting Holder"), may
rescind the conversion of such shares surrendered for conversion by (i) properly
completing a form prescribed by the Corporation and mailed to holders of shares
of this Series (including Converting Holders) with the Corporation's notice of
rescission, which form shall provide for the certification by any Converting
Holder rescinding a conversion on behalf of any beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of shares of this Series that the
beneficial ownership (within the meaning of such Rule) of such shares shall not
have changed from the date on which such shares were surrendered for conversion
to the date of such certification and (ii) delivering such form to the
Corporation no later than the close of business on that date which is ten (10)
Trading Days following the date on which the Corporation's notice of rescission
is deemed given pursuant to Section 8.2. The delivery of such form by a
Converting Holder shall be accompanied by (x) any certificates representing
shares of Common Stock issued to such Converting Holder upon a conversion of
shares of this Series that shall be rescinded
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16
by the proper delivery of such form (the "Surrendered Shares"), (y) any
securities, evidences of indebtedness or assets (other than cash) distributed by
the Corporation to such Converting Holder by reason of such Converting Holder's
being a record holder of Surrendered Shares and (z) payment in New York Clearing
House funds or other funds acceptable to the Corporation of an amount equal to
the sum of (I) any cash such Converting Holder may have received in lieu of the
issuance of fractional shares upon conversion and (II) any cash paid or payable
by the Corporation to such Converting Holder by reason of such Converting Holder
being a record holder of Surrendered Shares. Upon receipt by the Corporation of
any such form properly completed by a Converting Holder and any certificates,
securities, evidences of indebtedness, assets or cash payments required to be
returned or made by such Converting Holder to the Corporation as set forth
above, the Corporation shall instruct the transfer agent or agents for shares of
Common Stock and shares of this Series to cancel any certificates representing
Surrendered Shares (which Surrendered Shares shall be deposited in the treasury
of the Corporation) and reissue certificates representing shares of this Series
to such Converting Holder (which shares of this Series shall be deemed to have
been outstanding at all times during the period following their surrender for
conversion). The Corporation shall, as promptly as practicable, and in no event
more than five (5) Trading Days, following the receipt of any such properly
completed form and any such certificates, securities, evidences of indebtedness,
assets or cash payments required to be so returned or made, pay to the
Converting Holder or as otherwise directed by such Converting Holder any
dividend or other payment made on such shares during the period from the time
such shares shall have been surrendered for conversion to the rescission of such
conversion. All questions as to the validity, form, eligibility (including time
or receipt) and acceptance of any form submitted to the Corporation to rescind
the conversion of shares of this Series, including questions as to the proper
completion or execution of any such form or any certification contained therein,
shall be resolved by the Corporation, whose determination shall be final and
binding. The Corporation shall not be required to deliver certificates for
shares of Common Stock while the stock transfer books for such stock or for this
Series are duly closed for any purpose or during any period commencing at a
Redemption Rescission Event and ending at either (i) the time and date at which
the Corporation's right of rescission shall expire pursuant to Section 4.5 if
the Corporation
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17
shall not have exercised such right or (ii) the close of
business on that day which is ten (10) Trading Days following the date on which
notice of rescission pursuant to Section 4.4 is deemed given pursuant to Section
8.2 if the Corporation shall have exercised such right of rescission, but
certificates for shares of Common Stock shall be delivered as soon as
practicable after the opening of such books or the expiration of such period.
3.6 The Conversion Rate shall be adjusted
from time to time as follows for events occurring after
January 26, 1995:
(a) In case the Corporation shall, at any time or from
time to time while any of the Series D Stock is outstanding, (i) pay a
dividend in shares of its Common Stock, (ii) combine its outstanding
shares of Common Stock into a smaller number of shares, (iii) subdivide
its outstanding shares of Common Stock or (iv) reclassify (other than by
way of a merger that is subject to Section 3.7) its shares of Common
Stock, then the Conversion Rate in effect immediately before such action
shall be adjusted so that immediately following such event the holders
of the Series D Stock shall be entitled to receive upon conversion or
exchange thereof the kind and amount of shares of Capital Stock of the
Corporation which they would have owned or been entitled to receive upon
or by reason of such event if such shares of Series D Stock had been
converted or exchanged immediately before the record date (or, if no
record date, the effective date) for such event (it being understood
that any distribution of cash or of Capital Stock (other than Common
Stock), including any distribution of Capital Stock that shall accompany
a reclassification of the Common Stock, shall be subject to Section 2.3
rather than this Section 3.6(a)). An adjustment made pursuant to this
Section 3.6(a) 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 or reclassification. For the
purposes of this Section 3.6(a), in the event that the holders of Common
Stock are entitled to make any election with respect to the kind or
amount of securities receivable by them in any transaction that is
subject to this Section 3.6(a) (including any election that would result
in all or a
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18
portion of the transaction becoming subject to Section 2.3),
the kind and amount of securities that shall be distributable to the
holders of the Series D Stock shall be based on (i) the election, if
any, made by the record holder (as of the date used for determining the
holders of Common Stock entitled to make such election) of the largest
number of shares of Series D Stock in writing to the Corporation on or
prior to the last date on which a holder of Common Stock may make such
an election or (ii) if no such election is timely made, an assumption
that such holder failed to exercise any such rights (provided that if
the kind or amount of securities is not the same for each nonelecting
holder, then the kind and amount of securities receivable shall be based
on the kind or amount of securities receivable by a plurality of
nonelecting holders of Common Stock). Concurrently with the mailing to
holders of Common Stock of any document pursuant to which such holders
may make an election of the type referred to in this Section, the
Corporation shall mail a copy thereof to the record holders of the
Series D Stock as of the date used for determining the holders of record
of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the
Conversion Rate in effect immediately prior to the Change of Control
Date shall be increased (but not decreased) by multiplying such rate by
a fraction as follows: (i) in the case of a Change of Control specified
in Section 1.5(a), a fraction in which the numerator is the Conversion
Price prior to adjustment pursuant hereto and the denominator is the
Current Market Price of the Common Stock at the Change of Control Date,
(ii) in the case of a Change of Control specified in Section 1.5(b), the
greater of the following fractions: (x) a fraction the numerator of
which is the highest price per share of Common Stock paid by the
Acquiring Person in connection with the transaction giving rise to the
Change of Control or in any transaction within six months prior to or
after the Change of Control Date (the "Highest Price"), and the
denominator of which is the Current Market Price of the Common Stock as
of the date (but not earlier than six months prior to the Change of
Control Date) on which the first public announcement is made by the
Acquiring Person that it intends to acquire or that it has acquired 40%
or more of the outstanding shares of
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19
Common Stock (the "Announcement Date") or (y) a fraction the
numerator of which is the Conversion Price prior to adjustment
pursuant hereto and the denominator of which is the
Current Market Price of the Common Stock on the Announcement Date and
(iii) in the case where there co-exists a Change of Control specified in
both Section 1.5(a) and Section 1.5(b), the greatest of the fractions
determined pursuant to clauses (i) and (ii). Such adjustment shall
become effective immediately after the Change of Control Date and shall
be made, in the case of clauses (ii) and (iii) above, successively for
six months thereafter in the event and at the time of any increase in
the Highest Price after the Change of Control Date; provided, however,
that no such successive adjustment shall be made with respect to the
Conversion Rate of the shares of this Series in respect of any event
occurring after the Conversion Date.
(c) The Corporation shall be entitled to make such
additional adjustments in the Conversion Rate, in addition to those
required by subsections 3.6(a) and 3.6(b), as shall be necessary in
order that any dividend or distribution in Common Stock or any
subdivision, reclassification or combination of shares of Common Stock
referred to above, shall not be taxable to the holders of Common Stock
for United States Federal income tax purposes so long as such additional
adjustments pursuant to this Section 3.6(c) do not decrease the
Conversion Rate.
(d) In any case in which this Section 3.6 shall require
that any adjustment be made effective as of or retroactively immediately
following a record date, the Corporation may elect to defer (but only
for five (5) Trading Days following the occurrence of the event which
necessitates the filing of the statement referred to in Section 3.6(f))
issuing to the holder of any shares of this Series converted after such
record date (i) the shares of Common Stock and other Capital Stock of
the Corporation issuable upon such conversion over and above (ii) the
shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion on the basis of the Conversion Rate prior
to adjustment; provided, however, that the Corporation shall deliver to
such holder a due bill or other appropriate instrument evidencing such
holder's
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20
right to receive such additional shares upon the occurrence of
the event requiring such adjustment.
(e) All calculations under this Section 3 shall be made to
the nearest cent, one-hundredth of a share or, in the case of the
Conversion Rate, one hundred-thousandth. Notwithstanding any other
provision of this Section 3, the Corporation shall not be required to
make any adjustment of the Conversion Rate unless such adjustment would
require an increase or decrease of at least 1.00000% of such Conversion
Rate. Any lesser adjustment shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which,
together with any adjustment or adjustments so carried forward, shall
amount to an increase or decrease of at least 1.00000% in such rate. Any
adjustments under this Section 3 shall be made successively whenever an
event requiring such an adjustment occurs.
(f) Whenever an adjustment in the Conversion Rate is
required, the Corporation shall forthwith place on file with its
transfer agent or agents for this Series a statement signed by a duly
authorized officer of the Corporation, stating the adjusted Conversion
Rate determined as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show the reason
for and the manner of computing such adjustment. Promptly after the
adjustment of the Conversion Rate, the Corporation shall mail a notice
thereof to each holder of shares of this Series.
(g) In the event that at any time as a result of an
adjustment made pursuant to this Section 3, the holder of any share of
this Series thereafter surrendered for conversion shall become entitled
to receive any shares of Capital Stock of the Corporation other than
shares of Common Stock, the conversion rate of such other shares so
receivable upon conversion of any such share of this Series shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to
Common Stock contained in subparagraphs (a) through (f) and (h) of this
Section 3.6, and the provisions of Section 3.1 through 3.5 and 3.7
through 3.10 shall apply on like or similar terms to any such other
shares and the determination of
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21
the Board of Directors as to any such adjustment shall be conclusive.
(h) No adjustment shall be made pursuant to this Section
3.6 (i) if the effect thereof would be to reduce the Conversion Price
below the par value of the Common Stock or (ii) subject to Section
3.6(c) hereof, with respect to any share of Series D Stock that is
converted, prior to the time such adjustment otherwise would be made.
3.7 In case after January 26, 1995 (a) any
consolidation or merger to which the Corporation is a party, other than a merger
or consolidation in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification of, or change
(other than a change in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of Series D Stock shall have the right thereafter, during
the period such share shall be convertible or exchangeable, to convert such
share into or have such share exchanged for the kind and amount of shares of
stock or other securities and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or exchanged
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (based on (i) the election, if any,
made in writing to the Corporation by the record holder (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of Series D Stock on or prior to the last date on which
a holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property
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22
receivable by a plurality of the nonelecting holders of Common Stock)). In the
event that any of the transactions referred to in clauses (a) or (b) involves
the distribution of cash (or property other than equity securities) to a holder
of Common Stock, lawful provision shall be made as part of the terms of the
transaction whereby the holder of each share of Series D Stock on the record
date fixed for determining holders of Common Stock entitled to receive such cash
or property (or if no such record date is established, the effective date of
such transaction) shall be entitled to receive the amount of cash or property
that such holder would have been entitled to receive had such holder converted
his shares of Series D Stock into Common Stock immediately prior to such record
date (or effective date) (based on the election or nonelection made by the
record holder of the largest number of shares of Series D Stock, as provided
above). Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election regarding the kind or amount
of securities or other property that will be receivable by such holder in any
transaction described in clause (a) or (b) of the first 6
sentence of this Section 3.7, the Corporation shall mail a copy thereof to the
holders of the Series D Stock as of the date used for determining the holders of
record of Common Stock entitled to such mailing. The Corporation shall not enter
into any of the transactions referred to in clauses (a) or (b) of the preceding
sentence unless effective provision shall be made in the certificate or articles
of incorporation or other constituent documents of the Corporation or the entity
surviving the consolidation or merger, if other than the Corporation, or the
entity acquiring the Corporation's assets, as the case may be, so as to give
effect to the provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive consolidations, mergers, sales
or conveyances. For purposes of this Section 3.7 the term "Corporation" shall
refer to the Corporation (as defined in Section 1.14) as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section.
3.8 The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its authorized
but unissued stock, for the purpose of effecting the conversion of the shares of
this Series, such number of its duly authorized shares of Common Stock (or, if
applicable, any other shares of Capital Stock of the Corporation) as shall from
time to time be sufficient to
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23
effect the conversion of all outstanding shares of this Series into such Common
Stock (or such other shares of Capital Stock) at any time (assuming that, at the
time of the computation of such number of shares, all such Common Stock (or such
other shares of Capital Stock) would be held by a single holder); provided,
however, that nothing contained herein shall preclude the Corporation from
satisfying its obligations in respect of the conversion of the shares by
delivery of purchased shares of Common Stock (or such other shares of Capital
Stock) that are held in the treasury of the Corporation. All shares of Common
Stock (or such other shares of Capital Stock of the Corporation) which shall be
deliverable upon conversion of the shares of this Series shall be duly and
validly issued, fully paid and nonassessable. For purposes of this Section 3,
any shares of Common Stock at any time outstanding shall not include shares held
in the treasury of the Corporation.
3.9 If any shares of Common Stock or other
shares of Capital Stock of the Corporation which would be issuable upon
conversion of shares of this Series hereunder require registration with or
approval of any governmental authority before such shares may be issued upon
conversion, the Corporation will in good faith and as expeditiously as possible
cause such shares to be duly registered or approved, as the case may be. The
Corporation will use commercially reasonable efforts to list the shares of (or
depositary shares representing fractional interests in) Common Stock or other
shares of Capital Stock of the Corporation required to be delivered upon
conversion of shares of this Series prior to such delivery upon the principal
national securities exchange upon which the outstanding Common Stock or such
other shares of Capital Stock is listed at the time of such delivery.
3.10 The Corporation shall pay any and all
issue or other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock or other shares of Capital Stock of the Corporation on
conversion of shares of this Series pursuant hereto. The Corporation shall not,
however, be required to pay any tax which is payable in respect of any transfer
involved in the issue or delivery of Common Stock or such other shares of
Capital Stock in a name other than that in which the shares of this Series so
converted were registered, and no such issue or delivery shall be made unless
and until the Person requesting such issue has paid to the Corporation the
amount of such tax, or
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24
has established, to the satisfaction of the Corporation,
that such tax has been paid.
3.11 In case of (i) the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, (ii) any
Pro Rata Repurchase or (iii) any action triggering an adjustment to the
Conversion Rate pursuant to this Section 3, then, in each case, the Corporation
shall cause to be filed with the transfer agent or agents for the Series D
Stock, and shall cause to be mailed, first-class postage prepaid, to the holders
of record of the outstanding shares of Series D Stock, at least fifteen (15)
days prior to the applicable record date for any such transaction (or if no
record date will be established, the effective date thereof), a notice stating
(x) the date, if any, on which a record is to be taken for the purpose of any
such transaction (or, if no record date will be established, the date as of
which holders of record of Common Stock entitled to participate in such
transaction are determined), and (y) the expected effective date thereof.
Failure to give such notice or any defect therein shall not affect the legality
or validity of the proceedings described in this Section 3.11.
4. Redemption or Exchange.
4.1 (a) The Corporation may, at its sole
option, subject to Section 2.2 hereof, from time to time on and after the fifth
anniversary of the Effective Time in the case of clause (i) or (iii) of Section
4.1(b), and on and after the fourth anniversary, in the case of clause (ii) of
Section 4.1(b), redeem, out of funds legally available therefor, or, as provided
below, exchange shares of Common Stock for, all (or in the case of Section
4.1(b)(i), any part) of the outstanding shares of this Series. The redemption
price for each share of this Series called for redemption pursuant to clause (i)
of Section 4.1(b) shall be the Liquidation Value together with an amount equal
to the accrued and unpaid dividends to the date fixed for redemption
(hereinafter collectively referred to as the "Redemption Price"). The exchange
price for each share of this Series called for exchange pursuant to clause (ii)
of Section 4.1(b) shall be a number of shares of Common Stock equal to the
Conversion Rate, together with, at the option of the Corporation, either (x)
cash or (y) a number of shares of Common Stock, valued at the Closing Price on
the Trading Day immediately preceding the date fixed for exchange, equal, in
either case, to the aggregate amount of
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25
accrued and unpaid dividends on the Series D Stock to the date fixed for
exchange (provided that any dividends which are in arrears must be paid in cash)
(hereinafter collectively referred to as the "Exchange Price").
(b) On the date fixed for redemption or exchange
the Corporation shall, at its option, effect either
(i) a redemption of the shares of this Series to be
redeemed by way of payment, out of funds legally available therefor, of
cash equal to the aggregate Redemption Price for the shares of this
Series then being redeemed;
(ii) an exchange of the shares of this Series for the
Exchange Price in shares of Common Stock (provided that the Corporation
(A) shall be entitled to deliver cash (1) in lieu of any fractional
share of Common Stock (determined in a manner consistent with Section
3.3) and (2) equal to accrued and unpaid dividends to the date fixed for
exchange in lieu of shares of Common Stock and (B) shall be required to
deliver cash in respect of any dividends that are in arrears); or
(iii) any combination thereof with respect to each share
of this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series D Stock
for Common Stock or other shares of Capital Stock of the Corporation only to the
extent that duly and validly issued, fully paid and nonassessable shares of
Common Stock (or such other shares of Capital Stock) shall be available for
issuance (including delivery of previously issued shares of Common Stock held in
the Corporation's treasury on the date fixed for exchange). The Corporation
shall comply with Section 3.9 and 3.10 with respect to shares of Common Stock or
other shares of Capital Stock of the Corporation which would be issuable upon
exchange of shares of this Series. Certificates for shares of Common Stock
issued in exchange for surrendered shares of this Series pursuant to this
Section 4.1 shall be made available by the Corporation not later than the fifth
Trading Day following the date for exchange.
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26
4.2 In the event that fewer than all the
outstanding shares of this Series are to be redeemed pursuant to Section
4.1(b)(i), the number of shares to be redeemed from each holder of shares of
this Series shall be determined by the Corporation by lot or pro rata or by any
other method as may be determined by the Board of Directors in its sole
discretion to be equitable, and the certificate of the Corporation's Secretary
or an Assistant Secretary filed with the transfer agent or transfer agents for
this Series in respect of such determination by the Board of Directors shall be
conclusive.
4.3 In the event the Corporation shall
redeem or exchange shares of this Series pursuant to Section 4.1, notice of such
redemption or exchange shall be given by first class mail, postage prepaid,
mailed not less than fifteen (15) nor more than sixty (60) days prior to the
date fixed for redemption or exchange, as the case may be, to each record holder
of the shares to be redeemed or exchanged, at such holder's address as the same
appears on the books of the Corporation. Each such notice shall state: (i)
whether the shares of this Series are to be redeemed or exchanged; (ii) the time
and date as of which the redemption or exchange shall occur; (iii) the total
number of shares of this Series to be redeemed or exchanged and, if fewer than
all the shares held by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (iv) the Redemption Price or the Exchange
Price, as the case may be; (v) that shares of this Series called for redemption
or exchange may be converted at any time prior to the time and date fixed for
redemption or exchange (unless the Corporation shall, in the case of a
redemption, default in payment of the Redemption Price or, in the case of an
exchange, fail to exchange the shares of this Series for the applicable number
of shares of Common Stock and any cash portion of the Exchange Price or shall
exercise its right to rescind such redemption pursuant to Section 4.5, in which
case such right of conversion shall not terminate at such time and date); (vi)
the applicable Conversion Price and Conversion Rate; (vii) the place or places
where certificates for such shares are to be surrendered for payment of the
Redemption Price, in the case of redemption, or for delivery of certificates
representing the shares of Common Stock and the payment of any cash portion of
the Exchange Price, in the case of exchange; and (viii) that dividends on the
shares of this Series to be redeemed or exchanged will cease to accrue on such
redemption or exchange date.
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27
4.4 If notice of redemption or exchange
shall have been given by the Corporation as provided in Section 4.3, dividends
on the shares of this Series so called for redemption or exchange shall cease to
accrue, such shares shall no longer be deemed to be outstanding, and all rights
of the holders thereof as stockholders of the Corporation with respect to shares
so called for redemption or exchange (except (i) in the case of redemption, the
right to receive from the Corporation the Redemption Price without interest and
in the case of exchange, the right to receive from the Corporation the Exchange
Price without interest and (ii) the right to convert such shares in accordance
with Section 3) shall cease (including any right to receive dividends otherwise
payable on any Dividend Payment Date that would have occurred after the time and
date of redemp- tion or exchange) either (i) in the case of a redemption or
exchange pursuant to Section 4.1, from and after the time and date fixed in the
notice of redemption or exchange as the time and date of redemption or exchange
(unless the Corporation shall (x) in the case of a redemption, default in the
payment of the Redemption Price, (y) in the case of an exchange, fail to
exchange the applicable number of shares of Common Stock and any cash portion of
the Exchange Price or (z) exercise its right to rescind such redemption pursuant
to Section 4.5, in which case such rights shall not terminate at such time and
date) or (ii) if the Corporation shall so elect and state in the notice of
redemption or exchange, from and after the time and date (which date shall be
the date fixed for redemption or exchange or an earlier date not less than
fifteen (15) days after the date of mailing of the redemption or exchange
notice) on which the Corporation shall irrevocably deposit with a designated
bank or trust company doing business in the Borough of Manhattan, City and State
of New York, as paying agent, money sufficient to pay at the office of such
paying agent, on the redemption date, the Redemption Price, in the case of
redemption, or certificates representing the shares of Common Stock to be so
exchanged and any cash portion of the Exchange Price, in the case of an
exchange. Any money or certificates so deposited with any such paying agent
which shall not be required for such redemption or exchange because of the
exercise of any right of conversion or otherwise shall be returned to the
Corporation forthwith. Upon surrender (in accordance with the notice of
redemption or exchange) of the certificate or certificates for any shares of
this Series to be so redeemed or exchanged (properly endorsed or assigned for
transfer, if the Corporation shall so require and the notice of redemption or
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28
exchange shall so state), such shares shall be redeemed or exchanged by the
Corporation at the Redemption Price or the Exchange Price, as applicable, as set
forth in Section 4.1 (unless the Corporation shall have exercised its right to
rescind such redemption pursuant to Section 4.5). In case fewer than all the
shares represented by any such certifi- cate are to be redeemed, a new
certificate shall be issued representing the unredeemed shares (or fractions
thereof as provided in Section 8.4), without cost to the holder thereof,
together with the amount of cash, if any, in lieu of fractional shares other
than those issuable in accordance with Section 8.4. Subject to applicable
escheat laws, any moneys so set aside by the Corporation in the case of
redemption 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 shares so called for redemption or exchange shall look only to
the general funds of the Corporation for the payment of the Redemption Price or
the Exchange Price, as applicable, without interest. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time.
4.5 In the event that a Redemption
Rescission Event shall occur following any day on which a notice of redemption
shall have been given pursuant to Section 4.3 but at or prior to the earlier of
(a) the time and date fixed for redemption as set forth in such notice of
redemption and (b) the time and date at which the Corporation shall have
irrevocably deposited funds or certificates with a designated bank or trust
company pursuant to Section 4.4, the Corporation may, at its sole option, at any
time prior to the earliest of (i) the close of business on that day which is two
(2) Trading Days following such Redemption Rescission Event, (ii) the time and
date fixed for redemption as set forth in such notice and (iii) the time and
date on which the Corporation shall have irrevocably deposited such funds with a
designated bank or trust company, rescind the redemption under Section 4.1(b)(i)
to which such notice of redemption shall have related by making a public
announcement of such rescission (the date on which such public announcement
shall have been made being hereinafter referred to as the "Rescission Date").
The Corporation shall be deemed to have made such announcement if it shall issue
a release to the Dow Jones News Service, Reuters Information Services or any
successor news wire service. From and after the making of such announcement, the
Corporation shall have no obligation
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29
to redeem shares of this Series called for redemption pursuant to such notice of
redemption or to pay the redemption price therefor and all rights of holders of
shares of this Series shall be restored as if such notice of redemption had not
been given. The Corporation shall give notice of any such rescission by one of
the means specified in Section 8.2 as promptly as practicable, but in no event
later than the close of business on that date which is five (5) Trading Days
following the Rescission Date to each record holder of shares of this Series at
the close of business on the Rescission Date and to any other Person or entity
that was a record holder of shares of this Series and that shall have
surrendered shares of this Series for conversion following the giving of notice
of the subsequently rescinded redemption. Each notice of rescission shall (w)
state that the redemption described in the notice of redemption has been
rescinded, (x) state that any Converting Holder shall be entitled to rescind the
conversion of shares of this Series surrendered for conversion following the day
on which notice of redemption was given but prior to the close of business on
the later of (1) the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (2)
the Trading Day on which the Corporation's notice of rescission is deemed given
pursuant to Section 8.2, (y) be accompanied by a form prescribed by the
Corporation to be used by any Converting Holder rescinding the conversion of
shares so surrendered for conversion (and instructions for the completion and
delivery of such form, including instructions with respect to payments that may
be required to accompany such delivery shall be in accordance with Section 3.5)
and (z) state that such form must be properly completed and received by the
Corporation no later than the close of business on a date that shall be ten (10)
Trading Days following the date of the mailing of such notice of rescission is
deemed given pursuant to Section 8.2.
4.6 The shares of this Series shall not be
subject to the provisions of Section 5 of Article IV of the
Certificate of Incorporation.
5. Pro Rata Repurchase.
5.1 Upon a Pro Rata Repurchase, each holder
of shares of this Series shall have the right to require that the Corporation
repurchase, out of funds legally available therefor, a Pro Rata Portion (as
defined below) of
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30
the shares of such holder, or any lesser number requested by
the holder, at a price per share equal to the highest price per share of Common
Stock paid in the Pro Rata Repurchase multiplied by the Conversion Rate then in
effect plus an amount equal to the accrued but unpaid dividends on such shares
to the date of repurchase.
5.2 At any time prior to or within thirty
(30) days following any Pro Rata Repurchase, the Corporation shall mail a notice
to each holder of shares of this Series stating:
(a) that a Pro Rata Repurchase will occur or has occurred and
that such holder will have (upon such Pro Rata Repurchase) or has the
right to require the Corporation to repurchase such holder's shares in
an amount not in excess of the Pro Rata Portion at a repurchase price in
cash determined as set forth above plus an amount equal to accrued and
unpaid dividends, if any, to the date of repurchase;
(b) the repurchase date for the Series D Stock (which shall be no
earlier than fifteen (15) days nor later than sixty (60) days from the
date such notice is mailed); and
(c) the instructions determined by the Corporation, consistent
with this Section, that a holder must follow in order to have its shares
repurchased.
5.3 Holders electing to have any shares
repurchased will be required to surrender such shares, with an appropriate form
duly completed, to the Corporation at the address specified in the notice at
least five (5) days prior to the repurchase date. Holders will be entitled to
withdraw their election if the Corporation receives, not later than three (3)
days prior to the repurchase date, a telegram, telex, facsimile transmission or
letter setting forth the name of the holder, the certificate numbers of the
shares delivered for purchase by the holder and a statement that such holder is
withdrawing his election to have such shares repurchased. Holders will have such
additional withdrawal and other rights as may be required pursuant to applicable
law.
5.4 On the repurchase date, the Corporation
shall (i) pay the repurchase price plus an amount equal to
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31
accrued and unpaid dividends as provided in Section 5.1, if any, to the holders
entitled thereto and (ii) issue to such holders any equity securities of the
Corporation (other than Common Stock) that would at the time be issuable upon
conversion of the shares of Series D Stock which are then being repurchased
pursuant hereto.
5.5 The Board of Directors will not approve
any tender or exchange offer by the Corporation or a third party for shares of
Common Stock or recommend that the holders of Common Stock accept any offer or
tender their shares into any offer unless a Pro Rata Portion of the shares of
this Series of all holders are entitled to be tendered into such offer at a
price not less than the price per share for shares of Common Stock pursuant to
such offer multiplied by the Conversion Rate then in effect plus an amount equal
to accrued but unpaid dividends on such shares to the date of payment for such
shares in such tender or exchange offer.
5.6 For purposes hereof, "Pro Rata Portion"
with respect to the shares of this Series held by any holder shall mean all the
shares of this Series then owned by such holder times a fraction, the numerator
of which is the number of outstanding shares of Common Stock (a) purchased in
the applicable Pro Rata Repurchase or (b) for which a tender or exchange offer
referred to in Section 5.5 is made, as the case may be, and the denominator of
which is the number of outstanding shares of Common Stock immediately prior to
such Pro Rata Repurchase or the commencement of such tender or exchange offer,
as the case may be.
6. Voting. The shares of this Series shall have
no voting rights except as required by law or as set forth
below.
6.1 Each share of this Series shall be enti-
tled to vote together with holders of the shares of Common Stock (and any other
class or series which may similarly be entitled to vote with the shares of
Common Stock) as a single class upon all matters upon which holders of Common
Stock are entitled to vote. In any such vote, the holders of this Series shall
be entitled to two (2) votes per $100 of Liquidation Value of Series D Stock,
subject to adjustment at the same time and in the same manner as each adjustment
of the Conversion Rate pursuant to Section 3, so that the holders of this Series
shall be entitled following such adjustment to the number of votes equal to the
number
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32
of votes such holders were entitled to under this Section 6.1 immediately
prior to such adjustment multiplied by a fraction (x) the numerator of which is
the Conversion Rate as adjusted pursuant to Section 3 and (y) the denominator of
which is the Conversion Rate immediately prior to such adjustment.
6.2(a) So long as any shares of this Series
remain outstanding, unless a greater percentage shall then be required by law,
the Corporation shall not, without the affirmative vote at a meeting or the
written consent with or without a meeting of the holders of shares of this
Series representing at least 66-2/3% of the aggregate voting power of shares of
this Series then outstanding (i) authorize any Senior Stock or reclassify (by
merger, consolidation or otherwise) any Junior Stock or Parity Stock as Senior
Stock, (ii) merge into or consolidate with any Person where the surviving or
continuing corporation will have any authorized Senior Stock (other than capital
stock corresponding to shares of Senior Stock of the Corporation existing
immediately before such merger or consolidation) or (iii) amend, alter or repeal
(by operation of law or otherwise) any of the provisions of the Certificate or
the Certificate of Incorporation, so as in any such case to adversely affect the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions of the
shares of this Series.
(b) No consent of holders of shares of this
Series shall be required for (i) the creation of any indebtedness of any kind of
the Corporation, (ii) the authorization or issuance of any class of Junior Stock
or Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series D Stock or (iv) subject to Section 6.2(a), the authorization or
issuance of any other shares of Preferred Stock.
6.3(a) If and whenever at any time or times
dividends payable on shares of this Series shall have been in arrears and unpaid
in an aggregate amount equal to or exceeding the amount of dividends payable
thereon for six quarterly dividend periods, then the number of directors
constituting the Board of Directors shall be increased by two and the holders of
shares of this Series, together with the holders of any shares of any Parity
Stock as to which in each case dividends are in arrears and unpaid in an
aggregate amount equal to or exceeding the amount of
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33
dividends payable thereon for six quarterly dividend periods, shall have the
exclusive right, voting separately as a class with such other series, to elect
two directors of the Corporation.
(b) Such voting right may be exercised
initially either by written consent or at a special meeting of the holders of
the Preferred Stock having such voting right, called as hereinafter provided, or
at any annual meeting of stockholders held for the purpose of electing
directors, and thereafter at each such annual meeting until such time as all
dividends in arrears on the shares of this Series shall have been paid in full
and all dividends payable on the shares of this Series on four subsequent
consecutive Dividend Payment Dates shall have been paid in full on such dates or
funds shall have been set aside for the payment thereof, at which time such
voting right and the term of the directors elected pursuant to Section 6.3(a)
shall terminate.
(c) At any time when such voting right
shall have vested in holders of shares of such series of Preferred Stock
described in Section 6.3(a), and if such right shall not already have been
exercised by written consent, a proper officer of the Corporation may call, and,
upon the written request, addressed to the Secretary of the Corporation, of the
record holders of shares representing ten percent (10%) of the voting power of
the shares then outstanding of such Preferred Stock having such voting right,
shall call, a special meeting of the holders of such Preferred Stock having such
voting right. Such meeting shall be held at the earliest practicable date upon
the notice required for annual meetings of stockholders at the place for holding
annual meetings of stockholders of the Corporation, or, if none, at a place
designated by the Board of Directors. Notwithstanding the provisions of this
Section 6.3(c), no such special meeting shall be called during a period within
60 days immediately preceding the date fixed for the next annual meeting of
stockholders.
(d) At any meeting held for the purpose of
electing directors at which the holders of such Preferred Stock shall have the
right to elect directors as provided herein, the presence in Person or by proxy
of the holders of shares representing more than fifty percent (50%) in voting
power of the then outstanding shares of such Preferred Stock having such right
shall be required and shall be sufficient
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34
to constitute a quorum of such class for the election of directors
by such class.
(e) Any director elected by holders of
Preferred Stock pursuant to the voting right created under this Section 6.3
shall hold office until the next annual meeting of stockholders (unless such
term has previously terminated pursuant to Section 6.3(b)) and any vacancy in
respect of any such director shall be filled only by vote of the remaining
director so elected, or if there be no such remaining director, by the holders
of such Preferred Stock entitled to elect such director or directors by written
consent or at a special meeting called in accordance with the procedures set
forth in Section 6.3(c), or, if no special meeting is called or written consent
executed, at the next annual meeting of stockholders. Upon any termination of
such voting right, subject to applicable law, the term of office of all
directors elected by holders of such Preferred Stock voting separately as a
class pursuant to this Section 6.3 shall terminate.
(f) In exercising the voting rights set
forth in this Section 6.3, each share of this Series shall have a number of
votes equal to its Liquidation Value.
7. Liquidation Rights.
7.1 Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the holders of
the shares of this Series shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, in preference to the
holders of, and before any payment or distribution shall be made on, Junior
Stock, the amount of $100 per share (the "Liquidation Value"), plus an amount
equal to all accrued and unpaid dividends to the date of final distribution.
7.2 Neither the sale, exchange or other con-
veyance (for cash, shares of stock, securities or other consideration) of all or
substantially all the property and assets of the Corporation nor the merger or
consolidation of the Corporation into or with any other corporation, or the
merger or consolidation of any other corporation into or with the Corporation,
shall be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 7.
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35
7.3 After the payment to the holders of the
shares of this Series of full preferential amounts provided for in this Section
7, the holders of this Series as such shall have no right or claim to any of the
remaining assets of the Corporation.
7.4 In the event the assets of the Corpora-
tion available for distribution to the holders of shares of this Series upon any
dissolution, liquidation or winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to Section 7.1, no such distribution shall be made
on account of any shares of any Parity Stock upon such dissolution, liquidation
or winding up unless proportionate distributive amounts shall be paid on account
of the shares of this Series, ratably, in proportion to the full distributable
amounts for which holders of all Parity Stock are entitled upon such
dissolution, liquidation or winding up.
8. Other Provisions.
8.1 All notices from the Corporation to the
holders shall be given by one of the methods specified in Section 8.2. With
respect to any notice to a holder of shares of this Series required to be
provided hereunder, neither failure to give such notice, nor any defect therein
or in the transmission thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings referred to in such
notice with respect to the other holders or affect the legality or validity of
any distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any such action. Any notice which was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives the notice.
8.2 All notices and other communications
hereunder shall be deemed given (i) on the first Trading Day following the date
received, if delivered personally, (ii) on the Trading Day following timely
deposit with an overnight courier service, if sent by overnight courier
specifying next day delivery and (iii) on the first Trading Day that is at least
five days following deposit in the mails, if sent by first class mail to (x) a
holder at its last address as it appears on the transfer records or registry for
the Series D Stock and (y) the Corporation at
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36
the following address (or at such other address as the Corporation shall specify
in a notice pursuant to this Section): Time Warner Inc., 75 Rockefeller Plaza,
New York, New York 10019, Attention: General Counsel.
8.3 Any shares of this Series which have
been converted, redeemed, exchanged or otherwise acquired by the Corporation
shall, after such conversion, redemption, exchange or acquisition, as the case
may be, be retired and promptly cancelled and the Corporation shall take all
appropriate action to cause such shares to obtain the status of authorized but
unissued shares of Preferred Stock, without designation as to series, until such
shares are once more designated as part of a particular series by the Board of
Directors. The Corporation may cause a certificate setting forth a resolution
adopted by the Board of Directors that none of the authorized shares of this
Series are outstanding to be filed with the Secretary of State of the State of
Delaware. When such certificate becomes effective, all references to Series D
Stock shall be eliminated from the Certificate of Incorporation and the shares
of Preferred Stock designated hereby as Series D Stock shall have the status of
authorized and unissued shares of Preferred Stock and may be reissued as part of
any new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors.
8.4 The shares of this Series shall be issu-
able in whole shares or, if authorized by the Board of Directors (or any
authorized committee thereof), in any fraction of a whole share so authorized or
any integral multiple of such fraction.
8.5 The Corporation shall be entitled to
recognize the exclusive right of a Person registered on its records as the
holder of shares of this Series, and such record holder shall be deemed the
holder of such shares for all purposes.
8.6 All notice periods referred to in the
Certificate shall commence on the date of the mailing of the applicable notice.
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37
8.7 Certificates for shares of this Series
shall bear such legends as the Corporation shall from time to time deem
appropriate.
IN WITNESS WHEREOF, Time Warner Inc. has
caused this certificate to be signed and attested this
6th day of July, 1995.
TIME WARNER INC.,
by ______________________________
Name:
Title:
Attest: ______________________
Name:
Title:
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CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES E CONVERTIBLE
PREFERRED STOCK
OF
TIME WARNER INC.
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Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
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TIME WARNER INC., a corporation organized and existing
by virtue of the General Corporation Law of the State of Delaware (as
defined below, the "Corporation"), does hereby certify that the
following resolution was duly adopted by action of the Board of
Directors of the Corporation at a meeting duly held on February 6,
1995.
RESOLVED that pursuant to the authority expressly
granted to and vested in the Board of Directors of the Corporation by
the provisions of Section 2 of Article IV of the Restated Certificate
of Incorporation of the Corporation, as amended from time to time (the
"Certificate of Incorporation"), and Section 151(g) of the General
Corporation Law of the State of Delaware, such Board of Directors
hereby creates, from the authorized shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock"), of the Corporation
authorized to be issued pursuant to the Certificate of Incorporation,
a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, of the shares of such series as follows:
The series of Preferred Stock hereby established shall
consist of 3,250,000 shares designated as Series E Convertible
Preferred Stock, together with such additional shares as may be
authorized and issued from time to time pursuant to the terms of the
Merger Agreement referred to
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below. The rights, preferences and limitations of such series shall be
as follows:
1. Definitions. As used herein, the following
terms shall have the indicated meanings:
1.1 "Accrued Dividend Amount" shall have
the meaning set forth in Section 3.1 thereof.
1.2 "Board of Directors" shall mean the
Board of Directors of the Corporation or, with respect to any action
to be taken by the Board of Directors, any committee of the Board of
Directors duly authorized to take such action.
1.3 "Capital Stock" shall mean any and all
shares of corporate stock of a Person (however designated and whether
representing rights to vote, rights to participate in dividends or
distributions upon liquidation or otherwise with respect to such
Person, any division or subsidiary thereof, or any joint venture,
partnership, corporation or other entity).
1.4 "Certificate" shall mean the
certificate of the voting powers, designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of Series E
Convertible Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section
151 of the General Corporation Law of the State of Delaware.
1.5 "Change of Control" and "Change of
Control Date" shall have the following meanings: "Change of Control"
shall mean the occurrence of one or both of the following events: (a)
individuals who would constitute a majority of the members of the
Board of Directors elected at any meeting of stockholders or by
written consent (without regard to any members of the Board of
Directors elected pursuant to the terms of any series of Preferred
Stock) shall be elected to the Board of Directors and the election or
the nomination for election by the Corporation's stockholders of such
directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b)
a Person or group of Persons acting in concert as a partnership,
limited partnership, syndicate or other group within the
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meaning of Rule 13d-3 under the Exchange Act (the "Acquiring Person")
shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases, share repurchases,
redemptions or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the
outstanding shares of Common Stock (in which event "Change of Control
Date" shall mean the date of the event resulting in such 40%
ownership).
1.6 "Closing Price" of the Common Stock
shall mean the last reported sale price of the Common Stock (regular
way) as shown on the Composite Tape of the NYSE, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices on the NYSE, or, if the Common Stock is not listed or admitted
to trading on the NYSE, on the principal national securities exchange
on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securi- ties exchange,
the last reported sale price of the Common Stock, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices, in either case as reported by NASDAQ.
1.7 "Common Stock" shall mean the class of
Common Stock, par value $1.00 per share, of the Corporation authorized
at the date of the Certificate, or any other class of stock resulting
from (x) successive changes or reclassifications of such Common Stock
consisting of changes in par value, or from par value to no par value,
(y) a subdivision or combination or (z) any other changes for which an
adjustment is made under Section 3.6(a), and in any such case
including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other
securities of the Corporation which are at the time represented by the
certificates representing such shares of Common Stock.
1.8 "Conversion Date" shall have the
meaning set forth in Section 3.6 hereof.
1.9 "Conversion Price" shall have the
meaning set forth in Section 3.1 hereof.
1.10 "Conversion Rate" shall have the
meaning set forth in Section 3.1 hereof.
1.11 "Converting Holder" shall have the
meaning set forth in Section 3.5 hereof.
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1.12 "Corporation" shall mean Time Warner
Inc., a Delaware corporation, and any of its successors by operation
of law, including by merger, consolidation or sale or conveyance of
all or substantially all of its property and assets.
1.13 "Current Market Price" of the Common
Stock on any date shall mean the average of the daily Closing Prices
per share of the Common Stock for the five (5) consecutive Trading
Days ending on the Trading Day immediately preceding the applicable
record date, conversion date, redemption date or exchange date
referred to in
Section 3 or Section 4.
1.14 "Dividend Payment Date" shall have the
meaning set forth in Section 2.1 hereof.
1.15 "Effective Time" shall mean the time
of filing of a certificate of merger with the Secretary of State of
the State of Delaware pursuant to Section 2.02 of the Merger Agreement
(or if later the time of effectiveness specified in such certificate
of merger).
1.16 "Exchange Price" shall have the
meaning set forth in Section 4.1 hereof.
1.17 "Junior Stock" shall mean the Common
Stock, the Series A Stock and the shares of any other class or series
of Capital Stock of the Corporation which, by the terms of the
Certificate of Incorporation or of the instrument by which the Board
of Directors, acting pursuant to authority granted in the Certificate
of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall be junior to the Series E Stock in respect
of the right to receive dividends or to participate in any
distribution of assets other than by way of dividends.
1.18 "Liquidation Value" shall have the
meaning set forth in Section 7.1 hereof.
1.19 "Merger Agreement" shall mean the
Agreement and Plan of Merger dated as of February 6, 1995, among
Cablevision Industries Corporation, Alan Gerry, the Corporation and TW
CVI Acquisition Corp., as the same may be amended from time to time.
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1.20 "NASDAQ" shall mean the National
Association of Securities Dealers Automated Quotation
System.
1.21 "NYSE" shall mean the New York Stock
Exchange, Inc.
1.22 "Parity Stock" shall mean the Series B
Stock, the Series C Stock, Series D Stock, Series F Stock and the
shares of any other class or series of Capital Stock of the
Corporation which, by the terms of the Certificate of Incorporation or
of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall, in the
event that the stated dividends thereon are not paid in full, be
entitled to share ratably with the Series E Stock in the payment of
dividends, including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were
declared and paid in full, or shall, in the event that the amounts
payable thereon on liquidation are not paid in full, be entitled to
share rat- ably with the Series E Stock in any distribution of assets
other than by way of dividends in accordance with the sums which would
be payable in such distribution if all sums payable were discharged in
full; provided, however, that the term "Parity Stock" shall be deemed
to refer (i) in Section 2.2 hereof, to any stock which is Parity Stock
in respect of dividend rights; (ii) in Section 6 hereof, to any stock
which is Parity Stock in respect of the distribution of assets; and
(iii) in Sections 5.2 and 5.3 hereof, to any stock which is Parity
Stock in respect of either dividend rights or the distribution of
assets and which, pursuant to the Certificate of Incorporation or any
instrument in which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall so
designate, is entitled to vote with the holders of Series E Stock.
1.23 "Person" shall mean an individual,
corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
1.24 "Pro Rata Repurchase" shall mean the
purchase of shares of Common Stock by the Corporation or by any of its
subsidiaries, whether for cash or other property or securities of the
Corporation, which purchase is subject to Section 13(e) of the
Exchange Act or is made pursuant to an offer made available to all
holders of Common Stock, but
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excluding any purchase made in open market transactions that satisfies
the conditions of clause (b) of Rule 10b-18 under the Exchange Act or
has been designed (as reasonably determined by the Board of Directors
or a committee thereof) to prevent such purchase from having a
material effect on the trading market of the Common Stock. The
"Effective Date" of a Pro Rata Repurchase shall mean the applicable
expiration date (including all extensions thereof) of any tender or
exchange offer which is a Pro Rata Repurchase or the date of purchase
with respect to any Pro Rata Repurchase which is not a tender or
exchange offer.
1.25 "Record Date" shall have the meaning
set forth in Section 2.1 hereof.
1.26 "Redemption Price" shall have the
meaning set forth in Section 4.1 hereof.
1.27 "Redemption Rescission Event" shall
mean the occurrence of (a) any general suspension of trading in, or
limitation on prices for, securities on the principal national
securities exchange on which shares of Common Stock are registered and
listed for trading (or, if shares of Common Stock are not registered
and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6-1/2) consecutive trading
hours, (b) any decline in either the Dow Jones Industrial Average or
the Standard & Poor's Index of 400 Industrial Companies (or any
successor index published by Dow Jones & Company, Inc. or Standard &
Poor's Corporation) by either (i) an amount in excess of 10%, measured
from the close of business on any Trading Day to the close of business
on the next succeeding Trading Day during the period commencing on the
Trading Day preceding the day notice of any redemption of shares of
this Series is given (or, if such notice is given after the close of
business on a Trading Day, commencing on such Trading Day) and ending
at the earlier of (x) the time and date fixed for redemption in such
notice and (y) the time and date at which the Corporation shall have
irrevocably deposited funds with a designated bank or trust company
pursuant to Section 4.4 or (ii) an amount in excess of 15% (or, if the
time and date fixed for redemption is more than 15 days following the
date on which notice of redemption is given, 20%), measured from the
close of business on the Trading Day preceding the day notice of such
redemption is given (or, if such notice is given after the close of
business on a Trading Day, from such Trading Day) to the close of
business on any Trading Day on or prior to
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the earlier of the dates specified in clauses (x) and (y) above, (c) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by Federal or state authorities in the United States
or (d) the commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving
the United States which in the reasonable judgment of the Corporation
could have a material adverse effect on the market for the Common
Stock.
1.28 "Rescission Date" shall have the
meaning set forth in Section 4.5 hereof.
1.29 "Senior Stock" shall mean the shares
of any class or series of Capital Stock of the Corporation which, by
the terms of the Certificate of Incorporation or of the instrument by
which the Board of Directors, acting pursuant to authority granted in
the Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be senior to the Series E
Stock in respect of the right to receive dividends or to participate
in any distribution of assets other than by way of dividends.
1.30 "Series A Stock" shall mean the series
of Preferred Stock authorized and designated as Series A Participating
Preferred Stock at the date of the Certifi- cate, including any shares
thereof authorized and designated after the date of the Certificate.
1.31 "Series B Stock" shall mean the series
of Preferred Stock authorized and designated as Series B 6.40%
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.32 "Series C Stock" shall mean the series
of Preferred Stock authorized and designated as Series C Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.33 "Series D Stock" shall mean the series
of Preferred Stock authorized and designated as Series D Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
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1.34 "Series E Stock" and "this Series"
shall mean the series of Preferred Stock authorized and designated as
the Series E Convertible Preferred Stock, including any shares thereof
authorized and designated after the date of the Certificate.
1.35 "Series F Stock" shall mean the series
of Preferred Stock authorized and designated as Series F Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.36 "Surrendered Shares" shall have the
meaning set forth in Section 3.5 hereof.
1.37 "Trading Day" shall mean, so long as
the Common Stock is listed or admitted to trading on the NYSE, a day
on which the NYSE is open for the transaction of business, or, if the
Common Stock is not listed or admitted to trading on the NYSE, a day
on which the principal national securities exchange on which the
Common Stock is listed is open for the transaction of business, or, if
the Common Stock is not so listed or admitted for trading on any
national securities exchange, a day on which the National Market
System of NASDAQ is open for the transaction of business.
2. Cash Dividends.
2.1 The holders of the outstanding Series E
Stock shall be entitled to receive quarter-annual dividends, as and
when declared by the Board of Directors out of funds legally available
therefor. Each quarter-annual dividend shall be an amount per share
equal to (i) in the case of each Dividend Payment Date (as defined
below) occurring after the Effective Time through the Dividend Payment
Date coinciding with the fifth anniversary of the Effective Time, the
greater of (A) $.9375 per $100 of Liquidation Value of Series E Stock
(which is equivalent to $3.75 per annum), and (B) an amount per $100
of Liquidation Value of Series E Stock equal to the product of (1) the
Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period
from but excluding the immediately preceding Dividend Payment Date to
and including such Dividend Payment Date and (ii) in the case of each
Dividend Payment Date occurring thereafter, an amount per share of
Series E Stock equal to the product of (1) the Conversion Rate and (2)
the aggregate
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per share amount of regularly scheduled dividends paid
in cash on the Common Stock during the period from but excluding the
immediately preceding Dividend Payment Date to and including such
Dividend Payment Date. All dividends shall be payable in cash on or
about the first day of March, June, September and December in each
year, beginning on the first such date that is more than 15 days after
the Effective Time, as fixed by the Board of Directors, or such other
dates as are fixed by the Board of Directors (provided that the fifth
anniversary of the Effective Time shall be a Dividend Payment Date)
(each a "Dividend Payment Date"), to the holders of record of Series E
Stock at the close of business on or about the Trading Day next
preceding such first day of March, June, September and December (or
fifth anniversary of the Effective Time) as the case may be, as fixed
by the Board of Directors, or such other dates as are fixed by the
Board of Directors (each a "Record Date"). In the case of dividends
payable in respect of periods prior to the fifth anniversary of the
Effective Time, (i) such dividends shall accrue on each share on a
daily basis, whether or not there are unrestricted funds legally
available for the payment of such dividends and whether or not
declared, from and after the day immediately succeeding the Effective
Time and (ii) any such dividends that become payable for any partial
dividend period shall be computed on the basis of the actual days
elapsed in such period. From and after the fifth anniversary of the
Effective Time, dividends on the Series E Stock (determined as to
amount as provided herein) shall accrue to the extent, but only to the
extent, that regularly scheduled cash dividends are declared by the
Board of Directors on the Common Stock with a payment date after the
fifth anniversary of the Effective Time (or, in the case of Series E
Stock originally issued after the fifth anniversary of the Effective
Time, after the Dividend Payment Date next preceding such date of
original issuance). All dividends that accrue in accordance with the
foregoing provisions shall be cumulative from and after the day
immediately succeeding the Effective Time (or such date of issuance).
The amount payable to each holder of record on any Dividend Payment
Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this
Section 2.2, unless all dividends on the outstanding shares of Series
E Stock and any Parity Stock that shall have accrued and become
payable as of any date shall have been paid, or declared and funds set
apart for payment thereof, no dividend or other distribution (payable
other than in
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shares of Junior Stock) shall be paid to the holders of Junior Stock
or Parity Stock, and no shares of Series E Stock, Parity Stock or
Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or
exchange for Junior Stock), nor shall any monies be paid or made
available for a purchase, redemption or sinking fund for the purchase
or redemption of any Series E Stock, Junior Stock or Parity Stock.
When dividends are not paid in full upon the shares of this Series and
any Parity Stock, all dividends declared upon shares of this Series
and all Parity Stock shall be declared pro rata so that the amount of
dividends declared per share on this Series and all such Parity Stock
shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and all such Parity
Stock bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or
payments on this Series which may be in arrears.
2.3 In case the Corporation shall at any
time distribute (other than a distribution in liquidation of the
Corporation) to the holders of its shares of Common Stock any assets
or property, including evidences of indebtedness or securities of the
Corporation (other than Common Stock subject to a distribution or
reclassification covered by Section 3.6(a)) or of any other Person
(including common stock of such Person) or cash (but excluding
regularly scheduled cash dividends payable on shares of Common Stock)
or in case the Corporation shall at any time distribute (other than a
distribution in liquidation of the Corporation) to such holders
rights, options or warrants to subscribe for or purchase shares of
Common Stock (including shares held in the treasury of the
Corporation), or rights, options or warrants to subscribe for or
purchase any other security or rights, options or warrants to
subscribe for or purchase any assets or property (in each case,
whether of the Corporation or otherwise, but other than any
distribution of rights to purchase securities of the Corporation if
the holder of shares of this Series would otherwise be entitled to
receive such rights upon conversion of shares of this Series for
Common Stock; provided, however, that if such rights are subsequently
redeemed by the Corporation, such redemption shall be treated for
purposes of this Section 2.3 as a cash dividend (but not a regularly
scheduled cash dividend) on the Common Stock), the Corporation shall
simultaneously distribute such assets, property, securities, rights,
options or warrants pro rata
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to the holders of Series E Stock on the record date fixed for
determining holders of Common Stock entitled to participate in such
distribution (or, if no such record date shall be established, the
effective time thereof) in an amount equal to the amount that such
holders of Series E Stock would have been entitled to receive had
their shares of Series E Stock been converted into Common Stock
immediately prior to such record date (or effective time). In the
event of a distribution to holders of Series E Stock pursuant to this
Section 2.3, such holders shall be entitled to receive fractional
shares or interests only to the extent that holders of Common Stock
are entitled to receive the same. The holders of Series E Stock on the
applicable record date (or effective time) shall be entitled to
receive in lieu of such fractional shares or interests the same
consideration as is payable to holders of Common Stock with respect
thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of Series E Stock on the
applicable record date (or effective time) shall receive in lieu of
such fractional shares or interests the fair value thereof as
determined by the Board of Directors.
2.4 If a distribution is made in accordance
with the provisions of Section 2.3, anything in Section 3 to the
contrary notwithstanding, no adjustment pursuant to Section 3 shall be
effected by reason of the distribution of such assets, property,
securities, rights, options or warrants or the subsequent
modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common
Stock are entitled to make any election with respect to the kind or
amount of securities or other property receivable by them in any
distribution that is subject to Section 2.3, the kind and amount of
securities or other property that shall be distributable to the
holders of the Series E Stock shall be based on (i) the election, if
any, made by the record holder (as of the date used for determining
the holders of Common Stock entitled to make such election) of the
largest number of shares of Series E Stock in writing to the
Corporation on or prior to the last date on which a holder of Common
Stock may make such an election or (ii) if no such election is timely
made, an assumption that such holder failed to exercise any such
rights (provided that if the kind or amount
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of securities or other property is not the same for each nonelecting
holder, then the kind and amount of securities or other property
receivable by holders of the Series E Stock shall be based on the kind
or amount of securities or other property receivable by a plurality of
the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any
document pursuant to which such holders may make an election of the
type referred to in this Section, the Corporation shall mail a copy
thereof to the record holders on the date of mailing of the largest
number of shares of the Series E Stock as of the date used for
determining the holders of record of Common Stock entitled to such
mailing.
3. Conversion Rights.
3.1 Each holder of a share of this Series
shall have the right at any time or as to any share of this Series
called for redemption or exchange, at any time prior to the close of
business on the date fixed for redemption or exchange (unless the
Corporation defaults in the payment of the Redemption Price or fails
to exchange the shares of this Series for the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or
exercises its right to rescind such redemption pursuant to Section
4.5, in which case such right shall not terminate at the close of
business on such date), to convert such share into (i) a number of
shares of Common Stock equal to 2.08264 shares of Common Stock for
each share of this Series, subject to appropriate adjustment in the
event of a split or combination of shares of this Series and subject
to further adjustment as provided in this Section 3 (such rate, as so
adjusted from time to time, is herein called the "Conversion Rate";
and the "Conversion Price" at any time shall mean the Liquidation
Value per share divided by the Conversion Rate in effect at such time
(rounded to the nearest one hundredth of a cent)) plus (ii) in the
event there shall be any dividends on shares of this Series which
shall be accrued and unpaid as of the immediately preceding Dividend
Payment Date, a number of shares of Common Stock equal to
(A) the aggregate amount of accrued and unpaid dividends on
such share of Series E Stock to and including the most recent
scheduled Dividend Payment Date (whether or not such dividends
were declared and whether or not there are unrestricted funds
legally available for the payment thereof) (the "Accrued
Dividend Amount") divided by
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(B) the Closing Price of the Common Stock on the
last Trading Day prior to the Conversion Date;
provided, however, that the Corporation shall have the right to
deliver cash equal to the Accrued Dividend Amount or any portion
thereof, in which case its obligation to deliver shares of Common
Stock pursuant to this clause (ii) shall be reduced by a number of
shares equal to (x) the aggregate amount of cash so delivered divided
by (y) the Closing Price of the Common Stock on the last Trading Day
prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Accrued Dividend Amount, in which case its
entire obligation under this clause (ii) shall be discharged. The
obligations of the Corporation to issue the Common Stock (or its
option to make cash payments) provided by this Section 3.1 shall be
absolute whether or not any accrued dividend by which such issuance
(or payment) is measured has been declared by the Board of Directors
and whether or not the Corporation would have adequate surplus or net
profits to pay such dividend if declared or is otherwise restricted
from paying such dividend.
3.2 Except as provided in this Section 3,
no adjustments in respect of payments of dividends on shares
surrendered for conversion or any dividend on the Common Stock issued
upon conversion shall be made upon the conversion of any shares of
this Series (it being understood that if the Conversion Date for
shares of Series E Stock occurs after a Record Date and on or prior to
a Dividend Payment Date, the holder of record on such Record Date
shall be entitled to receive the dividend payable with respect to such
shares on the related Dividend Payment Date pursuant to Section 2.1
hereof).
3.3 The Corporation may, but shall not be
required to, in connection with any conversion of shares of this
Series, issue a fraction of a share of Common Stock, and if the
Corporation shall determine not to issue any such fraction, the
Corporation shall, subject to Section 3.6(d), make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
3.4 Any holder of shares of this Series
electing to convert such shares into Common Stock shall surrender the
certificate or certificates for such shares at the office of the
transfer agent or agents therefor (or at such other place as the
Corporation may designate by notice
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to the holders of shares of this Series) during regular business
hours, duly endorsed to the Corporation or in blank, or accompanied by
instruments of transfer to the Corporation or in blank, or in form
satisfactory to the Corporation, and shall give written notice to the
Corporation at such office that such holder elects to convert such
shares of this Series. If any such certificate or certificates shall
have been lost, stolen or destroyed, the holder shall, in lieu of
delivering such certificate or certificates, deliver to the transfer
agent or agents therefor (or such other place) an indemnification
agreement and bond satisfactory to the Corporation. The Corporation
shall, as soon as practicable (subject to Section 3.6(e)) after such
deposit of certificates for shares of this Series or delivery of the
indemnification agreement and bond, accompanied by the written notice
above prescribed, issue and deliver at such office to the holder for
whose account such shares were surrendered, or to his nominee,
certificates representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such conversion.
3.5 Conversion shall be deemed to have been
made as of the date (the "Conversion Date") that certificates for the
shares of this Series to be converted, and the written notice
prescribed in Section 3.4 are received by the transfer agent or agents
for this Series; and the Person entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder of such Common Stock on such date. Notwithstanding
anything to the contrary contained herein, in the event the
Corporation shall have rescinded a redemption of shares of this Series
pursuant to Section 4.5, any holder of shares of this Series that
shall have surrendered shares of this Series for conversion following
the day on which notice of the subsequently rescinded redemption shall
have been given but prior to the close of business on the later of (a)
the Trading Day next succeeding the date on which public announcement
of the rescission of such redemption shall have been made and (b) the
Trading Day on which the notice of rescission required by Section 4.5
is deemed given pursuant to Section 7.2 (a "Converting Holder") may
rescind the conversion of such shares surrendered for conversion by
(i) properly completing a form prescribed by the Corporation and
mailed to holders of shares of this Series (including Converting
Holders) with the Corporation's notice of rescission, which form shall
provide for the certification by any Converting Holder rescinding a
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conversion on behalf of any beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of shares of this Series that the
beneficial ownership (within the meaning of such Rule) of such shares
shall not have changed from the date on which such shares were
surrendered for conversion to the date of such certification and (ii)
delivering such form to the Corporation no later than the close of
business on that date which is ten (10) Trading Days following the
date on which the Corporation's notice of rescission is deemed given
pursuant to Section 7.2. The delivery of such form by a Converting
Holder shall be accompanied by (x) any certificates representing
shares of Common Stock issued to such Converting Holder upon a
conversion of shares of this Series that shall be rescinded by the
proper delivery of such form (the "Surrendered Shares"), (y) any
securities, evidences of indebtedness or assets (other than cash)
distributed by the Corporation to such Converting Holder by reason of
such Converting Holder's being a record holder of Surrendered Shares
and (z) payment in New York Clearing House funds or other funds
acceptable to the Corporation of an amount equal to the sum of (I) any
cash such Converting Holder may have received in lieu of the issuance
of fractional shares upon conversion and (II) any cash paid or payable
by the Corporation to such Converting Holder by reason of such
Converting Holder being a record holder of Surrendered Shares. Upon
receipt by the Corporation of any such form properly completed by a
Converting Holder and any certificates, securities, evidences of
indebtedness, assets or cash payments required to be returned or made
by such Converting Holder to the Corporation as set forth above, the
Corporation shall instruct the transfer agent or agents for shares of
Common Stock and shares of this Series to cancel any certificates
representing Surrendered Shares (which Surrendered Shares shall be
deposited in the treasury of the Corporation) and reissue certificates
representing shares of this Series to such Converting Holder (which
shares of this Series shall be deemed to have been outstanding at all
times during the period following their surrender for conversion). The
Corporation shall, as promptly as practicable, and in no event more
than five (5) Trading Days, following the receipt of any such properly
completed form and any such certificates, securities, evidences of
indebtedness, assets or cash payments required to be so returned or
made, pay to the Converting Holder or as otherwise directed by such
Converting Holder any dividend or other payment made on such shares
during the period from the time such shares shall have been
surrendered for conversion to the rescission of
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16
such conversion. All questions as to the validity, form, eligibility
(including time or receipt) and acceptance of any form submitted to
the Corporation to rescind the conversion of shares of this Series,
including questions as to the proper completion or execution of any
such form or any certification contained therein, shall be resolved by
the Corporation, whose determination shall be final and binding. The
Corporation shall not be required to deliver certificates for shares
of Common Stock while the stock transfer books for such stock or for
this Series are duly closed for any purpose or during any period
commencing at a Redemption Rescission Event and ending at either (i)
the time and date at which the Corporation's right of rescission shall
expire pursuant to Section 4.5 if the Corporation shall not have
exercised such right or (ii) the close of business on that day which
is ten (10) Trading Days following the date on which the Corporation's
notice of rescission pursuant to Section 4.4 is deemed given pursuant
to Section 7.2 if the Corporation shall have exercised such right of
rescission, but certificates for shares of Common Stock shall be
delivered as soon as practicable after the opening of such books or
the expiration of such period.
3.6 The Conversion Rate shall be adjusted
from time to time as follows for events occurring on or
after February 6, 1995:
(a) In case the Corporation shall (i) pay a
dividend in shares of its Common Stock, (ii) combine its
outstanding shares of Common Stock into a smaller number of
shares, (iii) subdivide its outstanding shares of Common Stock
or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.7) its shares of
Common Stock, then the Conversion Rate in effect immediately
before such action shall be adjusted so that immediately
following such event the holders of the Series E Stock shall
be entitled to receive upon conversion or exchange thereof the
kind and amount of shares of Capital Stock of the Corporation
which they would have owned or been entitled to receive upon
or by reason of such event if such shares of Series E Stock
had been converted immediately before the record date (or, if
no record date, the effective date) for such event (it being
understood that any distribution of cash or Capital Stock
(other than Common Stock), including any distribution of
Capital Stock (other than Common Stock) that shall accompany a
reclassification of the Common
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17
Stock, shall be subject to Section 2.3 rather than this
Section 3.6(a)). An adjustment made pursuant to this
Section 3.6(a) 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 or
reclassification. For the purposes of this
Section 3.6(a), in the event that the holders of Common Stock
are entitled to make any election with respect to the kind or
amount of securities receivable by them in any transaction
that is subject to this Section 3.6(a) (including any election
that would result in all or a portion of the transaction
becoming subject to Section 2.3), the kind and amount of
securities that shall be distributable to the holders of the
Series E Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining
the holders of Common Stock entitled to make such election) of
the largest number of shares of Series E Stock in writing to
the Corporation on or prior to the last date on which a holder
of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or
amount of securities is not the same for each nonelecting
holder, then the kind and amount of securities receivable
shall be based on the kind or amount of securities receivable
by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of
any document pursuant to which such holders may make an
election of the type referred to in this Section, the
Corporation shall mail a copy thereof to the record holders of
the Series E Stock as of the date used for determining the
holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the
Conversion Rate in effect immediately prior to the Change of
Control Date shall be increased (but not decreased) by
multiplying such rate by a fraction as follows: (i) in the
case of a Change of Control specified in Section 1.5(a), a
fraction in which the numerator is the Conversion Price prior
to adjustment pursuant hereto and the denominator is the
Current Market Price of the Common Stock at the Change of
Control Date, (ii) in the case of a Change of Control
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18
specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the
highest price per share of Common Stock paid by the Acquiring
Person in connection with the transaction giving rise to the
Change of Control or in any transaction within six months
prior to or after the Change of Control Date (the "Highest
Price"), and the denominator of which is the Current Market
Price of the Common Stock as of the date (but not earlier than
six months prior to the Change of Control Date) on which the
first public announcement is made by the Acquiring Person that
it intends to acquire or that it has acquired 40% or more of
the outstanding shares of Common Stock (the "Announcement
Date") or (y) a fraction the numerator of which is the
Conversion Price prior to adjustment pursuant hereto and the
denominator of which is the Current Market Price of the Common
Stock on the Announcement Date and (iii) in the case where
there co-exists a Change of Control specified in both Section
1.5(a) and Section 1.5(b), the greatest of the fractions
determined pursuant to clauses (i) and (ii). Such adjustment
shall become effective immediately after the Change of Control
Date and shall be made, in the case of clauses (ii) and (iii)
above, successively for six months thereafter in the event and
at the time of any increase in the Highest Price after the
Change of Control Date; provided, however, that no such
successive adjustment shall be made with respect to the
Conversion Rate of the shares of this Series in respect of any
event occurring after the Conversion Date.
(c) In case the Corporation or any subsidiary
thereof shall make a Pro Rata Repurchase, the Conversion Rate
in effect immediately prior to such action shall be adjusted
(but shall not be decreased) by multiplying such Conversion
Rate by a fraction, the numerator of which shall be the
product of (i) the number of shares of Common Stock
outstanding
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19
immediately before such Pro Rata Repurchase minus
the number of shares of Common Stock repurchased by the
Corporation or any subsidiary thereof in such Pro Rata
Repurchase and (ii) the Current Market Price of the Common
Stock as of the day immediately preceding the first public
announcement by the Corporation of the intent to effect such
Pro Rata Repurchase, and the denominator of which shall be (i)
the product of (x) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase and
(y) the Current Market Price of the Common Stock as of the day
immediately preceding the first public announcement by the
Corporation of the intent to effect such Pro Rata Repurchase
minus (ii) the aggregate purchase price of the Pro Rata
Repurchase (provided that such denominator shall never be less
than 1). Such adjustment shall become effective immediately
after the Effective Date of such Pro Rata Repurchase.
(d) The Corporation shall be entitled to make
such additional adjustments in the Conversion Rate, in
addition to those required by subsections 3.6(a), 3.6(b) and
3.6(c) as shall be necessary in order that any dividend or
distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock
referred to above, shall not be taxable to the holders of
Common Stock for United States Federal income tax purposes, so
long as such additional adjustments pursuant to this Section
3.6(d) do not decrease the Conversion Rate.
(e) In any case in which this Section 3.6 shall
require that any adjustment be made effective as of or
retroactively immediately following a record date, the
Corporation may elect to defer (but only for five (5) Trading
Days following the occurrence of the event which necessitates
the filing of the statement referred to in Section 3.6(g))
issuing to the holder of any shares of this Series converted
after such record date (i) the shares of Common Stock and
other Capital Stock of the Corporation issuable upon such
conversion over and above (ii) the shares of Common Stock and
other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to
adjustment; provided, however, that the Corporation shall
deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring
such adjustment.
(f) All calculations under this Section 3 shall
be made to the nearest cent, one-hundredth of a share or, in
the case of the Conversion Rate, one hundred-thousandth.
Notwithstanding any other provision of this Section 3, the
Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an
increase
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20
or decrease of at least 1.00000% of such Conversion
Rate. Any lesser adjustment shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment or adjustments
so carried forward, shall amount to an increase or decrease of
at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event
requiring such an adjustment occurs.
(g) Whenever an adjustment in the Conversion
Rate is required, the Corporation shall forthwith place on
file with its transfer agent or agents for this Series a
statement signed by a duly authorized officer of the
Corporation, stating the adjusted Conversion Rate determined
as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show the
reason for and the manner of computing such adjustment.
Promptly after the adjustment of the Conversion Rate, the
Corporation shall mail a notice thereof to each holder of
shares of this Series.
(h) In the event that on or at any time as a
result of an adjustment made pursuant to this Section 3, the
holder of any share of this Series thereafter surrendered for
conversion shall become entitled to receive any shares of
Capital Stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable
upon conversion of any such share of this Series shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in subparagraphs (a)
through (g) and (i) of this Section 3.6, and the provisions of
Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the
determination of the Board of Directors as to any such
adjustment shall be conclusive.
(i) No adjustment shall be made pursuant to this
Section 3.6 (i) if the effect thereof would be to reduce the
Conversion Price below the par value of the Common Stock or
(ii) subject to Section 3.6(d) hereof, with respect to any
share of Series E Stock that is converted, prior to the time
such adjustment otherwise would be made.
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21
3.7 In the event that on or after
February 6, 1995, either (a) any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation in which
the Corporation is the surviving or continuing corporation and which
does not result in any reclassification of, or change (other than a
change in par value or from par value to no par value or from no par
value to par value, or as a result of a subdivision or combination)
in, outstanding shares of Common Stock or (b) any sale or conveyance
of all or substantially all of the property and assets of the
Corporation, then lawful provision shall be made as part of the terms
of such transaction whereby the holder of each share of Series E Stock
shall have the right thereafter, during the period such share shall be
convertible or exchangeable, to convert such share into or have such
shares exchanged for the kind and amount of shares of stock or other
securities and property receivable upon such consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or
exchanged immediately prior to such consolidation, merger, sale or
conveyance, subject to adjustment which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section
3 (based on (i) the election, if any, made in writing to the
Corporation by the record holder (as of the date used for determining
holders of Common Stock entitled to make such election) of the largest
number of shares of Series E Stock on or prior to the last date on
which a holder of Common Stock may make an election regarding the kind
or amount of securities or other property receivable by such holder in
such transaction or (ii) if no such election is timely made, an
assumption that such holder failed to exercise any such rights
(provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount
of securities or other property receivable shall be based upon the
kind and amount of securities or other property receivable by a
plurality of the nonelecting holders of Common Stock)). In the event
that any of the transactions referred to in clauses (a) or (b)
involves the distribution of cash or property (other than equity
securities) to a holder of Common Stock, lawful provision shall be
made as part of the terms of the transaction whereby the holder of
each share of Series E Stock on the record date fixed for determining
holders of Common Stock entitled to receive such cash or property (or
if no such record date is established, the effective date of such
transaction) shall be entitled to
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22
receive the amount of cash or property that such holder would have
been entitled to receive had such holder converted his shares of
Series E Stock into Common Stock immediately prior to such record date
(or effective date) (based on the election or nonelection made by the
record holder of the largest number of shares of Series E Stock, as
provided above). Concurrently with the mailing to holders of Common
Stock of any document pursuant to which such holders may make an
election regarding the kind or amount of securities or other property
that will be receivable by such holder in any transaction described in
clause (a) or (b) of the first sentence of this Section 3.7, the
Corporation shall mail a copy thereof to the record holders of the
Series E Stock as of the date used for determining the holders of
record of Common Stock entitled to such mailing. The Corporation shall
not enter into any of the transactions referred to in clauses (a) or
(b) of the preceding sentence unless effective provision shall be made
in the certificate or articles of incorporation or other constituent
documents of the Corporation or the entity surviving the consolidation
or merger, if other than the Corporation, or the entity acquiring the
Corporation's assets, as the case may be, so as to give effect to the
provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive consolidations,
mergers, sales or conveyances. For purposes of this Section 3.7, the
term "Corporation" shall refer to the Corporation (as defined in
Section 1.12) as constituted immediately prior to the merger,
consolidation or other transaction referred to in this Section.
3.8 The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its
authorized but unissued stock, for the purpose of effecting the
conversion of the shares of this Series, such number of its duly
authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be
sufficient to effect the conversion of all outstanding shares of this
Series into such Common Stock (or such other shares of Capital Stock)
at any time (assuming that, at the time of the computation of such
number of shares, all such Common Stock (or such other shares of
Capital Stock) would be held by a single holder); provided, however,
that nothing contained herein shall preclude the Corporation from
satisfying its obligations in respect of the conversion of the shares
by delivery of purchased shares of Common Stock (or such other shares
of Capital Stock) that are held in the
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23
treasury of the Corporation. All shares of Common Stock (or such other
shares of Capital Stock of the Corporation) which shall be deliverable
upon conversion of the shares of this Series shall be duly and validly
issued, fully paid and nonassessable. For purposes of this Section 3,
any shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation.
3.9 If any shares of Common Stock which
would be issuable upon conversion (or pursuant to redemption or
exchange) of shares of this Series hereunder require registration with
or approval of any governmental authority before such shares may be
issued upon conversion, the Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or
approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares
representing fractional interests in) Common Stock or other shares of
Capital Stock required to be delivered upon conversion of shares of
this Series prior to such delivery upon the principal national
securities exchange upon which the outstanding Common Stock (or other
shares of Capital Stock) is listed at the time of such delivery.
3.10 The Corporation shall pay any and all
issue or other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion (or pursuant to
redemption or exchange) of shares of this Series pursuant hereto. The
Corporation shall not, however, be required to pay any tax which is
payable in respect of any transfer involved in the issue or delivery
of Common Stock or such other shares of Capital Stock in a name other
than that in which the shares of this Series so converted were
registered, and no such issue or delivery shall be made unless and
until the Person requesting such issue has paid to the Corporation the
amount of such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
3.11 In case of (i) the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
(ii) any Pro Rata Repurchase or (iii) any action triggering an
adjustment to the Conversion Rate pursuant to this Section 3, then, in
each case, the Corporation shall cause to be filed with the transfer
agent or agents for the Series E Stock, and shall cause to be mailed,
first-class postage prepaid, to the holders of
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24
record of the outstanding shares of Series E Stock, at least fifteen
(15) days prior to the applicable record date for any such transaction
(or if no record date will be established, the effective date
thereof), a notice stating (x) the date, if any, on which a record is
to be taken for the purpose of any such transaction (or, if no record
date will be established, the date as of which holders or record of
Common Stock entitled to participate in such transaction are
determined), and (y) the expected effective date thereof. Failure to
give such notice or any defect therein shall not affect the legality
or validity of the proceedings described in this Section 3.11.
4. Redemption or Exchange.
4.1 (a) The Corporation may, at its sole
option, subject to Section 2.2 hereof, from time to time on and after
the fifth anniversary of the Effective Time, redeem, out of funds
legally available therefor, or, as provided below, exchange shares of
Common Stock for, all (or in the case of Section 4.1(b)(i), any part)
of the outstanding shares of this Series. The redemption price for
each share of this Series called for redemption pursuant to clause (i)
of Section 4.1(b) shall be the Liquidation Value together with an
amount equal to the accrued and unpaid dividends to the date fixed for
redemption (hereinafter collectively referred to as the "Redemption
Price"). The exchange price for each share of this Series called for
exchange pursuant to clause (ii) of Section 4.1(b) shall be a number
of shares of Common Stock equal to the Conversion Rate, together with,
at the option of the Corporation, either (x) cash or (y) a number of
shares of Common Stock, valued at the Closing Price on the Trading Day
immediately preceding the date fixed for exchange, equal, in either
case, to the aggregate amount of accrued and unpaid dividends on the
Series E Stock to the date fixed for exchange (hereinafter
collectively referred to as the "Exchange Price").
(b) On the date fixed for redemption or exchange
the Corporation shall, at its option, effect either
(i) a redemption of the shares of this Series to
be redeemed by way of payment, out of funds legally available
therefor, of cash equal to the aggregate Redemption Price for
the shares of this Series then being redeemed;
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25
(ii) an exchange of the shares of this Series
for the Exchange Price in shares of Common Stock (provided
that the Corporation shall be entitled to deliver cash (A) in
lieu of any fractional share of Common Stock (determined in a
manner consistent with Section 3.3) and (B) equal to accrued
and unpaid dividends to the date fixed for exchange in lieu of
shares of Common Stock); or
(iii) any combination thereof with respect to
each share of this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section
4.1(b), the Corporation shall be entitled to effect an exchange of
shares of Series E Stock for Common Stock (or other shares of Capital
Stock) only to the extent Common Stock (or other shares of Capital
Stock) shall be available for issuance (including delivery of
previously issued shares of Common Stock held in the Corporation's
treasury on the date fixed for exchange) which shares shall be duly
and validly issued, fully paid and non-assessable. Certificates for
shares of Common Stock issued in exchange for surrendered shares of
this Series pursuant to this Section 4.1 shall be made available by
the Corporation not later than the fifth Trading Day following the
date for exchange.
4.2 In the event that fewer than all the
outstanding shares of this Series are to be redeemed pursuant to
Section 4.1(b)(i), the number of shares to be redeemed from each
holder of shares of this Series shall be determined by the Corporation
by lot or pro rata or by any other method as may be determined by the
Board of Directors in its sole discretion to be equitable, and the
certificate of the Corporation's Secretary or an Assistant Secretary
filed with the transfer agent or transfer agents for this Series in
respect of such determination by the Board of Directors shall be
conclusive.
4.3 In the event the Corporation shall
redeem or exchange shares of this Series pursuant to Section 4.1,
notice of such redemption or exchange shall be given by first class
mail, postage prepaid, mailed not less than fifteen (15) nor more than
sixty (60) days prior to the date fixed for redemption or exchange, as
the case may be, to each record holder of the shares to be redeemed or
exchanged, at such holder's address as the same appears on
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26
the books of the Corporation. Each such notice shall state: (i)
whether the shares of this Series are to be redeemed or exchanged;
(ii) the time and date as of which the redemption or exchange shall
occur; (iii) the total number of shares of this Series to be redeemed
or exchanged and, if fewer than all the shares held by such holder are
to be redeemed, the number of such shares to be redeemed from such
holder; (iv) the Redemption Price or the Exchange Price, as the case
may be; (v) that shares of this Series called for redemption or
exchange may be converted at any time prior to the time and date fixed
for redemption or exchange (unless the Corporation shall, in the case
of a redemption, default in payment of the Redemption Price or, in the
case of an exchange, fail to exchange the shares of this Series for
the applicable number of shares of Common Stock and any cash portion
of the Exchange Price or shall exercise its right to rescind such
redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the
applicable Conversion Price and Conversion Rate; (vii) the place or
places where certificates for such shares are to be surrendered for
payment of the Redemption Price, in the case of redemption, or for
delivery of certificates representing the shares of Common Stock and
the payment of any cash portion of the Exchange Price, in the case of
exchange; and (viii) that, subject to Section 4.4 of this Certificate,
dividends on the shares of this Series to be redeemed or exchanged
will cease to accrue on such redemption or exchange date.
4.4 If notice of redemption or exchange
shall have been given by the Corporation as provided in Section 4.3,
dividends on the shares of this Series so called for redemption or
exchange shall cease to accrue, such shares shall no longer be deemed
to be outstanding, and all rights of the holders thereof as
stockholders of the Corporation with respect to shares so called for
redemption or exchange (except (i) in the case of redemption, the
right to receive from the Corporation the Redemption Price without
interest and in the case of exchange, the right to receive from the
Corporation the Exchange Price without interest and (ii) the right to
convert such shares in accordance with Section 3) shall cease
(including any right to receive dividends otherwise payable on any
Dividend Payment Date that would have occurred after the time and date
of redemp- tion or exchange) either (i) in the case of a redemption or
exchange pursuant to Section 4.1, from and after the time and date
fixed in the notice of redemption or exchange as the time and date of
redemption or exchange (unless the
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27
Corporation shall (x) in the case of a redemption, default in the
payment of the Redemption Price, (y) in the case of an exchange, fail
to exchange the applicable number of shares of Common Stock and any
cash portion of the Exchange Price or (z) exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such
rights shall not terminate at such time and date) or (ii) if the
Corporation shall so elect and state in the notice of redemption or
exchange, from and after the time and date (which date shall be the
date fixed for redemption or exchange or an earlier date not less than
fifteen (15) days after the date of mailing of the redemption or
exchange notice) on which the Corporation shall irrevocably deposit
with a designated bank or trust company doing business in the Borough
of Manhattan, City and State of New York, as paying agent, money
sufficient to pay at the office of such paying agent, on the
redemption date, the Redemption Price, in the case of redemption, or
certificates representing the shares of Common Stock to be so
exchanged and any cash portion of the Exchange Price, in the case of
an exchange. Any money or certificates so deposited with any such
paying agent which shall not be required for such redemption or
exchange because of the exercise of any right of conversion or
otherwise shall be returned to the Corporation forthwith. Upon
surrender (in accordance with the notice of redemption or exchange) of
the certificate or certificates for any shares of this Series to be so
redeemed or exchanged (properly endorsed or assigned for transfer, if
the Corpora- tion shall so require and the notice of redemption or
exchange shall so state), such shares shall be redeemed or exchanged
by the Corporation at the Redemption Price or the Exchange Price, as
applicable, as set forth in Section 4.1 (unless the Corporation shall
have exercised its right to rescind such redemption pursuant to
Section 4.5). In case fewer than all the shares represented by any
such certifi- cate are to be redeemed, a new certificate shall be
issued representing the unredeemed shares (or fractions thereof as
provided in Section 7.4), without cost to the holder thereof, together
with the amount of cash, if any, in lieu of fractional shares other
than those issuable in accordance with Section 7.4. Subject to
applicable escheat laws, any moneys so set aside by the Corporation in
the case of redemption 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 shares so called for
redemption or exchange shall look only to the general funds of the
Corporation for the payment of the Redemption Price or the Exchange
Price, as applicable,
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28
without interest. Any interest accrued on funds
so deposited shall be paid to the Corporation from time to time.
4.5 In the event that a Redemption
Rescission Event shall occur following any day on which a notice of
redemption shall have been given pursuant to Section 4.3 but at or
prior to the earlier of (a) the time and date fixed for redemption as
set forth in such notice of redemption and (b) the time and date at
which the Corporation shall have irrevocably deposited funds or
certificates with a designated bank or trust company pursuant to
Section 4.4, the Corporation may, at its sole option, at any time
prior to the earliest of (i) the close of business on that day which
is two (2) Trading Days following such Redemption Rescission Event,
(ii) the time and date fixed for redemption as set forth in such
notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust
company, rescind the redemption under Section 4.1(b)(i) to which such
notice of redemption shall have related by making a public
announcement of such rescission (the date on which such public
announcement shall have been made being hereinafter referred to as the
"Rescission Date"). The Corporation shall be deemed to have made such
announcement if it shall issue a release to the Dow Jones News
Service, Reuters Information Services or any successor news wire
service. From and after the making of such announcement, the
Corporation shall have no obligation to redeem shares of this Series
called for redemption pursuant to such notice of redemption or to pay
the redemption price therefor and all rights of holders of shares of
this Series shall be restored as if such notice of redemption had not
been given. The Corporation shall give notice of any such rescission
by one of the means specified in Section 7.2 as promptly as
practicable, but in no event later than the close of business on that
date which is five (5) Trading Days following the Rescission Date to
each record holder of shares of this Series at the close of business
on the Rescission Date and to any other Person or entity that was a
record holder of shares of this Series and that shall have surrendered
shares of this Series for conversion following the giving of notice of
the subsequently rescinded redemption. Each notice of rescission shall
(w) state that the redemption described in the notice of redemption
has been rescinded, (x) state that any Converting Holder shall be
entitled to rescind the conversion of shares of this Series
surrendered for
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29
conversion following the day on which notice of redemption was given
but prior to the close of business on the later of (1) the Trading Day
next succeeding the date on which public announcement of the
rescission of such redemption shall have been made and (2) the Trading
Day on which the Corporation's notice of rescission is deemed given
pursuant to Section 7.2, (y) be accompanied by a form prescribed by
the Corporation to be used by any Converting Holder rescinding the
conversion of shares so surrendered for conversion (and instructions
for the completion and delivery of such form, including instructions
with respect to payments that may be required to accompany such
delivery shall be in accordance with Section 3.5) and (z) state that
such form must be properly completed and received by the Corporation
no later than the close of business on a date that shall be ten (10)
Trading Days following the date such notice of rescission is deemed
given pursuant to Section 7.2.
4.6 The shares of this Series shall not be
subject to the provisions of Section 5 of Article IV of the
Certificate of Incorporation.
5. Voting. The shares of this Series shall have
no voting rights except as required by law or as set forth
below.
5.1 Each share of this Series shall be enti-
tled to vote together with holders of the shares of Common Stock (and
any other class or series which may similarly be entitled to vote with
the shares of Common Stock) as a single class upon all matters upon
which holders of Common Stock are entitled to vote. In any such vote,
the holders of this Series shall be entitled to two (2) votes per $100
of Liquidation Value of Series E Stock, subject to adjustment at the
same time and in the same manner as each adjustment of the Conversion
Rate pursuant to Section 3, so that the holders of this Series shall
be entitled following such adjustment to the number of votes equal to
the number of votes such holders were entitled to under this Section
5.1 immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which is the Conversion Rate as adjusted pursuant to
Section 3 and (y) the denominator of which is the Conversion Rate
immediately prior to such adjustment.
5.2(a) So long as any shares of this Series
remain outstanding, unless a greater percentage shall then be required
by law, the Corporation shall not, without the
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30
affirmative vote at a meeting or the written consent with or without a
meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then
outstanding (i) authorize any Senior Stock or reclassify (by merger,
consolidation or otherwise) any Junior Stock or Parity Stock as Senior
Stock, (ii) merge into or consolidate with any Person where the
surviving or continuing corporation will have any authorized Senior
Stock other than capital stock corresponding to shares of Senior Stock
of the Corporation existing immediately before such merger or
consolidation) or (iii) amend, alter or repeal any of the provisions
of the Certificate or the Certificate of Incorporation, so as in any
such case to adversely affect the voting powers, designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions of the shares
of this Series.
(b) No consent of holders of shares of this
Series shall be required for (i) the creation of any indebtedness of
any kind of the Corporation, (ii) the authorization or issuance of any
class of Junior Stock or Parity Stock, (iii) the authorization,
designation or issuance of additional shares of Series E Stock (to the
extent provided in the Merger Agreement) or (iv) subject to Section
5.2(a), the authorization or issuance of any other shares of Preferred
Stock.
5.3(a) If and whenever at any time or times
dividends payable on shares of this Series shall have been in arrears
and unpaid in an aggregate amount equal to or exceeding the amount of
dividends payable thereon for six quarterly dividend periods, then the
number of directors constituting the Board of Directors shall be
increased by two and the holders of shares of this Series, together
with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal
to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, shall have the exclusive right, voting
separately as a class with such other series, to elect two directors
of the Corporation.
(b) Such voting right may be exercised
initially either by written consent or at a special meeting of the
holders of the Preferred Stock having such voting right, called as
hereinafter provided, or at any annual meeting of stockholders held
for the purpose of electing
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31
directors, and thereafter at each such annual meeting until such time
as all dividends in arrears on the shares of this Series shall have
been paid in full and all dividends payable on the shares of this
Series on four subsequent consecutive Dividend Payment Dates shall
have been paid in full on such dates or funds shall have been set
aside for the payment thereof, at which time such voting right and the
term of the directors elected pursuant to Section 5.3(a) shall
terminate.
(c) At any time when such voting right
shall have vested in holders of shares of such series of Preferred
Stock described in Section 5.3(a), and if such right shall not already
have been exercised by written consent, a proper officer of the
Corporation may call, and, upon the written request, addressed to the
Secretary of the Corporation, of the record holders of shares
representing twenty-five percent (25%) of the voting power of the
shares then outstanding of such Preferred Stock having such voting
right, shall call, a special meeting of the holders of such Preferred
Stock having such voting right. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings
of stockholders at the place for holding annual meetings of
stockholders of the Corporation, or, if none, at a place designated by
the Board of Directors. Notwithstanding the provisions of this Section
5.3(c), no such special meeting shall be called during a period within
60 days immediately preceding the date fixed for the next annual
meeting of stockholders.
(d) At any meeting held for the purpose of
electing directors at which the holders of such Preferred Stock shall
have the right to elect directors as provided herein, the presence in
person or by proxy of the holders of shares representing more than
fifty percent (50%) in voting power of the then outstanding shares of
such Preferred Stock having such right shall be required and shall be
sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of
Preferred Stock pursuant to the voting right created under this
Section 5.3 shall hold office until the next annual meeting of
stockholders (unless such term has previously terminated pursuant to
Section 5.3(b)) and any vacancy in respect of any such director shall
be filled only by vote of the remaining director so elected, or if
there be no such remaining director, by the holders of such Preferred
Stock
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<PAGE>
32
entitled to elect such director or directors by written consent
or at a special meeting called in accordance with the procedures set
forth in Section 5.3(c), or, if no special meeting is called or
written consent executed, at the next annual meeting of stockholders.
Upon any termination of such voting right, subject to applicable law,
the term of office of all directors elected by holders of such
Preferred Stock voting separately as a class pursuant to this Section
5.3 shall terminate.
(f) In exercising the voting rights set
forth in this Section 5.3, each share of this Series shall have a
number of votes equal to its Liquidation Value.
6. Liquidation Rights.
6.1 Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of this Series shall be entitled to receive out
of the assets of the Corporation available for distribution to
stockholders, in preference to the holders of, and before any payment
or distribution shall be made on, Junior Stock, the amount of $100 per
share (the "Liquidation Value") plus an amount equal to all accrued
and unpaid dividends to the date of final distribution. The
Liquidation Value shall be subject to adjustment from time to time to
appropriately give effect to any split or combination of the shares of
this Series.
6.2 Neither the sale, exchange or other con-
veyance (for cash, shares of stock, securities or other consideration)
of all or substantially all the property and assets of the Corporation
nor the merger or consolidation of the Corporation into or with any
other corporation, or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for
the purposes of this Section 6.
6.3 After the payment to the holders of the
shares of this Series of full preferential amounts provided for in
this Section 6, the holders of this Series as such shall have no right
or claim to any of the remaining assets of the Corporation.
6.4 In the event the assets of the Corpora-
tion available for distribution to the holders of shares of this
Series upon any dissolution, liquidation or winding up
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33
of the Corporation, whether voluntary or involuntary, shall be insufficient
to pay in full all amounts to which such holders are entitled pursuant
to Section 6.1, no such distribution shall be made on account of any
shares of any Parity Stock upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on
account of the shares of this Series, ratably, in proportion to the
full distributable amounts for which holders of all Parity Stock are
entitled upon such dissolution, liquidation or winding up.
7. Other Provisions.
7.1 All notices from the Corporation to the
holders shall be given by one of the methods specified in Section 7.2.
With respect to any notice to a holder of shares of this Series
required to be provided hereunder, neither failure to give such
notice, nor any defect therein or in the transmission thereof, to any
particular holder shall affect the sufficiency of the notice or the
validity of the proceedings referred to in such notice with respect to
the other holders or affect the legality or validity of any
distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any such action. Any notice which was mailed in the manner
herein provided shall be conclusively presumed to have been duly given
whether or not the holder receives the notice.
7.2 All notices and other communications
hereunder shall be deemed given (i) on the first Trading Day following
the date received, if delivered personally, (ii) on the Trading Day
following timely deposit with an overnight courier service, if sent by
overnight courier specifying next day delivery and (iii) on the first
Trading Day that is at least five days following deposit in the mails,
if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series E Stock and
(y) the Corporation at the following address (or at such other address
as the Corporation shall specify in a notice pursuant to this Section
7.2): Time Warner Inc., 75 Rockefeller Plaza, New York, New York
10019, Attention: General Counsel.
7.3 Any shares of this Series which have
been converted, redeemed, exchanged or otherwise acquired by the
Corporation shall, after such conversion, redemption, exchange or
acquisition, as the case may be, be retired and
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<PAGE>
34
promptly cancelled and the Corporation shall take all appropriate
action to cause such shares to obtain the status of authorized but
unissued shares of Preferred Stock, without designation as to series,
until such shares are once more designated as part of a particular
series by the Board of Directors. The Corporation may cause a
certificate setting forth a resolution adopted by the Board of
Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of
Delaware. When such certificate becomes effective, all references to
Series E Stock shall be eliminated from the Certificate of
Incorporation and the shares of Preferred Stock designated hereby as
Series E Stock shall have the status of authorized and unissued shares
of Preferred Stock and may be reissued as part of any new series of
Preferred Stock to be created by resolution or resolutions of the
Board of Directors.
7.4 The shares of this Series shall be issu-
able in whole shares or, if authorized by the Board of Directors (or
any authorized committee thereof), in any fraction of a whole share so
authorized or any integral multiple of such fraction.
7.5 The Corporation shall be entitled to
recognize the exclusive right of a Person registered on its records as
the holder of shares of this Series, and such record holder shall be
deemed the holder of such shares for all purposes.
7.6 All notice periods referred to in the
Certificate shall commence on the date of the mailing of the
applicable notice.
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<PAGE>
35
7.7 Any registered holder of Series E Stock
may proceed to protect and enforce its rights by any available remedy
by proceeding at law or in equity to protect and enforce any such
rights, whether for the specific enforcement of any provision in this
Certificate or in aid of the exercise of any power granted herein, or
to enforce any other proper remedy.
IN WITNESS WHEREOF, Time Warner Inc. has
caused this certificate to be signed and attested this
day of January, 1996.
TIME WARNER INC.,
by________________________________
Name: Richard J. Bressler
Title: Senior Vice
President and Chief
Financial Officer
Attest: ______________________
Name:
Title:
<PAGE>
<PAGE>
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES F CONVERTIBLE
PREFERRED STOCK
OF
TIME WARNER INC.
--------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
--------------------
TIME WARNER INC., a corporation organized and existing
by virtue of the General Corporation Law of the State of Delaware (as
defined below, the "Corporation"), does hereby certify that the
following resolution was duly adopted by action of the Board of
Directors of the Corporation at a meeting duly held on February 6,
1995.
RESOLVED that pursuant to the authority expressly
granted to and vested in the Board of Directors of the Corporation by
the provisions of Section 2 of Article IV of the Restated Certificate
of Incorporation of the Corporation, as amended from time to time (the
"Certificate of Incorporation"), and Section 151(g) of the General
Corporation Law of the State of Delaware, such Board of Directors
hereby creates, from the authorized shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock"), of the Corporation
authorized to be issued pursuant to the Certificate of Incorporation,
a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions
thereof, of the shares of such series as follows:
The series of Preferred Stock hereby established shall
consist of 3,250,000 shares designated as Series F Convertible
Preferred Stock, together with such additional shares as may be
authorized and issued from time to time pursuant to the terms of the
Merger Agreement referred to
<PAGE>
<PAGE>
2
below. The rights, preferences and limitations of such series shall be
as follows:
1. Definitions. As used herein, the following
terms shall have the indicated meanings:
1.1 "Accrued Dividend Amount" shall have
the meaning set forth in Section 3.1 thereof.
1.2 "Board of Directors" shall mean the
Board of Directors of the Corporation or, with respect to any action
to be taken by the Board of Directors, any committee of the Board of
Directors duly authorized to take such action.
1.3 "Capital Stock" shall mean any and all
shares of corporate stock of a Person (however designated and whether
representing rights to vote, rights to participate in dividends or
distributions upon liquidation or otherwise with respect to such
Person, any division or subsidiary thereof, or any joint venture,
partnership, corporation or other entity).
1.4 "Certificate" shall mean the
certificate of the voting powers, designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of Series F
Convertible Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section
151 of the General Corporation Law of the State of Delaware.
1.5 "Change of Control" and "Change of
Control Date" shall have the following meanings: "Change of Control"
shall mean the occurrence of one or both of the following events: (a)
individuals who would constitute a majority of the members of the
Board of Directors elected at any meeting of stockholders or by
written consent (without regard to any members of the Board of
Directors elected pursuant to the terms of any series of Preferred
Stock) shall be elected to the Board of Directors and the election or
the nomination for election by the Corporation's stockholders of such
directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b)
a Person or group of Persons acting in concert as a partnership,
limited partnership, syndicate or other group within the
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<PAGE>
3
meaning of Rule 13d-3 under the Exchange Act (the "Acquiring Person")
shall, as a result of a tender or exchange offer, open market
purchases, privately negotiated purchases, share repurchases,
redemptions or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the
outstanding shares of Common Stock (in which event "Change of Control
Date" shall mean the date of the event resulting in such 40%
ownership).
1.6 "Closing Price" of the Common Stock
shall mean the last reported sale price of the Common Stock (regular
way) as shown on the Composite Tape of the NYSE, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices on the NYSE, or, if the Common Stock is not listed or admitted
to trading on the NYSE, on the principal national securities exchange
on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securi- ties exchange,
the last reported sale price of the Common Stock, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices, in either case as reported by NASDAQ.
1.7 "Common Stock" shall mean the class of
Common Stock, par value $1.00 per share, of the Corporation authorized
at the date of the Certificate, or any other class of stock resulting
from (x) successive changes or reclassifications of such Common Stock
consisting of changes in par value, or from par value to no par value,
(y) a subdivision or combination or (z) any other changes for which an
adjustment is made under Section 3.6(a), and in any such case
including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other
securities of the Corporation which are at the time represented by the
certificates representing such shares of Common Stock.
1.8 "Conversion Date" shall have the
meaning set forth in Section 3.6 hereof.
1.9 "Conversion Price" shall have the
meaning set forth in Section 3.1 hereof.
1.10 "Conversion Rate" shall have the
meaning set forth in Section 3.1 hereof.
1.11 "Converting Holder" shall have the
meaning set forth in Section 3.5 hereof.
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4
1.12 "Corporation" shall mean Time Warner
Inc., a Delaware corporation, and any of its successors by operation
of law, including by merger, consolidation or sale or conveyance of
all or substantially all of its property and assets.
1.13 "Current Market Price" of the Common
Stock on any date shall mean the average of the daily Closing Prices
per share of the Common Stock for the five (5) consecutive Trading
Days ending on the Trading Day immediately preceding the applicable
record date, conversion date, redemption date or exchange date
referred to in
Section 3 or Section 4.
1.14 "Dividend Payment Date" shall have the
meaning set forth in Section 2.1 hereof.
1.15 "Effective Time" shall mean the time
of filing of a certificate of merger with the Secretary of State of
the State of Delaware pursuant to Section 2.02 of the Merger Agreement
(or if later the time of effectiveness specified in such certificate
of merger).
1.16 "Exchange Price" shall have the
meaning set forth in Section 4.1 hereof.
1.17 "Junior Stock" shall mean the Common
Stock, the Series A Stock and the shares of any other class or series
of Capital Stock of the Corporation which, by the terms of the
Certificate of Incorporation or of the instrument by which the Board
of Directors, acting pursuant to authority granted in the Certificate
of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall be junior to the Series F Stock in respect
of the right to receive dividends or to participate in any
distribution of assets other than by way of dividends.
1.18 "Liquidation Value" shall have the
meaning set forth in Section 7.1 hereof.
1.19 "Merger Agreement" shall mean the
Agreement and Plan of Merger dated as of February 6, 1995, among
Cablevision Industries Corporation, Alan Gerry, the Corporation and TW
CVI Acquisition Corp., as the same may be amended from time to time.
<PAGE>
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5
1.20 "NASDAQ" shall mean the National
Association of Securities Dealers Automated Quotation
System.
1.21 "NYSE" shall mean the New York Stock
Exchange, Inc.
1.22 "Parity Stock" shall mean the Series B
Stock, the Series C Stock, Series D Stock, Series E Stock and the
shares of any other class or series of Capital Stock of the
Corporation which, by the terms of the Certificate of Incorporation or
of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall, in the
event that the stated dividends thereon are not paid in full, be
entitled to share ratably with the Series F Stock in the payment of
dividends, including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were
declared and paid in full, or shall, in the event that the amounts
payable thereon on liquidation are not paid in full, be entitled to
share rat- ably with the Series F Stock in any distribution of assets
other than by way of dividends in accordance with the sums which would
be payable in such distribution if all sums payable were discharged in
full; provided, however, that the term "Parity Stock" shall be deemed
to refer (i) in Section 2.2 hereof, to any stock which is Parity Stock
in respect of dividend rights; (ii) in Section 6 hereof, to any stock
which is Parity Stock in respect of the distribution of assets; and
(iii) in Sections 5.2 and 5.3 hereof, to any stock which is Parity
Stock in respect of either dividend rights or the distribution of
assets and which, pursuant to the Certificate of Incorporation or any
instrument in which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall so
designate, is entitled to vote with the holders of Series F Stock.
1.23 "Person" shall mean an individual,
corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
1.24 "Pro Rata Repurchase" shall mean the
purchase of shares of Common Stock by the Corporation or by any of its
subsidiaries, whether for cash or other property or securities of the
Corporation, which purchase is subject to Section 13(e) of the
Exchange Act or is made pursuant to an offer made available to all
holders of Common Stock, but
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<PAGE>
6
excluding any purchase made in open market transactions that satisfies
the conditions of clause (b) of Rule 10b-18 under the Exchange Act or
has been designed (as reasonably determined by the Board of Directors
or a committee thereof) to prevent such purchase from having a
material effect on the trading market of the Common Stock. The
"Effective Date" of a Pro Rata Repurchase shall mean the applicable
expiration date (including all extensions thereof) of any tender or
exchange offer which is a Pro Rata Repurchase or the date of purchase
with respect to any Pro Rata Repurchase which is not a tender or
exchange offer.
1.25 "Record Date" shall have the meaning
set forth in Section 2.1 hereof.
1.26 "Redemption Price" shall have the
meaning set forth in Section 4.1 hereof.
1.27 "Redemption Rescission Event" shall
mean the occurrence of (a) any general suspension of trading in, or
limitation on prices for, securities on the principal national
securities exchange on which shares of Common Stock are registered and
listed for trading (or, if shares of Common Stock are not registered
and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6-1/2) consecutive trading
hours, (b) any decline in either the Dow Jones Industrial Average or
the Standard & Poor's Index of 400 Industrial Companies (or any
successor index published by Dow Jones & Company, Inc. or Standard &
Poor's Corporation) by either (i) an amount in excess of 10%, measured
from the close of business on any Trading Day to the close of business
on the next succeeding Trading Day during the period commencing on the
Trading Day preceding the day notice of any redemption of shares of
this Series is given (or, if such notice is given after the close of
business on a Trading Day, commencing on such Trading Day) and ending
at the earlier of (x) the time and date fixed for redemption in such
notice and (y) the time and date at which the Corporation shall have
irrevocably deposited funds with a designated bank or trust company
pursuant to Section 4.4 or (ii) an amount in excess of 15% (or, if the
time and date fixed for redemption is more than 15 days following the
date on which notice of redemption is given, 20%), measured from the
close of business on the Trading Day preceding the day notice of such
redemption is given (or, if such notice is given after the close of
business on a Trading Day, from such Trading Day) to the close of
business on any Trading Day on or prior to
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7
the earlier of the dates specified in clauses (x) and (y) above, (c) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by Federal or state authorities in the United States
or (d) the commencement of a war or armed hostilities or other
national or international calamity directly or indirectly involving
the United States which in the reasonable judgment of the Corporation
could have a material adverse effect on the market for the Common
Stock.
1.28 "Rescission Date" shall have the
meaning set forth in Section 4.5 hereof.
1.29 "Senior Stock" shall mean the shares
of any class or series of Capital Stock of the Corporation which, by
the terms of the Certificate of Incorporation or of the instrument by
which the Board of Directors, acting pursuant to authority granted in
the Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be senior to the Series F
Stock in respect of the right to receive dividends or to participate
in any distribution of assets other than by way of dividends.
1.30 "Series A Stock" shall mean the series
of Preferred Stock authorized and designated as Series A Participating
Preferred Stock at the date of the Certifi- cate, including any shares
thereof authorized and designated after the date of the Certificate.
1.31 "Series B Stock" shall mean the series
of Preferred Stock authorized and designated as Series B 6.40%
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.32 "Series C Stock" shall mean the series
of Preferred Stock authorized and designated as Series C Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.33 "Series D Stock" shall mean the series
of Preferred Stock authorized and designated as Series D Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
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8
1.34 "Series E Stock" shall mean the series
of Preferred Stock authorized and designated as Series E Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after the date of the Certificate.
1.35 "Series F Stock" and "this Series"
shall mean the series of Preferred Stock authorized and designated as
the Series F Convertible Preferred Stock, including any shares thereof
authorized and designated after the date of the Certificate.
1.36 "Surrendered Shares" shall have the
meaning set forth in Section 3.5 hereof.
1.37 "Trading Day" shall mean, so long as
the Common Stock is listed or admitted to trading on the NYSE, a day
on which the NYSE is open for the transaction of business, or, if the
Common Stock is not listed or admitted to trading on the NYSE, a day
on which the principal national securities exchange on which the
Common Stock is listed is open for the transaction of business, or, if
the Common Stock is not so listed or admitted for trading on any
national securities exchange, a day on which the National Market
System of NASDAQ is open for the transaction of business.
2. Cash Dividends.
2.1 The holders of the outstanding Series F
Stock shall be entitled to receive quarter-annual dividends, as and
when declared by the Board of Directors out of funds legally available
therefor. Each quarter-annual dividend shall be an amount per share
equal to (i) in the case of each Dividend Payment Date (as defined
below) occurring after the Effective Time through the Dividend Payment
Date coinciding with the fourth anniversary of the Effective Time, the
greater of (A) $.9375 per $100 of Liquidation Value of Series F Stock
(which is equivalent to $3.75 per annum), and (B) an amount per $100
of Liquidation Value of Series F Stock equal to the product of (1) the
Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period
from but excluding the immediately preceding Dividend Payment Date to
and including such Dividend Payment Date and (ii) in the case of each
Dividend Payment Date occurring thereafter, an amount per share of
Series F Stock equal to the product of (1) the Conversion Rate and (2) the
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9
aggregate per share amount of regularly scheduled dividends paid
in cash on the Common Stock during the period from but excluding the
immediately preceding Dividend Payment Date to and including such
Dividend Payment Date. All dividends shall be payable in cash on or
about the first day of March, June, September and December in each
year, beginning on the first such date that is more than 15 days after
the Effective Time, as fixed by the Board of Directors, or such other
dates as are fixed by the Board of Directors (provided that the fourth
anniversary of the Effective Time shall be a Dividend Payment Date)
(each a "Dividend Payment Date"), to the holders of record of Series F
Stock at the close of business on or about the Trading Day next
preceding such first day of March, June, September and December (or
fourth anniversary of the Effective Time) as the case may be, as fixed
by the Board of Directors, or such other dates as are fixed by the
Board of Directors (each a "Record Date"). In the case of dividends
payable in respect of periods prior to the fourth anniversary of the
Effective Time, (i) such dividends shall accrue on each share on a
daily basis, whether or not there are unrestricted funds legally
available for the payment of such dividends and whether or not
declared, from and after the day immediately succeeding the Effective
Time and (ii) any such dividends that become payable for any partial
dividend period shall be computed on the basis of the actual days
elapsed in such period. From and after the fourth anniversary of the
Effective Time, dividends on the Series F Stock (determined as to
amount as provided herein) shall accrue to the extent, but only to the
extent, that regularly scheduled cash dividends are declared by the
Board of Directors on the Common Stock with a payment date after the
fourth anniversary of the Effective Time (or, in the case of Series F
Stock originally issued after the fourth anniversary of the Effective
Time, after the Dividend Payment Date next preceding such date of
original issuance). All dividends that accrue in accordance with the
foregoing provisions shall be cumulative from and after the day
immediately succeeding the Effective Time (or such date of issuance).
The amount payable to each holder of record on any Dividend Payment
Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this
Section 2.2, unless all dividends on the outstanding shares of Series
F Stock and any Parity Stock that shall have accrued and become
payable as of any date shall have been paid, or declared and funds set
apart for payment thereof, no dividend or other distribution (payable
other than in
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10
shares of Junior Stock) shall be paid to the holders of Junior Stock
or Parity Stock, and no shares of Series F Stock, Parity Stock or
Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or
exchange for Junior Stock), nor shall any monies be paid or made
available for a purchase, redemption or sinking fund for the purchase
or redemption of any Series F Stock, Junior Stock or Parity Stock.
When dividends are not paid in full upon the shares of this Series and
any Parity Stock, all dividends declared upon shares of this Series
and all Parity Stock shall be declared pro rata so that the amount of
dividends declared per share on this Series and all such Parity Stock
shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and all such Parity
Stock bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or
payments on this Series which may be in arrears.
2.3 In case the Corporation shall at any
time distribute (other than a distribution in liquidation of the
Corporation) to the holders of its shares of Common Stock any assets
or property, including evidences of indebtedness or securities of the
Corporation (other than Common Stock subject to a distribution or
reclassification covered by Section 3.6(a)) or of any other Person
(including common stock of such Person) or cash (but excluding
regularly scheduled cash dividends payable on shares of Common Stock)
or in case the Corporation shall at any time distribute (other than a
distribution in liquidation of the Corporation) to such holders
rights, options or warrants to subscribe for or purchase shares of
Common Stock (including shares held in the treasury of the
Corporation), or rights, options or warrants to subscribe for or
purchase any other security or rights, options or warrants to
subscribe for or purchase any assets or property (in each case,
whether of the Corporation or otherwise, but other than any
distribution of rights to purchase securities of the Corporation if
the holder of shares of this Series would otherwise be entitled to
receive such rights upon conversion of shares of this Series for
Common Stock; provided, however, that if such rights are subsequently
redeemed by the Corporation, such redemption shall be treated for
purposes of this Section 2.3 as a cash dividend (but not a regularly
scheduled cash dividend) on the Common Stock), the Corporation shall
simultaneously distribute such assets, property, securities, rights,
options or warrants pro rata
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11
to the holders of Series F Stock on the record date fixed for
determining holders of Common Stock entitled to participate in such
distribution (or, if no such record date shall be established, the
effective time thereof) in an amount equal to the amount that such
holders of Series F Stock would have been entitled to receive had
their shares of Series F Stock been converted into Common Stock
immediately prior to such record date (or effective time). In the
event of a distribution to holders of Series F Stock pursuant to this
Section 2.3, such holders shall be entitled to receive fractional
shares or interests only to the extent that holders of Common Stock
are entitled to receive the same. The holders of Series F Stock on the
applicable record date (or effective time) shall be entitled to
receive in lieu of such fractional shares or interests the same
consideration as is payable to holders of Common Stock with respect
thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of Series F Stock on the
applicable record date (or effective time) shall receive in lieu of
such fractional shares or interests the fair value thereof as
determined by the Board of Directors.
2.4 If a distribution is made in accordance
with the provisions of Section 2.3, anything in Section 3 to the
contrary notwithstanding, no adjustment pursuant to Section 3 shall be
effected by reason of the distribution of such assets, property,
securities, rights, options or warrants or the subsequent
modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common
Stock are entitled to make any election with respect to the kind or
amount of securities or other property receivable by them in any
distribution that is subject to Section 2.3, the kind and amount of
securities or other property that shall be distributable to the
holders of the Series F Stock shall be based on (i) the election, if
any, made by the record holder (as of the date used for determining
the holders of Common Stock entitled to make such election) of the
largest number of shares of Series F Stock in writing to the
Corporation on or prior to the last date on which a holder of Common
Stock may make such an election or (ii) if no such election is timely
made, an assumption that such holder failed to exercise any such
rights (provided that if the kind or amount of securities or other
property is not the same for each nonelecting holder, then the kind
and amount
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12
of securities or other property receivable by holders of
the Series F Stock shall be based on the kind or amount of securities
or other property receivable by a plurality of the shares held by the
nonelecting holders of Common Stock). Concurrently with the mailing to
holders of Common Stock of any document pursuant to which such holders
may make an election of the type referred to in this
Section, the Corporation shall mail a copy thereof to the record
holders on the date of mailing of the largest number of shares of the
Series F Stock as of the date used for determining the holders of
record of Common Stock entitled to such mailing.
3. Conversion Rights.
3.1 Each holder of a share of this Series
shall have the right at any time or as to any share of this Series
called for redemption or exchange, at any time prior to the close of
business on the date fixed for redemption or exchange (unless the
Corporation defaults in the payment of the Redemption Price or fails
to exchange the shares of this Series for the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or
exercises its right to rescind such redemption pursuant to Section
4.5, in which case such right shall not terminate at the close of
business on such date), to convert such share into (i) a number of
shares of Common Stock equal to 2.08264 shares of Common Stock for
each share of this Series, subject to appropriate adjustment in the
event of a split or combination of shares of this Series and subject
to further adjustment as provided in this Section 3 (such rate, as so
adjusted from time to time, is herein called the "Conversion Rate";
and the "Conversion Price" at any time shall mean the Liquidation
Value per share divided by the Conversion Rate in effect at such time
(rounded to the nearest one hundredth of a cent)) plus (ii) in the
event there shall be any dividends on shares of this Series which
shall be accrued and unpaid as of the immediately preceding Dividend
Payment Date, a number of shares of Common Stock equal to
(A) the aggregate amount of accrued and unpaid dividends on
such share of Series F Stock to and including the most recent
scheduled Dividend Payment Date (whether or not such dividends
were declared and whether or not there are unrestricted funds
legally available for the payment thereof) (the "Accrued
Dividend Amount") divided by
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13
(B) the Closing Price of the Common Stock on the
last Trading Day prior to the Conversion Date;
provided, however, that the Corporation shall have the right to
deliver cash equal to the Accrued Dividend Amount or any portion
thereof, in which case its obligation to deliver shares of Common
Stock pursuant to this clause (ii) shall be reduced by a number of
shares equal to (x) the aggregate amount of cash so delivered divided
by (y) the Closing Price of the Common Stock on the last Trading Day
prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Accrued Dividend Amount, in which case its
entire obligation under this clause (ii) shall be discharged. The
obligations of the Corporation to issue the Common Stock (or its
option to make cash payments) provided by this Section 3.1 shall be
absolute whether or not any accrued dividend by which such issuance
(or payment) is measured has been declared by the Board of Directors
and whether or not the Corporation would have adequate surplus or net
profits to pay such dividend if declared or is otherwise restricted
from paying such dividend.
3.2 Except as provided in this Section 3,
no adjustments in respect of payments of dividends on shares
surrendered for conversion or any dividend on the Common Stock issued
upon conversion shall be made upon the conversion of any shares of
this Series (it being understood that if the Conversion Date for
shares of Series F Stock occurs after a Record Date and on or prior to
a Dividend Payment Date, the holder of record on such Record Date
shall be entitled to receive the dividend payable with respect to such
shares on the related Dividend Payment Date pursuant to Section 2.1
hereof).
3.3 The Corporation may, but shall not be
required to, in connection with any conversion of shares of this
Series, issue a fraction of a share of Common Stock, and if the
Corporation shall determine not to issue any such fraction, the
Corporation shall, subject to Section 3.6(d), make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
3.4 Any holder of shares of this Series
electing to convert such shares into Common Stock shall surrender the
certificate or certificates for such shares at the office of the
transfer agent or agents therefor (or at such other place as the
Corporation may designate by notice
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14
to the holders of shares of this Series) during regular business
hours, duly endorsed to the Corporation or in blank, or accompanied by
instruments of transfer to the Corporation or in blank, or in form
satisfactory to the Corporation, and shall give written notice to the
Corporation at such office that such holder elects to convert such
shares of this Series. If any such certificate or certificates shall
have been lost, stolen or destroyed, the holder shall, in lieu of
delivering such certificate or certificates, deliver to the transfer
agent or agents therefor (or such other place) an indemnification
agreement and bond satisfactory to the Corporation. The Corporation
shall, as soon as practicable (subject to Section 3.6(e)) after such
deposit of certificates for shares of this Series or delivery of the
indemnification agreement and bond, accompanied by the written notice
above prescribed, issue and deliver at such office to the holder for
whose account such shares were surrendered, or to his nominee,
certificates representing the number of shares of Common Stock and the
cash, if any, to which such holder is entitled upon such conversion.
3.5 Conversion shall be deemed to have been
made as of the date (the "Conversion Date") that certificates for the
shares of this Series to be converted, and the written notice
prescribed in Section 3.4 are received by the transfer agent or agents
for this Series; and the Person entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder of such Common Stock on such date. Notwithstanding
anything to the contrary contained herein, in the event the
Corporation shall have rescinded a redemption of shares of this Series
pursuant to Section 4.5, any holder of shares of this Series that
shall have surrendered shares of this Series for conversion following
the day on which notice of the subsequently rescinded redemption shall
have been given but prior to the close of business on the later of (a)
the Trading Day next succeeding the date on which public announcement
of the rescission of such redemption shall have been made and (b) the
Trading Day on which the notice of rescission required by Section 4.5
is deemed given pursuant to Section 7.2 (a "Converting Holder") may
rescind the conversion of such shares surrendered for conversion by
(i) properly completing a form prescribed by the Corporation and
mailed to holders of shares of this Series (including Converting
Holders) with the Corporation's notice of rescission, which form shall
provide for the certification by any Converting Holder rescinding a
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15
conversion on behalf of any beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of shares of this Series that the
beneficial ownership (within the meaning of such Rule) of such shares
shall not have changed from the date on which such shares were
surrendered for conversion to the date of such certification and (ii)
delivering such form to the Corporation no later than the close of
business on that date which is ten (10) Trading Days following the
date on which the Corporation's notice of rescission is deemed given
pursuant to Section 7.2. The delivery of such form by a Converting
Holder shall be accompanied by (x) any certificates representing
shares of Common Stock issued to such Converting Holder upon a
conversion of shares of this Series that shall be rescinded by the
proper delivery of such form (the "Surrendered Shares"), (y) any
securities, evidences of indebtedness or assets (other than cash)
distributed by the Corporation to such Converting Holder by reason of
such Converting Holder's being a record holder of Surrendered Shares
and (z) payment in New York Clearing House funds or other funds
acceptable to the Corporation of an amount equal to the sum of (I) any
cash such Converting Holder may have received in lieu of the issuance
of fractional shares upon conversion and (II) any cash paid or payable
by the Corporation to such Converting Holder by reason of such
Converting Holder being a record holder of Surrendered Shares. Upon
receipt by the Corporation of any such form properly completed by a
Converting Holder and any certificates, securities, evidences of
indebtedness, assets or cash payments required to be returned or made
by such Converting Holder to the Corporation as set forth above, the
Corporation shall instruct the transfer agent or agents for shares of
Common Stock and shares of this Series to cancel any certificates
representing Surrendered Shares (which Surrendered Shares shall be
deposited in the treasury of the Corporation) and reissue certificates
representing shares of this Series to such Converting Holder (which
shares of this Series shall be deemed to have been outstanding at all
times during the period following their surrender for conversion). The
Corporation shall, as promptly as practicable, and in no event more
than five (5) Trading Days, following the receipt of any such properly
completed form and any such certificates, securities, evidences of
indebtedness, assets or cash payments required to be so returned or
made, pay to the Converting Holder or as otherwise directed by such
Converting Holder any dividend or other payment made on such shares
during the period from the time such shares shall have been
surrendered for conversion to the rescission of
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16
such conversion. All questions as to the validity, form, eligibility
(including time or receipt) and acceptance of any form submitted to
the Corporation to rescind the conversion of shares of this Series,
including questions as to the proper completion or execution of any
such form or any certification contained therein, shall be resolved by
the Corporation, whose determination shall be final and binding. The
Corporation shall not be required to deliver certificates for shares
of Common Stock while the stock transfer books for such stock or for
this Series are duly closed for any purpose or during any period
commencing at a Redemption Rescission Event and ending at either (i)
the time and date at which the Corporation's right of rescission shall
expire pursuant to Section 4.5 if the Corporation shall not have
exercised such right or (ii) the close of business on that day which
is ten (10) Trading Days following the date on which the Corporation's
notice of rescission pursuant to Section 4.4 is deemed given pursuant
to Section 7.2 if the Corporation shall have exercised such right of
rescission, but certificates for shares of Common Stock shall be
delivered as soon as practicable after the opening of such books or
the expiration of such period.
3.6 The Conversion Rate shall be adjusted
from time to time as follows for events occurring on or
after February 6, 1995:
(a) In case the Corporation shall (i) pay a
dividend in shares of its Common Stock, (ii) combine its
outstanding shares of Common Stock into a smaller number of
shares, (iii) subdivide its outstanding shares of Common Stock
or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.7) its shares of
Common Stock, then the Conversion Rate in effect immediately
before such action shall be adjusted so that immediately
following such event the holders of the Series F Stock shall
be entitled to receive upon conversion or exchange thereof the
kind and amount of shares of Capital Stock of the Corporation
which they would have owned or been entitled to receive upon
or by reason of such event if such shares of Series F Stock
had been converted immediately before the record date (or, if
no record date, the effective date) for such event (it being
understood that any distribution of cash or Capital Stock
(other than Common Stock), including any distribution of
Capital Stock (other than Common Stock) that shall accompany a
reclassification of the Common
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17
Stock, shall be subject to Section 2.3 rather than this
Section 3.6(a)). An adjustment made pursuant to this
Section 3.6(a) 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 or
reclassification. For the purposes of this
Section 3.6(a), in the event that the holders of Common Stock
are entitled to make any election with respect to the kind or
amount of securities receivable by them in any transaction
that is subject to this Section 3.6(a) (including any election
that would result in all or a portion of the transaction
becoming subject to Section 2.3), the kind and amount of
securities that shall be distributable to the holders of the
Series F Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining
the holders of Common Stock entitled to make such election) of
the largest number of shares of Series F Stock in writing to
the Corporation on or prior to the last date on which a holder
of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or
amount of securities is not the same for each nonelecting
holder, then the kind and amount of securities receivable
shall be based on the kind or amount of securities receivable
by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of
any document pursuant to which such holders may make an
election of the type referred to in this Section, the
Corporation shall mail a copy thereof to the record holders of
the Series F Stock as of the date used for determining the
holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the
Conversion Rate in effect immediately prior to the Change of
Control Date shall be increased (but not decreased) by
multiplying such rate by a fraction as follows: (i) in the
case of a Change of Control specified in Section 1.5(a), a
fraction in which the numerator is the Conversion Price prior
to adjustment pursuant hereto and the denominator is the
Current Market Price of the Common Stock at the Change of
Control Date, (ii) in the case of a Change of Control
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18
specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the
highest price per share of Common Stock paid by the Acquiring
Person in connection with the transaction giving rise to the
Change of Control or in any transaction within six months
prior to or after the Change of Control Date (the "Highest
Price"), and the denominator of which is the Current Market
Price of the Common Stock as of the date (but not earlier than
six months prior to the Change of Control Date) on which the
first public announcement is made by the Acquiring Person that
it intends to acquire or that it has acquired 40% or more of
the outstanding shares of Common Stock (the "Announcement
Date") or (y) a fraction the numerator of which is the
Conversion Price prior to adjustment pursuant hereto and the
denominator of which is the Current Market Price of the Common
Stock on the Announcement Date and (iii) in the case where
there co-exists a Change of Control specified in both Section
1.5(a) and Section 1.5(b), the greatest of the fractions
determined pursuant to clauses (i) and (ii). Such adjustment
shall become effective immediately after the Change of Control
Date and shall be made, in the case of clauses (ii) and (iii)
above, successively for six months thereafter in the event and
at the time of any increase in the Highest Price after the
Change of Control Date; provided, however, that no such
successive adjustment shall be made with respect to the
Conversion Rate of the shares of this Series in respect of any
event occurring after the Conversion Date.
(c) In case the Corporation or any subsidiary
thereof shall make a Pro Rata Repurchase, the Conversion Rate
in effect immediately prior to such action shall be adjusted
(but shall not be decreased) by multiplying such Conversion
Rate by a fraction, the numerator of which shall be the
product of (i) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase minus
the number of shares of Common Stock repurchased by the
Corporation or any subsidiary thereof in such Pro Rata
Repurchase and (ii) the Current Market Price of the Common
Stock as of the day immediately preceding the first public
announcement by the Corporation of the intent to effect such
Pro Rate Repurchase, and the denominator of which shall be (i)
the product of (x) the number of shares of Common Stock
outstanding
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19
immediately before such Pro Rata Repurchase and
(y) the Current Market Price of the Common Stock as of the day
immediately preceding the first public announcement by the
Corporation of the intent to effect such Pro Rata Repurchase
minus (ii) the aggregate purchase price of the Pro Rata
Repurchase (provided that such denominator shall never be less
than 1). Such adjustment shall become effective immediately
after the Effective Date of such Pro Rata Repurchase.
(d) The Corporation shall be entitled to make
such additional adjustments in the Conversion Rate, in
addition to those required by subsections 3.6(a), 3.6(b) and
3.6(c) as shall be necessary in order that any dividend or
distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock
referred to above, shall not be taxable to the holders of
Common Stock for United States Federal income tax purposes, so
long as such additional adjustments pursuant to this Section
3.6(d) do not decrease the Conversion Rate.
(e) In any case in which this Section 3.6 shall
require that any adjustment be made effective as of or
retroactively immediately following a record date, the
Corporation may elect to defer (but only for five (5) Trading
Days following the occurrence of the event which necessitates
the filing of the statement referred to in Section 3.6(g))
issuing to the holder of any shares of this Series converted
after such record date (i) the shares of Common Stock and
other Capital Stock of the Corporation issuable upon such
conversion over and above (ii) the shares of Common Stock and
other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to
adjustment; provided, however, that the Corporation shall
deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring
such adjustment.
(f) All calculations under this Section 3 shall
be made to the nearest cent, one-hundredth of a share or, in
the case of the Conversion Rate, one hundred-thousandth.
Notwithstanding any other provision of this Section 3, the
Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an
increase
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20
or decrease of at least 1.00000% of such Conversion
Rate. Any lesser adjustment shall be carried forward and shall
be made at the time of and together with the next subsequent
adjustment which, together with any adjustment or adjustments
so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate.
Any adjustments under this Section 3 shall be made
successively whenever an event requiring such an adjustment occurs.
(g) Whenever an adjustment in the Conversion
Rate is required, the Corporation shall forthwith place on
file with its transfer agent or agents for this Series a
statement signed by a duly authorized officer of the
Corporation, stating the adjusted Conversion Rate determined
as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show the
reason for and the manner of computing such adjustment.
Promptly after the adjustment of the Conversion Rate, the
Corporation shall mail a notice thereof to each holder of
shares of this Series.
(h) In the event that on or at any time as a
result of an adjustment made pursuant to this Section 3, the
holder of any share of this Series thereafter surrendered for
conversion shall become entitled to receive any shares of
Capital Stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable
upon conversion of any such share of this Series shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in subparagraphs (a)
through (g) and (i) of this Section 3.6, and the provisions of
Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the
determination of the Board of Directors as to any such
adjustment shall be conclusive.
(i) No adjustment shall be made pursuant to this
Section 3.6 (i) if the effect thereof would be to reduce the
Conversion Price below the par value of the Common Stock or
(ii) subject to Section 3.6(d) hereof, with respect to any
share of Series F Stock that is converted, prior to the time
such adjustment otherwise would be made.
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21
3.7 In the event that on or after
February 6, 1995, either (a) any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation in which
the Corporation is the surviving or continuing corporation and which
does not result in any reclassification of, or change (other than a
change in par value or from par value to no par value or from no par
value to par value, or as a result of a subdivision or combination)
in, outstanding shares of Common Stock or (b) any sale or conveyance
of all or substantially all of the property and assets of the
Corporation, then lawful provision shall be made as part of the terms
of such transaction whereby the holder of each share of Series F Stock
shall have the right thereafter, during the period such share shall be
convertible or exchangeable, to convert such share into or have such
shares exchanged for the kind and amount of shares of stock or other
securities and property receivable upon such consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or
exchanged immediately prior to such consolidation, merger, sale or
conveyance, subject to adjustment which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section
3 (based on (i) the election, if any, made in writing to the
Corporation by the record holder (as of the date used for determining
holders of Common Stock entitled to make such election) of the largest
number of shares of Series F Stock on or prior to the last date on
which a holder of Common Stock may make an election regarding the kind
or amount of securities or other property receivable by such holder in
such transaction or (ii) if no such election is timely made, an
assumption that such holder failed to exercise any such rights
(provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount
of securities or other property receivable shall be based upon the
kind and amount of securities or other property receivable by a
plurality of the nonelecting holders of Common Stock)). In the event
that any of the transactions referred to in clauses (a) or (b)
involves the distribution of cash or property (other than equity
securities) to a holder of Common Stock, lawful provision shall be
made as part of the terms of the transaction whereby the holder of
each share of Series F Stock on the record date fixed for determining
holders of Common Stock entitled to receive such cash or property (or
if no such record date is established, the effective date of such
transaction) shall be entitled to
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22
receive the amount of cash or property that such holder would have
been entitled to receive had such holder converted his shares of
Series F Stock into Common Stock immediately prior to such record date
(or effective date) (based on the election or nonelection made by the
record holder of the largest number of shares of Series F Stock, as
provided above). Concurrently with the mailing to holders of Common
Stock of any document pursuant to which such holders may make an
election regarding the kind or amount of securities or other property
that will be receivable by such holder in any transaction described in
clause (a) or (b) of the first sentence of this Section 3.7, the
Corporation shall mail a copy thereof to the record holders of the
Series F Stock as of the date used for determining the holders of
record of Common Stock entitled to such mailing. The Corporation shall
not enter into any of the transactions referred to in clauses (a) or
(b) of the preceding sentence unless effective provision shall be made
in the certificate or articles of incorporation or other constituent
documents of the Corporation or the entity surviving the consolidation
or merger, if other than the Corporation, or the entity acquiring the
Corporation's assets, as the case may be, so as to give effect to the
provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive consolidations,
mergers, sales or conveyances. For purposes of this Section 3.7, the
term "Corporation" shall refer to the Corporation (as defined in
Section 1.12) as constituted immediately prior to the merger,
consolidation or other transaction referred to in this Section.
3.8 The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its
authorized but unissued stock, for the purpose of effecting the
conversion of the shares of this Series, such number of its duly
authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be
sufficient to effect the conversion of all outstanding shares of this
Series into such Common Stock (or such other shares of Capital Stock)
at any time (assuming that, at the time of the computation of such
number of shares, all such Common Stock (or such other shares of
Capital Stock) would be held by a single holder); provided, however,
that nothing contained herein shall preclude the Corporation from
satisfying its obligations in respect of the conversion of the shares
by delivery of purchased shares of Common Stock (or such other shares
of Capital Stock) that are held in the
<PAGE>
<PAGE>
23
treasury of the Corporation. All shares of Common Stock (or such other
shares of Capital Stock of the Corporation) which shall be deliverable
upon conversion of the shares of this Series shall be duly and validly
issued, fully paid and nonassessable. For purposes of this Section 3,
any shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Corporation.
3.9 If any shares of Common Stock which
would be issuable upon conversion (or pursuant to redemption or
exchange) of shares of this Series hereunder require registration with
or approval of any governmental authority before such shares may be
issued upon conversion, the Corporation will in good faith and as
expeditiously as possible cause such shares to be duly registered or
approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares
representing fractional interests in) Common Stock or other shares of
Capital Stock required to be delivered upon conversion of shares of
this Series prior to such delivery upon the principal national
securities exchange upon which the outstanding Common Stock (or other
shares of Capital Stock) is listed at the time of such delivery.
3.10 The Corporation shall pay any and all
issue or other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock on conversion (or pursuant to
redemption or exchange) of shares of this Series pursuant hereto. The
Corporation shall not, however, be required to pay any tax which is
payable in respect of any transfer involved in the issue or delivery
of Common Stock or such other shares of Capital Stock in a name other
than that in which the shares of this Series so converted were
registered, and no such issue or delivery shall be made unless and
until the Person requesting such issue has paid to the Corporation the
amount of such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
3.11 In case of (i) the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
(ii) any Pro Rata Repurchase or (iii) any action triggering an
adjustment to the Conversion Rate pursuant to this Section 3, then, in
each case, the Corporation shall cause to be filed with the transfer
agent or agents for the Series F Stock, and shall cause to be mailed,
first-class postage prepaid, to the holders of
<PAGE>
<PAGE>
24
record of the outstanding shares of Series F Stock, at least fifteen
(15) days prior to the applicable record date for any such transaction
(or if no record date will be established, the effective date
thereof), a notice stating (x) the date, if any, on which a record is
to be taken for the purpose of any such transaction (or, if no record
date will be established, the date as of which holders or record of
Common Stock entitled to participate in such transaction are
determined), and (y) the expected effective date thereof. Failure to
give such notice or any defect therein shall not affect the legality
or validity of the proceedings described in this Section 3.11.
4. Redemption or Exchange.
4.1 (a) The Corporation may, at its sole
option, subject to Section 2.2 hereof, from time to time on and after
the fifth anniversary of the Effective Time in the case of clause (i)
or (iii) of Section 4.1(b), and on and after the fourth anniversary,
in the case of clause (ii) of Section 4.1(b), redeem, out of funds
legally available therefor, or, as provided below, exchange shares of
Common Stock for, all (or in the case of Section 4.1(b)(i), any part)
of the outstanding shares of this Series. The redemption price for
each share of this Series called for redemption pursuant to clause (i)
of Section 4.1(b) shall be the Liquidation Value together with an
amount equal to the accrued and unpaid dividends to the date fixed for
redemption (hereinafter collectively referred to as the "Redemption
Price"). The exchange price for each share of this Series called for
exchange pursuant to clause (ii) of Section 4.1(b) shall be a number
of shares of Common Stock equal to the Conversion Rate, together with,
at the option of the Corporation, either (x) cash or (y) a number of
shares of Common Stock, valued at the Closing Price on the Trading Day
immediately preceding the date fixed for exchange, equal, in either
case, to the aggregate amount of accrued and unpaid dividends on the
Series F Stock to the date fixed for exchange (hereinafter
collectively referred to as the "Exchange Price").
(b) On the date fixed for redemption or exchange
the Corporation shall, at its option, effect either
(i) a redemption of the shares of this Series to
be redeemed by way of payment, out of funds legally available
therefor, of cash equal to the aggregate
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<PAGE>
25
Redemption Price for the shares of this Series then being redeemed;
(ii) an exchange of the shares of this Series
for the Exchange Price in shares of Common Stock (provided
that the Corporation shall be entitled to deliver cash (A) in
lieu of any fractional share of Common Stock (determined in a
manner consistent with Section 3.3) and (B) equal to accrued
and unpaid dividends to the date fixed for exchange in lieu of
shares of Common Stock); or
(iii) any combination thereof with respect to
each share of this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section
4.1(b), the Corporation shall be entitled to effect an exchange of
shares of Series F Stock for Common Stock (or other shares of Capital
Stock) only to the extent Common Stock (or other shares of Capital
Stock) shall be available for issuance (including delivery of
previously issued shares of Common Stock held in the Corporation's
treasury on the date fixed for exchange) which shares shall be duly
and validly issued, fully paid and non-assessable. Certificates for
shares of Common Stock issued in exchange for surrendered shares of
this Series pursuant to this Section 4.1 shall be made available by
the Corporation not later than the fifth Trading Day following the
date for exchange.
4.2 In the event that fewer than all the
outstanding shares of this Series are to be redeemed pursuant to
Section 4.1(b)(i), the number of shares to be redeemed from each
holder of shares of this Series shall be determined by the Corporation
by lot or pro rata or by any other method as may be determined by the
Board of Directors in its sole discretion to be equitable, and the
certificate of the Corporation's Secretary or an Assistant Secretary
filed with the transfer agent or transfer agents for this Series in
respect of such determination by the Board of Directors shall be
conclusive.
4.3 In the event the Corporation shall
redeem or exchange shares of this Series pursuant to Section 4.1,
notice of such redemption or exchange shall be given by first class
mail, postage prepaid, mailed not less than fifteen (15) nor more than
sixty (60) days prior to the
<PAGE>
<PAGE>
26
date fixed for redemption or exchange, as the case may be, to each
record holder of the shares to be redeemed or exchanged, at such
holder's address as the same appears on the books of the Corporation.
Each such notice shall state: (i) whether the shares of this Series
are to be redeemed or exchanged; (ii) the time and date as of which
the redemption or exchange shall occur; (iii) the total number of
shares of this Series to be redeemed or exchanged and, if fewer than
all the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder; (iv) the Redemption Price
or the Exchange Price, as the case may be; (v) that shares of this
Series called for redemption or exchange may be converted at any time
prior to the time and date fixed for redemption or exchange (unless
the Corporation shall, in the case of a redemption, default in payment
of the Redemption Price or, in the case of an exchange, fail to
exchange the shares of this Series for the applicable number of shares
of Common Stock and any cash portion of the Exchange Price or shall
exercise its right to rescind such redemption pursuant to Section 4.5,
in which case such right of conversion shall not terminate at such
time and date); (vi) the applicable Conversion Price and Conversion
Rate; (vii) the place or places where certificates for such shares are
to be surrendered for payment of the Redemption Price, in the case of
redemption, or for delivery of certificates representing the shares of
Common Stock and the payment of any cash portion of the Exchange
Price, in the case of exchange; and (viii) that, subject to Section
4.4 of this Certificate, dividends on the shares of this Series to be
redeemed or exchanged will cease to accrue on such redemption or
exchange date.
4.4 If notice of redemption or exchange
shall have been given by the Corporation as provided in Section 4.3,
dividends on the shares of this Series so called for redemption or
exchange shall cease to accrue, such shares shall no longer be deemed
to be outstanding, and all rights of the holders thereof as
stockholders of the Corporation with respect to shares so called for
redemption or exchange (except (i) in the case of redemption, the
right to receive from the Corporation the Redemption Price without
interest and in the case of exchange, the right to receive from the
Corporation the Exchange Price without interest and (ii) the right to
convert such shares in accordance with Section 3) shall cease
(including any right to receive dividends otherwise payable on any
Dividend Payment Date that would have occurred after the time and date
of redemption or exchange) either (i) in the case of a redemption or
<PAGE>
<PAGE>
27
exchange pursuant to Section 4.1, from and after the time and date
fixed in the notice of redemption or exchange as the time and date of
redemption or exchange (unless the Corporation shall (x) in the case
of a redemption, default in the payment of the Redemption Price, (y)
in the case of an exchange, fail to exchange the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or
(z) exercise its right to rescind such redemption pursuant to Section
4.5, in which case such rights shall not terminate at such time and
date) or (ii) if the Corporation shall so elect and state in the
notice of redemption or exchange, from and after the time and date
(which date shall be the date fixed for redemption or exchange or an
earlier date not less than fifteen (15) days after the date of mailing
of the redemption or exchange notice) on which the Corporation shall
irrevocably deposit with a designated bank or trust company doing
business in the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such paying
agent, on the redemption date, the Redemption Price, in the case of
redemption, or certificates representing the shares of Common Stock to
be so exchanged and any cash portion of the Exchange Price, in the
case of an exchange. Any money or certificates so deposited with any
such paying agent which shall not be required for such redemption or
exchange because of the exercise of any right of conversion or
otherwise shall be returned to the Corporation forthwith. Upon
surrender (in accordance with the notice of redemption or exchange) of
the certificate or certificates for any shares of this Series to be so
redeemed or exchanged (properly endorsed or assigned for transfer, if
the Corporation shall so require and the notice of redemption or
exchange shall so state), such shares shall be redeemed or exchanged
by the Corporation at the Redemption Price or the Exchange Price, as
applicable, as set forth in Section 4.1 (unless the Corporation shall
have exercised its right to rescind such redemption pursuant to
Section 4.5). In case fewer than all the shares represented by any
such certifi- cate are to be redeemed, a new certificate shall be
issued representing the unredeemed shares (or fractions thereof as
provided in Section 7.4), without cost to the holder thereof, together
with the amount of cash, if any, in lieu of fractional shares other
than those issuable in accordance with Section 7.4. Subject to
applicable escheat laws, any moneys so set aside by the Corporation in
the case of redemption 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
<PAGE>
<PAGE>
28
shares so called for redemption or exchange shall look only to the
general funds of the Corporation for the payment of the Redemption
Price or the Exchange Price, as applicable, without interest. Any
interest accrued on funds so deposited shall be paid to the
Corporation from time to time.
4.5 In the event that a Redemption
Rescission Event shall occur following any day on which a notice of
redemption shall have been given pursuant to Section 4.3 but at or
prior to the earlier of (a) the time and date fixed for redemption as
set forth in such notice of redemption and (b) the time and date at
which the Corporation shall have irrevocably deposited funds or
certificates with a designated bank or trust company pursuant to
Section 4.4, the Corporation may, at its sole option, at any time
prior to the earliest of (i) the close of business on that day which
is two (2) Trading Days following such Redemption Rescission Event,
(ii) the time and date fixed for redemption as set forth in such
notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust
company, rescind the redemption under Section 4.1(b)(i) to which such
notice of redemption shall have related by making a public
announcement of such rescission (the date on which such public
announcement shall have been made being hereinafter referred to as the
"Rescission Date"). The Corporation shall be deemed to have made such
announcement if it shall issue a release to the Dow Jones News
Service, Reuters Information Services or any successor news wire
service. From and after the making of such announcement, the
Corporation shall have no obligation to redeem shares of this Series
called for redemption pursuant to such notice of redemption or to pay
the redemption price therefor and all rights of holders of shares of
this Series shall be restored as if such notice of redemption had not
been given. The Corporation shall give notice of any such rescission
by one of the means specified in Section 7.2 as promptly as
practicable, but in no event later than the close of business on that
date which is five (5) Trading Days following the Rescission Date to
each record holder of shares of this Series at the close of business
on the Rescission Date and to any other Person or entity that was a
record holder of shares of this Series and that shall have surrendered
shares of this Series for conversion following the giving of notice of
the subsequently rescinded redemption. Each notice of rescission shall
(w) state that the redemption described in
<PAGE>
<PAGE>
29
the notice of redemption has been rescinded, (x) state that any
Converting Holder shall be entitled to rescind the conversion of
shares of this Series surrendered for conversion following the day on
which notice of redemption was given but prior to the close of
business on the later of (1) the Trading Day next succeeding the date
on which public announcement of the rescission of such redemption
shall have been made and (2) the Trading Day on which the
Corporation's notice of rescission is deemed given pursuant to Section
7.2, (y) be accompanied by a form prescribed by the Corporation to be
used by any Converting Holder rescinding the conversion of shares so
surrendered for conversion (and instructions for the completion and
delivery of such form, including instructions with respect
to payments that may be required to accompany such delivery shall be
in accordance with Section 3.5) and (z) state that such form must be
properly completed and received by the Corporation no later than the
close of business on a date that shall be ten (10) Trading Days
following the date such notice of rescission is deemed given pursuant
to Section 7.2.
4.6 The shares of this Series shall not be
subject to the provisions of Section 5 of Article IV of the
Certificate of Incorporation.
5. Voting. The shares of this Series shall have
no voting rights except as required by law or as set forth
below.
5.1 Each share of this Series shall be enti-
tled to vote together with holders of the shares of Common Stock (and
any other class or series which may similarly be entitled to vote with
the shares of Common Stock) as a single class upon all matters upon
which holders of Common Stock are entitled to vote. In any such vote,
the holders of this Series shall be entitled to two (2) votes per $100
of Liquidation Value of Series F Stock, subject to adjustment at the
same time and in the same manner as each adjustment of the Conversion
Rate pursuant to Section 3, so that the holders of this Series shall
be entitled following such adjustment to the number of votes equal to
the number of votes such holders were entitled to under this Section
5.1 immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which is the Conversion Rate as adjusted pursuant to
Section 3 and (y) the denominator of which is the Conversion Rate
immediately prior to such adjustment.
<PAGE>
<PAGE>
30
5.2(a) So long as any shares of this Series
remain outstanding, unless a greater percentage shall then be required
by law, the Corporation shall not, without the affirmative vote at a
meeting or the written consent with or without a meeting of the
holders of shares of this Series representing at least 66-2/3% of the
aggregate voting power of shares of this Series then outstanding (i)
authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii)
merge into or consolidate with any Person where the surviving or
continuing corporation will have any authorized Senior Stock other
than capital stock corresponding to shares of Senior Stock of the
Corporation existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal any of the provisions of the
Certificate or the Certificate of Incorporation, so as in any such
case to adversely affect the voting powers, designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of the shares of this
Series.
(b) No consent of holders of shares of this
Series shall be required for (i) the creation of any indebtedness of
any kind of the Corporation, (ii) the authorization or issuance of any
class of Junior Stock or Parity Stock, (iii) the authorization,
designation or issuance of additional shares of Series F Stock (to the
extent provided in the Merger Agreement) or (iv) subject to Section
5.2(a), the authorization or issuance of any other shares of Preferred
Stock.
5.3(a) If and whenever at any time or times
dividends payable on shares of this Series shall have been in arrears
and unpaid in an aggregate amount equal to or exceeding the amount of
dividends payable thereon for six quarterly dividend periods, then the
number of directors constituting the Board of Directors shall be
increased by two and the holders of shares of this Series, together
with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal
to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, shall have the exclusive right, voting
separately as a class with such other series, to elect two directors
of the Corporation.
(b) Such voting right may be exercised
initially either by written consent or at a special meeting
<PAGE>
<PAGE>
31
of the holders of the Preferred Stock having such voting right, called as
hereinafter provided, or at any annual meeting of stockholders held
for the purpose of electing directors, and thereafter at each such
annual meeting until such time as all dividends in arrears on the
shares of this Series shall have been paid in full and all dividends
payable on the shares of this Series on four subsequent consecutive
Dividend Payment Dates shall have been paid in full on such dates or
funds shall have been set aside for the payment thereof, at which time
such voting right and the term of the directors elected pursuant to
Section 5.3(a) shall terminate.
(c) At any time when such voting right
shall have vested in holders of shares of such series of Preferred
Stock described in Section 5.3(a), and if such right shall not already
have been exercised by written consent, a proper officer of the
Corporation may call, and, upon the written request, addressed to the
Secretary of the Corporation, of the record holders of shares
representing twenty-five percent (25%) of the voting power of the
shares then outstanding of such Preferred Stock having such voting
right, shall call, a special meeting of the holders of such Preferred
Stock having such voting right. Such meeting shall be held at the
earliest practicable date upon the notice required for annual meetings
of stockholders at the place for holding annual meetings of
stockholders of the Corporation, or, if none, at a place designated by
the Board of Directors. Notwithstanding the provisions of this Section
5.3(c), no such special meeting shall be called during a period within
60 days immediately preceding the date fixed for the next annual
meeting of stockholders.
(d) At any meeting held for the purpose of
electing directors at which the holders of such Preferred Stock shall
have the right to elect directors as provided herein, the presence in
person or by proxy of the holders of shares representing more than
fifty percent (50%) in voting power of the then outstanding shares of
such Preferred Stock having such right shall be required and shall be
sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of
Preferred Stock pursuant to the voting right created under this
Section 5.3 shall hold office until the next annual meeting of
stockholders (unless such term has previously terminated pursuant to
Section 5.3(b)) and any vacancy in
<PAGE>
<PAGE>
32
respect of any such director shall be filled only by vote of the
remaining director so elected, or if there be no such remaining
director, by the holders of such Preferred Stock entitled to elect
such director or directors by written consent or at a special meeting
called in accordance with the procedures set forth in Section 5.3(c),
or, if no special meeting is called or written consent executed, at
the next annual meeting of stockholders. Upon any termination of such
voting right, subject to applicable law, the term of office of all
directors elected by holders of such Preferred Stock voting separately
as a class pursuant to this Section 5.3 shall terminate.
(f) In exercising the voting rights set
forth in this Section 5.3, each share of this Series shall have a
number of votes equal to its Liquidation Value.
6. Liquidation Rights.
6.1 Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of this Series shall be entitled to receive out
of the assets of the Corporation available for distribution to
stockholders, in preference to the holders of, and before any payment
or distribution shall be made on, Junior Stock, the amount of $100 per
share (the "Liquidation Value") plus an amount equal to all accrued
and unpaid dividends to the date of final distribution. The
Liquidation Value shall be subject to adjustment from time to time to
appropriately give effect to any split or combination of the shares of
this Series.
6.2 Neither the sale, exchange or other con-
veyance (for cash, shares of stock, securities or other consideration)
of all or substantially all the property and assets of the Corporation
nor the merger or consolidation of the Corporation into or with any
other corporation, or the merger or consolidation of any other
corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for
the purposes of this Section 6.
6.3 After the payment to the holders of the
shares of this Series of full preferential amounts provided for in
this Section 6, the holders of this Series as such shall have no right
or claim to any of the remaining assets of the Corporation.
<PAGE>
<PAGE>
33
6.4 In the event the assets of the Corpora-
tion available for distribution to the holders of shares of this
Series upon any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, shall be insufficient
to pay in full all amounts to which such holders are entitled pursuant
to Section 6.1, no such distribution shall be made on account of any
shares of any Parity Stock upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on
account of the shares of this Series, ratably, in proportion to the
full distributable amounts for which holders of all Parity Stock are
entitled upon such dissolution, liquidation or winding up.
7. Other Provisions.
7.1 All notices from the Corporation to the
holders shall be given by one of the methods specified in Section 7.2.
With respect to any notice to a holder of shares of this Series
required to be provided hereunder, neither failure to give such
notice, nor any defect therein or in the transmission thereof, to any
particular holder shall affect the sufficiency of the notice or the
validity of the proceedings referred to in such notice with respect to
the other holders or affect the legality or validity of any
distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any such action. Any notice which was mailed in the manner
herein provided shall be conclusively presumed to have been duly given
whether or not the holder receives the notice.
7.2 All notices and other communications
hereunder shall be deemed given (i) on the first Trading Day following
the date received, if delivered personally, (ii) on the Trading Day
following timely deposit with an overnight courier service, if sent by
overnight courier specifying next day delivery and (iii) on the first
Trading Day that is at least five days following deposit in the mails,
if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series F Stock and
(y) the Corporation at the following address (or at such other address
as the Corporation shall specify in a notice pursuant to this Section
7.2): Time Warner Inc., 75 Rockefeller Plaza, New York, New York
10019, Attention: General Counsel.
<PAGE>
<PAGE>
34
7.3 Any shares of this Series which have
been converted, redeemed, exchanged or otherwise acquired by the
Corporation shall, after such conversion, redemption, exchange or
acquisition, as the case may be, be retired and promptly cancelled and
the Corporation shall take all appropriate action to cause such shares
to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once
more designated as part of a particular series by the Board of
Directors. The Corporation may cause a certificate setting forth a
resolution adopted by the Board of Directors that none of the
authorized shares of this Series are outstanding to be filed with the
Secretary of State of the State of Delaware. When such certificate
becomes effective, all references to Series F Stock shall be
eliminated from the Certificate of Incorporation and the shares of
Preferred Stock designated hereby as Series F Stock shall have the
status of authorized and unissued shares of Preferred Stock and may be
reissued as part of any new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors.
7.4 The shares of this Series shall be issu-
able in whole shares or, if authorized by the Board of Directors (or
any authorized committee thereof), in any fraction of a whole share so
authorized or any integral multiple of such fraction.
7.5 The Corporation shall be entitled to
recognize the exclusive right of a Person registered on its records as
the holder of shares of this Series, and such record holder shall be
deemed the holder of such shares for all purposes.
7.6 All notice periods referred to in the
Certificate shall commence on the date of the mailing of the
applicable notice.
<PAGE>
<PAGE>
35
7.7 Any registered holder of Series F Stock
may proceed to protect and enforce its rights by any available remedy
by proceeding at law or in equity to protect and enforce any such
rights, whether for the specific enforcement of any provision in this
Certificate or in aid of the exercise of any power granted herein, or
to enforce any other proper remedy.
IN WITNESS WHEREOF, Time Warner Inc. has
caused this certificate to be signed and attested this
day of January, 1996.
TIME WARNER INC.,
by__________________________________
Name: Richard J. Bressler
Title: Senior Vice
President and Chief
Financial Officer
Attest: ______________________
Name:
Title:
<PAGE>
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF Series I CONVERTIBLE
PREFERRED STOCK
OF
TIME WARNER INC.
-----------------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
-----------------------
TIME WARNER INC., a corporation organized and existing
by virtue of the General Corporation Law of the State of Delaware (as
defined below, the "Corporation"), does hereby certify that the
following resolution was duly adopted by action of the Board of
Directors of the Corporation at a meeting duly held on August 28,
1995.
RESOLVED that pursuant to the authority expressly
granted to and vested in the Board of Directors of the Corporation by
the provisions of Section 2 of Article IV of the Restated Certificate
of Incorporation of the Corporation, as amended from time to time (the
"Certificate of Incorporation"), and Section 151(g) of the General
Corporation Law of the State of Delaware, such Board of Directors
hereby creates, from the authorized shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock"), of the Corporation
authorized to be issued pursuant to the Certificate of Incorporation,
a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restric tions
thereof, of the shares of such series as follows:
The series of Preferred Stock hereby established shall
consist of 7.0 million shares designated as Series I Convertible
Preferred Stock. The rights, preferences and limitations of such
series shall be as follows:
1. Definitions. As used herein, the following
terms shall have the indicated meanings:
<PAGE>
<PAGE>
2
1.1 "Accrued Dividend Amount" shall mean the
aggregate amount of accrued and unpaid dividends on a share of Series
I Stock to and including the Conversion Date, except that if the
Conversion Date shall occur after a Record Date and prior to a related
Dividend Payment Date, the Accrued Dividend Amount shall not include
any accrued and unpaid dividends for the period from and after the
most recent Dividend Payment Date.
1.2 "Board of Directors" shall mean the
Board of Directors of the Corporation or, with respect to any action
to be taken by the Board of Directors, any com mittee of the Board of
Directors duly authorized to take such action.
1.3 "Capital Stock" shall mean any and all
shares of corporate stock of a Person (however designated and whether
representing rights to vote, rights to partici pate in dividends or
distributions upon liquidation or otherwise with respect to such
Person, or any division or subsidiary thereof, or any joint venture,
partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate
of the voting powers, designations, preferences and rela tive,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of Series I Convertible Preferred
Stock filed with respect to this resolution with the Secretary of
State of the State of Delaware pursuant to Section 151 of the General
Corporation Law of the State of Delaware.
1.5 "Change of Control" and "Change of
Control Date" shall have the following meanings: "Change of Control"
shall mean the occurrence of one or both of the following events: (a)
individuals who would constitute a majority of the members of the
Board of Directors elected at any meeting of stockholders or by
written consent (without regard to any members of the Board of
Directors elected pursuant to the terms of any series of Preferred
Stock) shall be elected to the Board of Directors and the election or
the nomination for election by the Corporation's stock holders of such
directors was not approved by a vote of at least a majority of the
directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b)
a Person or group of Persons acting in concert as a partnership,
limited partnership, syndicate or other group within the meaning of
Rule 13d-3 under the Exchange Act (the "Acquiring Person") shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases, share repurchases or redemptions or otherwise,
have become the beneficial owner (within the meaning of Rule 13d-3
under the
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3
Exchange Act) of 40% or more of the outstanding shares of Common Stock
(in which event "Change of Control Date" shall mean the date of the
event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock
shall mean the last reported sale price of the Common Stock (regular
way) as shown on the Composite Tape of the NYSE, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices on the NYSE, or, if the Common Stock is not listed or admitted
to trading on the NYSE, on the principal national securities exchange
on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securi ties exchange,
the last reported sale price of the Common Stock, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices, in either case as reported by NASDAQ.
1.7 "Common Dividend Deficiency" shall be
applicable in the event that a Conversion Date shall fall after a
record date and prior to the related payment date for a regularly
scheduled cash dividend on the Common Stock (the "Common Dividend
Payment Date"), and in such event shall mean the product of (i) the
Conversion Rate, (ii) the amount per share of Common Stock of the
regularly scheduled cash dividend for which the record date has been
set but a payment date has not yet occurred and (ii) a fraction (A)
the numerator of which is the number of calendar days from and
excluding the Conversion Date (or in the event the Conversion Date
falls after a Record Date and on or prior to a related Dividend
Payment Date, from and excluding the Dividend Payment Date) to and
including the Common Dividend Payment Date and (B) the denominator of
which is 91 (provided that such fraction shall not be greater than one
(1)).
1.8 "Common Dividend Excess" shall be
applicable in all circumstances where a Common Dividend Deficiency is
not applicable, and in such event shall mean the product of (i) the
Conversion Rate, (ii) the regular quarterly cash dividend per share,
if any, paid by the Corporation on the Common Stock (the "Historical
Dividend") on the most recent dividend payment date for the Common
Stock (the "Prior Dividend Payment Date") occurring during the four
months immediately preceding the Conversion Date and (iii) a fraction
(A) the numerator of which is the number of calendar days from and
excluding (1) the Prior Dividend Payment Date to and including (2) the
Conversion Date (or in the event the Conversion Date falls after a
Record Date and on or prior to a related Dividend Payment Date, to and
including the Dividend Payment Date) and (B) the denominator of which
is 91 days (provided that in no event shall the fraction be greater
than one (1)).
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4
1.9 "Common Stock" shall mean the class of
Common Stock, par value $1.00 per share, of the Corporation authorized
at the date of the Certificate, or any other class of stock resulting
from (x) successive changes or reclassifications of such Common Stock
consisting of changes in par value, or from par value to no par value,
(y) a sub division or combination or (z) any other changes for which
an adjustment is made under Section 3.6(a), and in any such case
including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other
securities of the Corporation which are at the time represented by the
certificates representing such shares of Common Stock.
1.10 "Conversion Date" shall have the
meaning set forth in Section 3.5 hereof.
1.11 "Conversion Price" at any time shall
mean the Liquidation Value per share divided by the Conversion Rate in
effect at such time (rounded to the nearest one hundredth of a cent).
1.12 "Conversion Rate" shall have the
meaning set forth in Section 3.1 hereof.
1.13 "Converting Holder" shall have the
meaning set forth in Section 3.5 hereof.
1.14 "Corporation" shall mean Time Warner
Inc., a Delaware corporation, and any of its successors by operation
of law, including by merger, consolidation or sale or conveyance of
all or substantially all of its property
and assets.
1.15 "Current Market Price" of the Common
Stock on any date shall mean the average of the daily Closing Prices
per share of the Common Stock for the five (5) consecutive Trading
Days ending on the Trading Day immediately preceding the applicable
record date, conversion date, redemption date or exchange date
referred to in Section 3 or Section 4.
1.16 "Dividend Payment Date" shall have the
meaning set forth in Section 2.1 hereof.
1.17 "Effective Time" shall mean the date on
which the Series I Stock.
1.18 "Exchange Act" shall mean Securities
Exchange Act of 1934, as amended.
1.19 "Exchange Price" shall have the meaning
set forth in Section 4.1 hereof.
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5
1.20 "Junior Stock" shall mean the Common
Stock, the Series A Stock and the shares of any other class or series
of Capital Stock of the Corporation which, by the terms of the
Certificate of Incorporation or of the instru ment by which the Board
of Directors, acting pursuant to authority granted in the Certificate
of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall be junior to the Series I Stock in respect
of the right to receive dividends or to participate in any
distribution of assets other than by way of dividends.
1.21 "Liquidation Value" shall have the
meaning set forth in Section 7.1 hereof.
1.22 "NASDAQ" shall mean the National
Association of Securities Dealers Automated Quotation
System.
1.23 "Net Dividend Amount" shall have the
meaning set forth in Section 3.1 hereof.
1.24 "NYSE" shall mean the New York Stock
Exchange, Inc.
1.25 "Parity Stock" shall mean the Series B
Stock, the Series C Stock, the Series D Stock, the Series G Stock, the
Series H Stock and the shares of any other class or series of Capital
Stock of the Corporation which, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors,
acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall, in the event that the stated dividends
thereon are not paid in full, be entitled to share ratably with the
Series I Stock in the payment of dividends, including accumulations,
if any, in accordance with the sums which would be payable on such
shares if all dividends were declared and paid in full, or shall, in
the event that the amounts payable thereon on liquidation are not paid
in full, be entitled to share ratably with the Series I Stock in any
distribution of assets other than by way of dividends in accordance
with the sums which would be payable in such distribution if all sums
payable were discharged in full; provided, however, that the term
"Parity Stock" shall be deemed to refer (i) in Section 2.2 hereof, to
any stock which is Parity Stock in respect of dividend rights; (ii) in
Section 7 hereof, to any stock which is Parity Stock in respect of the
distribution of assets; and (iii) in Sections 6.2 and 6.3 hereof, to
any stock which is Parity Stock in respect of either dividend rights
or the distribution of assets and which, pursuant to the Certificate
of Incorporation or any instrument in which the Board of Directors,
acting pursuant to authority granted in the
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6
Certificate of Incorporation, shall so designate, is entitled to vote
with the holders of Series I Stock.
1.26 "Person" shall mean an individual,
corporation, partnership, joint venture, association, trust,
unincorporated organization or other entity.
1.27 "Preferred Stock" shall mean the class
of Preferred Stock, par value $1.00 per share, of the Corporation
authorized at the date of the Certificate, including any shares
thereof authorized after the date of the Certificate.
1.28 "Pro Rata Portion" shall have the
meaning set forth in Section 5.6 hereof.
1.29 "Pro Rata Repurchase" shall mean the
purchase of shares of Common Stock by the Corporation or by any of its
subsidiaries, whether for cash or other property or securities of the
Corporation, which purchase is subject to Section 13(e) of the
Exchange Act or is made pursuant to an offer made available to all
holders of Common Stock, but excluding any purchase made in open
market transactions that satisfies the conditions of clause (b) of
Rule 10b-18 under the Exchange Act or has been designed (as reasonably
deter mined by the Board of Directors or a committee thereof) to
prevent such purchase from having a material effect on the trading
market of the Common Stock. The "Effective Date" of a Pro Rata
Repurchase shall mean the applicable expiration date (including all
extensions thereof) of any tender or exchange offer which is a Pro
Rata Repurchase or the date of purchase with respect to any Pro Rata
Repurchase which is not a tender or exchange offer.
1.30 "Record Date" shall have the meaning
set forth in Section 2.1 hereof.
1.31 "Redemption Price" shall have the
meaning set forth in Section 4.1 hereof.
1.32 "Redemption Rescission Event" shall
mean the occurrence of (a) any general suspension of trading in, or
limitation on prices for, securities on the principal national
securities exchange on which shares of Common Stock are registered and
listed for trading (or, if shares of Common Stock are not registered
and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6-1/2) consecutive trading
hours, (b) any decline in either the Dow Jones Industrial Average or
the Standard & Poor's Index of 400 Industrial Companies (or any
successor index published by Dow Jones & Company, Inc. or Standard &
Poor's Corporation) by either (i) an amount in excess of 10%, measured
from the close of business
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7
on any Trading Day to the close of business on the next succeeding
Trading Day during the period commencing on the Trading Day preceding
the day notice of any redemption of shares of this Series is given
(or, if such notice is given after the close of business on a Trading
Day, commencing on such Trading Day) and ending at the earlier of (x)
the time and date fixed for redemption in such notice and (y) the time
and date at which the Corporation shall have irrevoc ably deposited
funds with a designated bank or trust company pursuant to Section 4.4
or (ii) an amount in excess of 15% (or, if the time and date fixed for
redemption is more than 15 days following the date on which notice of
redemption is given, 20%), measured from the close of business on the
Trading Day preceding the day notice of such redemption is given (or,
if such notice is given after the close of business on a Trading Day,
from such Trading Day) to the close of business on any Trading Day on
or prior to the earlier of the dates specified in clauses (x) and (y)
above, (c) a declaration of a banking moratorium or any suspension of
payments in respect of banks by Federal or state authorities in the
United States or (d) the commencement of a war or armed hostilities or
other national or inter national calamity directly or indirectly
involving the United States which in the reasonable judgment of the
Corporation could have a material adverse effect on the market for the
Common Stock.
1.33 "Rescission Date" shall have the
meaning set forth in Section 4.5 hereof.
1.34 "Senior Stock" shall mean the shares
of
any class or series of Capital Stock of the Corporation which, by the
terms of the Certificate of Incorporation or of the instrument by
which the Board of Directors, acting pursuant to authority granted in
the Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall be senior to the Series I
Stock in respect of the right to receive dividends or to participate
in any distribution of assets other than by way of dividends.
1.35 "Series A Stock" shall mean the series
of Preferred Stock authorized and designated as Series A Participating
Preferred Stock at the date of the Certifi cate, including any shares
thereof authorized and designated
after the date of the Certificate.
1.36 "Series B Stock" shall mean the series
of Preferred Stock authorized and designated as Series B 6.40%
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after
the date of the Certificate.
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8
1.37 "Series C Stock" shall mean the series
of Preferred Stock authorized and designated as Series C Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after
the date of the Certificate.
1.38 "Series D Stock" shall mean the series
of Preferred Stock authorized and designated as Series D Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after
the date of the Certificate.
1.39 "Series G Stock" shall mean the series
of Preferred Stock authorized and designated as Series G Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after
the date of the Certificate.
1.40 "Series H Stock" shall mean the series
of Preferred Stock authorized and designated as Series H Convertible
Preferred Stock at the date of the Certificate, including any shares
thereof authorized and designated after
the date of the Certificate.
1.41 "Series I Stock" and "this Series" shall
mean the series of Preferred Stock authorized and designated as the
Series I Convertible Preferred Stock, including any shares thereof
authorized and designated after the date of the Certificate
1.42 "Surrendered Shares" shall have the
meaning set forth in Section 3.5 hereof.
1.43 "Trading Day" shall mean, so long as
the Common Stock is listed or admitted to trading on the NYSE, a day
on which the NYSE is open for the transaction of business, or, if the
Common Stock is not listed or admitted to trading on the NYSE, a day
on which the principal national securities exchange on which the
Common Stock is listed is open for the transaction of business, or, if
the Common Stock is not so listed or admitted for trading on any
national securities exchange, a day on which the National Market
System of NASDAQ is open for the transaction of business.
2. Cash Dividends.
2.1 The holders of the outstanding Series I
Stock shall be entitled to receive quarter-annual dividends, as and
when declared by the Board of Directors out of funds legally available
therefor. Each quarter-annual dividend shall be an amount per share
equal to (i) in the case of each Dividend Payment Date (as defined
below) occurring
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9
after the Effective Time through the Dividend Payment Date coinciding
with the fourth anniversary of the Effective Time, the greater of (A)
$.9375 per $100 of Liquidation Value of Series I Stock (which is
equivalent to $3.75 per annum), and (B) an amount per $100 of
Liquidation Value of Series I Stock equal to the product of (1) the
Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period
from but excluding the immediately preceding Dividend Payment Date to
and including such Dividend Payment Date and (ii) in the case of each
Dividend Payment Date occurring thereafter, an amount per $100 of
Liquidation Value of Series I Stock equal to the product of (1) the
Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period
from but excluding the immediately preceding Dividend Payment Date to
and including such Dividend Payment Date. All dividends shall be
payable in cash on or about the first day of March, June, September
and December in each year, beginning on the first such date that is
more than 15 days after the Effective Time, as fixed by the Board of
Directors, or such other dates as are fixed by the Board of Directors
(provided that the fourth anniversary of the Effective Time shall be a
Dividend Payment Date) (each a "Dividend Payment Date"), to the
holders of record of Series I Stock at the close of business on or
about the Trading Day next preceding such first day of March, June,
September and December (or fourth anniversary of the Effec tive Time)
as the case may be, as fixed by the Board of Directors, or such other
dates as are fixed by the Board of Directors (each a "Record Date").
In the case of dividends payable in respect of periods prior to the
fourth anniver sary of the Effective Time, (i) such dividends shall
accrue on each share on a daily basis, whether or not there are
unrestricted funds legally available for the payment of such dividends
and whether or not earned or declared, from and after the day
immediately succeeding the Effective Time and (ii) any such dividends
that become payable for any partial dividend period shall be computed
on the basis of the actual days elapsed in such period. From and after
the fourth anniversary of the Effective Time, dividends on the Series
I Stock (determined as to amount as provided herein) shall accrue to
the extent, but only to the extent, that regularly scheduled cash
dividends are declared by the Board of Directors on the Common Stock
with a payment date after the fourth anniversary of the Effective Time
(or, in the case of Series I Stock originally issued after the fourth
anniver sary of the Effective Time, after the Dividend Payment Date
next preceding such date of original issuance). All divi dends that
accrue in accordance with the foregoing provi sions shall be
cumulative from and after the day immediately succeeding the Effective
Time (or such date of issuance).
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10
The amount payable to each holder of record on any Dividend Payment
Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this
Section 2.2, unless all dividends on the outstanding shares of Series
I Stock and any Parity Stock that shall have accrued and become
payable as of any date shall have been paid, or declared and funds set
apart for payment thereof, no dividend or other distribution (payable
other than in shares of Junior Stock) shall be paid to the holders of
Junior Stock or Parity Stock, and no shares of Series I Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise
acquired by the Corporation or any of its subsidiaries (except by
conversion into or exchange for Junior Stock), nor shall any monies be
paid or made available for a purchase, redemption or sinking fund for
the purchase or redemption of any Series I Stock, Junior Stock or
Parity Stock. When dividends are not paid in full upon the shares of
this Series and any Parity Stock, all dividends declared upon shares
of this Series and all Parity Stock shall be declared pro rata so that
the amount of dividends declared per share on this Series and all such
Parity Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of this Series and all such
Parity Stock bear to each other. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment or
payments on this Series which may be in arrears.
2.3 In case the Corporation shall at any
time distribute (other than a distribution in liquidation of the
Corporation) to the holders of its shares of Common Stock any assets
or property, including debt or equity securities of the Corporation
(other than Common Stock subject to a distribution or reclassification
covered by Section 3.6(a)) or of any other Person (including common
stock of such Person) or cash (but excluding regularly scheduled cash
dividends payable on shares of Common Stock), or in case the
Corporation shall at any time distribute (other than a distribution in
liquidation of the Corpora tion) to such holders rights, options or
warrants to subscribe for or purchase shares of Common Stock
(including shares held in the treasury of the Corporation), or rights,
options or warrants to subscribe for or purchase any other security or
rights, options or warrants to subscribe for or purchase any assets or
property (in each case, whether of the Corporation or otherwise, but
other than any distribu tion of rights to purchase securities of the
Corporation if the holder of shares of this Series would otherwise be
entitled to receive such rights upon conversion of shares of this
Series for Common Stock; provided, however, that if such rights are
subsequently redeemed by the Corporation, such redemption shall be
treated for purposes of this
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11
Section 2.3 as a cash dividend (but not a regularly scheduled cash
dividend) on the Common Stock), the Corpora tion shall simultaneously
distribute such assets, property, securities, rights, options or
warrants pro rata to the holders of Series I Stock on the record date
fixed for determining holders of Common Stock entitled to participate
in such distribution (or, if no such record date shall be established,
the effective time thereof) in an amount equal to the amount that such
holders of Series I Stock would have been entitled to receive had
their shares of Series I Stock been converted into Common Stock
immediately prior to such record date (or effective time). In the
event of a distri bution to holders of Series I Stock pursuant to this
Section 2.3, such holders shall be entitled to receive fractional
shares or interests only to the extent that holders of Common Stock
are entitled to receive the same. The holders of Series I Stock on the
applicable record date (or effec tive time) shall be entitled to
receive in lieu of such fractional shares or interests the same
consideration as is payable to holders of Common Stock with respect
thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of Series I Stock on the
applicable record date (or effective time) shall receive in lieu of
such fractional shares or interests the fair value thereof as
determined by the Board of Directors.
2.4 If a distribution is made in accordance
with the provisions of Section 2.3, anything in Section 3 to the
contrary notwithstanding, no adjustment pursuant to Section 3 shall be
effected by reason of the distribution of such assets, property,
securities, rights, options or warrants or the subsequent
modification, exercise, expira tion or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common
Stock are entitled to make any election with respect to the kind or
amount of securities or other property receivable by them in any
distribution that is subject to Section 2.3, the kind and amount of
securities or other property that shall be distributable to the
holders of the Series I Stock shall be based on (i) the election, if
any, made by the record holder (as of the date used for determining
the holders of Common Stock entitled to make such election) of the
largest number of shares of Series I Stock in writing to the
Corporation on or prior to the last date on which a holder of Common
Stock may make such an election or (ii) if no such election is timely
made, an assumption that such holder failed to exercise any such
rights (provided that if the kind or amount of securities or other
property is not the same for each nonelecting holder, then the kind
and amount of securities or other property receivable by holders of
the Series I Stock shall be based on the kind or amount of
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12
securities or other property receivable by a plurality of shares held
by the nonelecting holders of Common Stock). Concurrently with the
mailing to holders of Common Stock of any document pursuant to which
such holders may make an election of the type referred to in this
Section, the Corporation shall mail a copy thereof to the record
holders of the Series I Stock as of the date used for determining the
holders of record of Common Stock entitled to such mailing.
3. Conversion Rights.
3.1 Each holder of a share of this Series
shall have the right at any time or as to any share of this Series
called for redemption or exchange, at any time prior to the close of
business on the date fixed for redemption or exchange (unless the
Corporation defaults in the payment of the Redemption Price or fails
to exchange the shares of this Series for the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or
exercises its right to rescind such redemption pursuant to Section
4.5, in which case such right shall not terminate at the close of
business on such date), to convert such share into (i) a number of
shares of Common Stock equal to 2.08264 shares of Common Stock for
each share of this Series, subject to adjustment as provided in this
Section 3 (such rate, as so adjusted from time to time, is herein
called the "Conversion Rate") plus (ii) a number of shares of Common
Stock equal to
(A) (1) the Accrued Dividend Amount
minus (2) the Common Dividend Excess, if applicable, or plus
(3) the Common Dividend Deficiency, if applicable (the "Net
Dividend Amount"), divided by
(B) the Closing Price of the Common
Stock on the last Trading Day prior to the Conversion
Date;
provided, however, that in the event that the Net Dividend Amount is a
negative number, the number of shares deliver able upon conversion of
a share of Series I Stock shall be equal to
(I) the number of shares determined
pursuant to clause (i) minus
(II) a number of shares equal to
(x) the absolute value of the Net Dividend Amount divided by
(y) the Closing Price of the Common Stock on the last Trading
Day prior to the Conversion Date;
and provided further that, in the event that the Net
Dividend Amount is a positive number, the Corporation shall
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13
have the right to deliver cash equal to the Net Dividend Amount or any
portion thereof, in which case its obligation to deliver shares of
Common Stock pursuant to clause (ii) shall be reduced by a number of
shares equal to (x) the aggregate amount of cash so delivered divided
by (y) the Closing Price of the Common Stock on the last Trading Day
prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Net Dividend Amount, in which case its entire
obligation under clause (ii) shall be discharged. The obligations of
the Corporation to issue the Common Stock or make the cash payments
provided by this Section 3.1 shall be absolute whether or not any
accrued dividend by which such issuance or payment is measured has
been declared by the Board of Directors and whether or not the
Corporation would have adequate surplus or net profits to pay such
dividend if declared or is otherwise restricted from making such
dividend.
3.2 Except as provided in this Section 3, no
adjustments in respect of payments of dividends on shares surrendered
for conversion or any dividend on the Common Stock issued upon
conversion shall be made upon the conver sion of any shares of this
Series (it being understood that if the Conversion Date for shares of
Series I Stock occurs after a Record Date and on or prior to a
Dividend Payment Date, the holder of record on such Record Date shall
be entitled to receive the dividend payable with respect to such
shares on the related Dividend Payment Date pursuant to Section 2.1
hereof).
3.3 The Corporation may, but shall not be
required to, in connection with any conversion of shares of this
Series, issue a fraction of a share of Common Stock, and if the
Corporation shall determine not to issue any such fraction, the
Corporation shall, subject to Section 3.6(c), make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the
Conversion Date.
3.4 Any holder of shares of this Series
electing to convert such shares into Common Stock shall surrender the
certificate or certificates for such shares at the office of the
transfer agent or agents therefor (or at such other place as the
Corporation may designate by notice to the holders of shares of this
Series) during regular business hours, duly endorsed to the
Corporation or in blank, or accompanied by instruments of transfer to
the Corporation or in blank, or in form satisfactory to the
Corporation, and shall give written notice to the Corporation at such
office that such holder elects to convert such shares of this Series.
The Corporation shall, as soon as practicable (subject to Section
3.6(d)) after such deposit of certificates for shares of this Series,
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14
accompanied by the written notice above prescribed, issue and deliver
at such office to the holder for whose account such shares were
surrendered, or to his nominee, certifi cates representing the number
of shares of Common Stock and the cash, if any, to which such holder
is entitled upon such conversion.
3.5 Conversion shall be deemed to have been
made as of the date (the "Conversion Date") that certifi cates for the
shares of this Series to be converted, and the written notice
prescribed in Section 3.4 are received by the transfer agent or agents
for this Series; and the Person entitled to receive the Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder of such Common Stock on such date. Notwithstanding
anything to the contrary contained herein, in the event the
Corporation shall have rescinded a redemption of shares of this Series
pursuant to Section 4.5, any holder of shares of this Series that
shall have surrendered shares of this Series for conversion following
the day on which notice of the subsequently rescinded redemption shall
have been given but prior to the close of business on the later of (a)
the Trading Day next succeeding the date on which public announcement
of the rescission of such redemption shall have been made and (b) the
Trading Day on which the notice of rescission required by Section 4.5
is deemed given pursuant to Section 8.2 (a "Converting Holder"), may
rescind the conversion of such shares surrendered for conversion by
(i) properly completing a form prescribed by the Corporation and
mailed to holders of shares of this Series (including Converting
Holders) with the Corporation's notice of rescis sion, which form
shall provide for the certification by any Converting Holder
rescinding a conversion on behalf of any beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of shares of this Series
that the beneficial ownership (within the meaning of such Rule) of
such shares shall not have changed from the date on which such shares
were surrendered for conversion to the date of such certifi cation and
(ii) delivering such form to the Corporation no later than the close
of business on that date which is ten (10) Trading Days following the
date on which the Corpora tion's notice of rescission is deemed given
pursuant to Section 8.2. The delivery of such form by a Converting
Holder shall be accompanied by (x) any certificates repre senting
shares of Common Stock issued to such Converting Holder upon a
conversion of shares of this Series that shall be rescinded by the
proper delivery of such form (the "Surrendered Shares"), (y) any
securities, evidences of indebtedness or assets (other than cash)
distributed by the Corporation to such Converting Holder by reason of
such Converting Holder's being a record holder of Surrendered Shares
and (z) payment in New York Clearing House funds or other funds
acceptable to the Corporation of an amount equal
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15
to the sum of (I) any cash such Converting Holder may have received in
lieu of the issuance of fractional shares upon conversion and (II) any
cash paid or payable by the Corpora tion to such Converting Holder by
reason of such Converting Holder being a record holder of Surrendered
Shares. Upon receipt by the Corporation of any such form properly com
pleted by a Converting Holder and any certificates, securi ties,
evidences of indebtedness, assets or cash payments required to be
returned or made by such Converting Holder to the Corporation as set
forth above, the Corporation shall instruct the transfer agent or
agents for shares of Common Stock and shares of this Series to cancel
any certificates representing Surrendered Shares (which Surrendered
Shares shall be deposited in the treasury of the Corporation) and
reissue certificates representing shares of this Series to such
Converting Holder (which shares of this Series shall be deemed to have
been outstanding at all times during the period following their
surrender for conversion). The Corporation shall, as promptly as
practicable, and in no event more than five (5) Trading Days,
following the receipt of any such properly completed form and any such
certifi cates, securities, evidences of indebtedness, assets or cash
payments required to be so returned or made, pay to the Converting
Holder or as otherwise directed by such Converting Holder any dividend
or other payment made on such shares during the period from the time
such shares shall have been surrendered for conversion to the
rescission of such conversion. All questions as to the validity, form,
eligibility (including time or receipt) and acceptance of any form
submitted to the Corporation to rescind the conver sion of shares of
this Series, including questions as to the proper completion or
execution of any such form or any certification contained therein,
shall be resolved by the Corporation, whose determination shall be
final and binding. The Corporation shall not be required to deliver
certifi cates for shares of Common Stock while the stock transfer
books for such stock or for this Series are duly closed for any
purpose or during any period commencing at a Redemption Rescission
Event and ending at either (i) the time and date at which the
Corporation's right of rescission shall expire pursuant to Section 4.5
if the Corporation shall not have exercised such right or (ii) the
close of business on that day which is ten (10) Trading Days following
the date on which notice of rescission pursuant to Section 4.4 is
deemed given pursuant to Section 8.2 if the Corporation shall have
exercised such right of rescission, but certificates for shares of
Common Stock shall be delivered as soon as practicable after the
opening of such books or the expira tion of such period.
3.6 The Conversion Rate shall be adjusted
from time to time as follows for events occurring after
August 31, 1995:
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16
(a) In case the Corporation shall, at
any time or from time to time while any of the Series I Stock
is outstanding, (i) pay a dividend in shares of its Common
Stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its
outstanding shares of Common Stock or (iv) reclassify (other
than by way of a merger that is subject to Section 3.7) its
shares of Common Stock, then the Conversion Rate in effect
immediately before such action shall be adjusted so that
immediately following such event the holders of the Series I
Stock shall be entitled to receive upon conversion or exchange
thereof the kind and amount of shares of Capital Stock of the
Corporation which they would have owned or been entitled to
receive upon or by reason of such event if such shares of
Series I Stock had been converted or exchanged immediately
before the record date (or, if no record date, the effective
date) for such event (it being understood that any
distribution of cash or of Capital Stock (other than Common
Stock), including any distribution of Capital Stock (other
than Common Stock) that shall accompany a reclassification of
the Common Stock, shall be subject to Section 2.3 rather than
this Section 3.6(a)). An adjustment made pursuant to this
Section 3.6(a) 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 or reclassification. For the purposes
of this Section 3.6(a), in the event that the holders of
Common Stock are entitled to make any election with respect to
the kind or amount of securities receivable by them in any
transaction that is subject to this Section 3.6(a) (including
any election that would result in all or a portion of the
transaction becoming subject to Sec tion 2.3), the kind and
amount of securities that shall be distributable to the
holders of the Series I Stock shall be based on (i) the
election, if any, made by the record holder (as of the date
used for determining the holders of Common Stock entitled to
make such election) of the largest number of shares of Series
I Stock in writing to the Corporation on or prior to the last
date on which a holder of Common Stock may make such an
election or (ii) if no such election is timely made, an
assumption that such holder failed to exercise any such rights
(provided that if the kind or amount of securi ties is not the
same for each nonelecting holder, then the kind and amount of
securities receivable shall be based on the kind or amount of
securities receivable by a plurality of nonelecting holders of
Common Stock). Concurrently with the mailing to holders of
Common Stock of any document pursuant to which such holders
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17
may make an election of the type referred to in this Section,
the Corporation shall mail a copy thereof to the record
holders of the Series I Stock as of the date used for
determining the holders of record of Common
Stock entitled to such mailing.
(b) In case a Change of Control shall
occur, the Conversion Rate in effect immediately prior to the
Change of Control Date shall be increased (but not decreased)
by multiplying such rate by a fraction as follows: (i) in the
case of a Change of Control specified in Section 1.5(a), a
fraction in which the numerator is the Conversion Price prior
to adjustment pursuant hereto and the denominator is the
Current Market Price of the Common Stock at the Change of
Control Date, (ii) in the case of a Change of Control
specified in Section 1.5(b), the greater of the follow ing
fractions: (x) a fraction the numerator of which is the
highest price per share of Common Stock paid by the Acquiring
Person in connection with the transaction giving rise to the
Change of Control or in any trans action within six months
prior to or after the Change of Control Date (the "Highest
Price"), and the denomi nator of which is the Current Market
Price of the Common Stock as of the date (but not earlier than
six months prior to the Change of Control Date) on which the
first public announcement is made by the Acquiring Person that
it intends to acquire or that it has acquired 40% or more of
the outstanding shares of Common Stock (the "Announcement
Date") or (y) a frac tion the numerator of which is the
Conversion Price prior to adjustment pursuant hereto and the
denominator of which is the Current Market Price of the Common
Stock on the Announcement Date and (iii) in the case where
there co-exists a Change of Control specified in both Section
1.5(a) and Section 1.5(b), the greatest of the fractions
determined pursuant to clauses (i) and (ii). Such adjustment
shall become effective immedi ately after the Change of
Control Date and shall be made, in the case of clauses (ii)
and (iii) above, successively for six months thereafter in the
event and at the time of any increase in the Highest Price
after the Change of Control Date; provided, however, that no
such successive adjustment shall be made with respect to the
Conversion Rate of the shares of this Series in respect of any
event occurring after the Conversion Date.
(c) The Corporation shall be entitled
to make such additional adjustments in the Conversion Rate, in
addition to those required by subsec tions 3.6(a) and 3.6(b),
as shall be necessary in order that any dividend or
distribution in Common Stock or
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18
any subdivision, reclassification or combination of shares of
Common Stock referred to above, shall not be taxable to the
holders of Common Stock for United States Federal income tax
purposes so long as such additional adjustments pursuant to
this Section 3.6(c) do not decrease the Conversion Rate.
(d) In any case in which this
Section 3.6 shall require that any adjustment be made
effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for
five (5) Trading Days following the occurrence of the event
which necessitates the filing of the statement referred to in
Section 3.6(f)) issuing to the holder of any shares of this
Series converted after such record date (i) the shares of
Common Stock and other Capital Stock of the Corporation
issuable upon such conversion over and above (ii) the shares
of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion on the basis of the Conversion
Rate prior to adjustment; provided, however, that the
Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the
event requiring such adjustment.
(e) All calculations under this
Section 3 shall be made to the nearest cent, one-hundredth of
a share or, in the case of the Conversion Rate, one
hundred-thousandth. Notwithstanding any other provision of
this Section 3, the Corporation shall not be required to make
any adjustment of the Conversion Rate unless such adjustment
would require an increase or decrease of at least 1.00000% of
such Conversion Rate. Any lesser adjustment shall be carried
forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments
under this Section 3 shall be made successively whenever an
event requiring such an adjustment occurs.
(f) Whenever an adjustment in the
Conversion Rate is required, the Corporation shall forthwith
place on file with its transfer agent or agents for this
Series a statement signed by a duly authorized officer of the
Corporation, stating the adjusted Conversion Rate determined
as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show the
reason for and the manner of computing such adjustment.
Promptly after the adjustment of the Conversion Rate, the
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19
Corporation shall mail a notice thereof to each holder of
shares of this Series.
(g) In the event that at any time as a
result of an adjustment made pursuant to this Section 3, the
holder of any share of this Series thereafter surrendered for
conversion shall become entitled to receive any shares of
Capital Stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable
upon conversion of any such share of this Series shall be
subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in subparagraphs (a)
through (f) and (h) of this Section 3.6, and the provisions of
Section 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the
determination of the Board of Directors as to any such
adjustment shall be conclusive.
(h) No adjustment shall be made
pursuant to this Section 3.6 (i) if the effect thereof would
be to reduce the Conversion Price below the par value of the
Common Stock or (ii) subject to Section 3.6(c) hereof, with
respect to any share of Series I Stock that is converted,
prior to the time such adjustment otherwise would be made.
3.7 In case after August 31, 1995 (a) any
consolidation or merger to which the Corporation is a party, other
than a merger or consolidation in which the Corpora tion is the
surviving or continuing corporation and which does not result in any
reclassification of, or change (other than a change in par value or
from par value to no par value or from no par value to par value, or
as a result of a sub division or combination) in, outstanding shares
of Common Stock or (b) any sale or conveyance of all or substantially
all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction
whereby the holder of each share of Series I Stock shall have the
right thereafter, during the period such share shall be convertible or
exchangeable, to convert such share into or have such share exchanged
for the kind and amount of shares of stock or other securities and
property receivable upon such consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into
which such shares of this Series could have been converted or
exchanged immediately prior to such consolida tion, merger, sale or
conveyance, subject to adjustment which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section
3 (based on (i) the election, if any, made in writing to the
Corporation
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20
by the record holder (as of the date used for determining holders of
Common Stock entitled to make such election) of the largest number of
shares of Series I Stock on or prior to the last date on which a
holder of Common Stock may make an election regarding the kind or
amount of securities or other property receivable by such holder in
such transaction or (ii) if no such election is timely made, an
assumption that such holder failed to exercise any such rights (pro
vided that if the kind or amount of securities or other property is
not the same for each nonelecting holder, then the kind and amount of
securities or other property receiv able shall be based upon the kind
and amount of securities or other property receivable by a plurality
of the non electing holders of Common Stock)). In the event that any
of the transactions referred to in clauses (a) or (b) involves the
distribution of cash (or property other than equity securities) to a
holder of Common Stock, lawful provision shall be made as part of the
terms of the trans action whereby the holder of each share of Series I
Stock on the record date fixed for determining holders of Common Stock
entitled to receive such cash or property (or if no such record date
is established, the effective date of such transaction) shall be
entitled to receive the amount of cash or property that such holder
would have been entitled to receive had such holder converted his
shares of Series I Stock into Common Stock immediately prior to such
record date (or effective date) (based on the election or nonelec tion
made by the record holder of the largest number of shares of Series I
Stock, as provided above). Concurrently with the mailing to holders of
Common Stock of any document pursuant to which such holders may make
an election regard ing the kind or amount of securities or other
property that will be receivable by such holder in any transaction des
cribed in clause (a) or (b) of the first sentence of this Section 3.7,
the Corporation shall mail a copy thereof to the holders of the Series
I Stock as of the date used for determining the holders of record of
Common Stock entitled to such mailing. The Corporation shall not enter
into any of the transactions referred to in clauses (a) or (b) of the
preceding sentence unless effective provision shall be made in the
certificate or articles of incorporation or other constituent
documents of the Corporation or the entity surviving the consolidation
or merger, if other than the Corporation, or the entity acquiring the
Corporation's assets, as the case may be, so as to give effect to the
provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive con solidations,
mergers, sales or conveyances. For purposes of this Section 3.7 the
term "Corporation" shall refer to the Corporation (as defined in
Section 1.14) as constituted immediately prior to the merger,
consolidation or other transaction referred to in this Section.
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21
3.8 The Corporation shall at all times
reserve and keep available, free from preemptive rights, out of its
authorized but unissued stock, for the purpose of effecting the
conversion of the shares of this Series, such number of its duly
authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be
sufficient to effect the conversion of all outstanding shares of this
Series into such Common Stock (or such other shares of Capital Stock)
at any time (assuming that, at the time of the computation of such
number of shares, all such Common Stock (or such other shares of
Capital Stock) would be held by a single holder); provided, however,
that nothing contained herein shall preclude the Corporation from
satisfying its obligations in respect of the conversion of the shares
by delivery of purchased shares of Common Stock (or such other shares
of Capital Stock) that are held in the treasury of the Corporation.
All shares of Common Stock (or such other shares of Capital Stock of
the Corporation) which shall be deliverable upon conversion of the
shares of this Series shall be duly and validly issued, fully paid and
nonassessable. For purposes of this Section 3, any shares of Common
Stock at any time outstanding shall not include shares held in the
treasury of the Corporation.
3.9 If any shares of Common Stock or other
shares of Capital Stock of the Corporation which would be issuable
upon conversion of shares of this Series hereunder require
registration with or approval of any governmental authority before
such shares may be issued upon conversion, the Corporation will in
good faith and as expeditiously as possible cause such shares to be
duly registered or approved, as the case may be. The Corporation will
use commercially reasonable efforts to list the shares of (or
depositary shares representing fractional interests in) Common Stock
or other shares of Capital Stock of the Corporation required to be
delivered upon conversion of shares of this Series prior to such
delivery upon the principal national securities exchange upon which
the out standing Common Stock or such other shares of Capital Stock is
listed at the time of such delivery.
3.10 The Corporation shall pay any and all
issue or other taxes that may be payable in respect of any issue or
delivery of shares of Common Stock or other shares of Capital Stock of
the Corporation on conversion of shares of this Series pursuant
hereto. The Corporation shall not, however, be required to pay any tax
which is payable in respect of any transfer involved in the issue or
delivery of Common Stock or such other shares of Capital Stock in a
name other than that in which the shares of this Series so converted
were registered, and no such issue or delivery shall be made unless
and until the Person requesting such
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22
issue has paid to the Corporation the amount of such tax, or
has established, to the satisfaction of the Corporation,
that such tax has been paid.
3.11 In case of (i) the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation,
(ii) any Pro Rata Repurchase or (iii) any action triggering an
adjustment to the Conversion Rate pursuant to this Section 3, then, in
each case, the Corporation shall cause to be filed with the transfer
agent or agents for the Series I Stock, and shall cause to be mailed,
first-class postage prepaid, to the holders of record of the
outstanding shares of Series I Stock, at least fifteen (15) days prior
to the applicable record date for any such transaction (or if no
record date will be estab lished, the effective date thereof), a
notice stating (x) the date, if any, on which a record is to be taken
for the purpose of any such transaction (or if no record date will be
established, the date as of which holders of record of Common Stock
entitled to participate in such transaction are determined), and (y)
the expected effective date thereof. Failure to give such notice or
any defect therein shall not affect the legality or validity of the
proceedings described in this Section 3.11.
4. Redemption or Exchange.
4.1 (a) The Corporation may, at its sole
option, subject to Section 2.2 hereof, from time to time on and after
the fourth anniversary of the Effective Time, redeem, out of funds
legally available therefor, or, as provided below, exchange shares of
Common Stock for, all or (in the case of Section 4.1(b)(i), any part)
of the outstanding shares of this Series. The redemption price for
each share of this Series called for redemption pursuant to clause (i)
of Section 4.1(b) shall be the Liquidation Value together with an
amount equal to the accrued and unpaid dividends to the date fixed for
redemption (hereinafter collectively referred to as the "Redemption
Price"). The exchange price for each share of this Series called for
exchange pursuant to clause (ii) of Section 4.1(b) shall be a number
of shares of Common Stock equal to the Conversion Rate, together with,
at the option of the Corporation, either (x) cash or (y) a number of
shares of Common Stock, valued at the Closing Price on the Trading Day
immediately preceding the date fixed for exchange, equal, in either
case, to the aggregate amount of accrued and unpaid dividends on the
Series I Stock to the date fixed for exchange (provided that any
dividends which are in arrears must be paid in cash) (hereinafter
collectively referred to as the "Exchange Price").
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23
(b) On the date fixed for redemption or
exchange the Corporation shall, at its option, effect either
(i) a redemption of the shares of
this Series to be redeemed by way of payment, out of funds
legally available therefor, of cash equal to the aggregate
Redemption Price for the shares of this Series then being
redeemed;
(ii) an exchange of the shares of
this Series for the Exchange Price in shares of Common Stock
(provided that the Corporation (A) shall be entitled to
deliver cash (1) in lieu of any fractional share of Common
Stock (determined in a manner consis tent with Section 3.3)
and (2) equal to accrued and unpaid dividends to the date
fixed for exchange in lieu of shares of Common Stock and (B)
shall be required to deliver cash in respect of any dividends
that are in arrears); or
(iii) any combination thereof with
respect to each share of this Series called for redemp
tion or exchange.
(c) Notwithstanding clauses (ii) and
(iii) of Section 4.1(b), the Corporation shall be entitled to effect
an exchange of shares of Series I Stock for Common Stock or other
shares of Capital Stock of the Corporation only to the extent that
duly and validly issued, fully paid and nonassessable shares of Common
Stock (or such other shares of Capital Stock) shall be available for
issuance (including delivery of previously issued shares of Common
Stock held in the Corporation's treasury on the date fixed for
exchange). The Corporation shall comply with Sec tions 3.9 and 3.10
with respect to shares of Common Stock or other shares of Capital
Stock of the Corporation which would be issuable upon exchange of
shares of this Series. Cer tificates for shares of Common Stock issued
in exchange for surrendered shares of this Series pursuant to this Sec
tion 4.1 shall be made available by the Corporation not later than the
fifth Trading Day following the date for exchange.
4.2 In the event that fewer than all the
outstanding shares of this Series are to be redeemed pursuant to
Section 4.1(b)(i), the number of shares to be redeemed from each
holder of shares of this Series shall be determined by the Corporation
by lot or pro rata or by any other method as may be determined by the
Board of Directors in its sole discretion to be equitable, and the
certificate of the Corporation's Secretary or an Assistant Secretary
filed with the transfer agent or transfer agents for this
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24
Series in respect of such determination by the Board of Directors
shall be conclusive.
4.3 In the event the Corporation shall
redeem or exchange shares of this Series pursuant to Section 4.1,
notice of such redemption or exchange shall be given by first class
mail, postage prepaid, mailed not less than fifteen (15) nor more than
sixty (60) days prior to the date fixed for redemption or exchange, as
the case may be, to each record holder of the shares to be redeemed or
exchanged, at such holder's address as the same appears on the books
of the Corporation. Each such notice shall state: (i) whether the
shares of this Series are to be redeemed or exchanged; (ii) the time
and date as of which the redemption or exchange shall occur; (iii) the
total number of shares of this Series to be redeemed or exchanged and,
if fewer than all the shares held by such holder are to be redeemed,
the number of such shares to be redeemed from such holder; (iv) the
Redemption Price or the Exchange Price, as the case may be; (v) that
shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption
or exchange (unless the Corporation shall, in the case of a
redemption, default in payment of the Redemption Price or, in the case
of an exchange, fail to exchange the shares of this Series for the
applicable number of shares of Common Stock and any cash portion of
the Exchange Price or shall exercise its right to rescind such
redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the
applicable Conversion Price and Conversion Rate; (vii) the place or
places where certifi cates for such shares are to be surrendered for
payment of the Redemption Price, in the case of redemption, or for
delivery of certificates representing the shares of Common Stock and
the payment of any cash portion of the Exchange Price, in the case of
exchange; and (viii) that dividends on the shares of this Series to be
redeemed or exchanged will cease to accrue on such redemption or
exchange date.
4.4 If notice of redemption or exchange
shall have been given by the Corporation as provided in Section 4.3,
dividends on the shares of this Series so called for redemption or
exchange shall cease to accrue, such shares shall no longer be deemed
to be outstanding, and all rights of the holders thereof as
stockholders of the Corporation with respect to shares so called for
redemption or exchange (except (i) in the case of redemption, the
right to receive from the Corporation the Redemption Price without
interest and in the case of exchange, the right to receive from the
Corporation the Exchange Price without interest and (ii) the right to
convert such shares in accordance with Section 3) shall cease
(including any right to receive dividends otherwise payable on any
Dividend Payment Date
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25
that would have occurred after the time and date of redemp tion or
exchange) either (i) in the case of a redemption or exchange pursuant
to Section 4.1, from and after the time and date fixed in the notice
of redemption or exchange as the time and date of redemption or
exchange (unless the Corporation shall (x) in the case of a
redemption, default in the payment of the Redemption Price, (y) in the
case of an exchange, fail to exchange the applicable number of shares
of Common Stock and any cash portion of the Exchange Price or (z)
exercise its right to rescind such redemption pursuant to Section 4.5,
in which case such rights shall not terminate at such time and date)
or (ii) if the Corporation shall so elect and state in the notice of
redemption or exchange, from and after the time and date (which date
shall be the date fixed for redemption or exchange or an earlier date
not less than fifteen (15) days after the date of mailing of the
redemption or exchange notice) on which the Corporation shall
irrevocably deposit with a designated bank or trust company doing
business in the Borough of Manhattan, City and State of New York, as
paying agent, money suffi cient to pay at the office of such paying
agent, on the redemption date, the Redemption Price, in the case of
redemption, or certificates representing the shares of Common Stock to
be so exchanged and any cash portion of the Exchange Price, in the
case of an exchange. Any money or certificates so deposited with any
such paying agent which shall not be required for such redemption or
exchange because of the exercise of any right of conversion or other
wise shall be returned to the Corporation forthwith. Upon surrender
(in accordance with the notice of redemption or exchange) of the
certificate or certificates for any shares of this Series to be so
redeemed or exchanged (properly endorsed or assigned for transfer, if
the Corporation shall so require and the notice of redemption or
exchange shall so state), such shares shall be redeemed or exchanged
by the Corporation at the Redemption Price or the Exchange Price, as
applicable, as set forth in Section 4.1 (unless the Corporation shall
have exercised its right to rescind such redemption pursuant to
Section 4.5). In case fewer than all the shares represented by any
such certificate are to be redeemed, a new certificate shall be issued
representing the unredeemed shares (or fractions thereof as provided
in Section 8.4), without cost to the holder thereof, together with the
amount of cash, if any, in lieu of fractional shares other than those
issuable in accordance with Sec tion 8.4. Subject to applicable
escheat laws, any moneys so set aside by the Corporation in the case
of redemption 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 shares so called for redemption or
exchange shall look only to the general funds of the Corporation for
the payment of the Redemption Price or the Exchange Price, as
applicable, without interest. Any
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26
interest accrued on funds so deposited shall be paid to the
Corporation from time to time.
4.5 In the event that a Redemption
Rescission Event shall occur following any day on which a notice of
redemption shall have been given pursuant to Section 4.3 but at or
prior to the earlier of (a) the time and date fixed for redemption as
set forth in such notice of redemption and (b) the time and date at
which the Corporation shall have irrevocably deposited funds or
certificates with a designated bank or trust company pursuant to
Section 4.4, the Corporation may, at its sole option, at any time
prior to the earliest of (i) the close of business on that day which
is two (2) Trading Days following such Redemption Rescission Event,
(ii) the time and date fixed for redemption as set forth in such
notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust
company, rescind the redemption to which such notice of redemption
shall have related by making a public announcement of such rescission
(the date on which such public announcement shall have been made being
hereinafter referred to as the "Rescission Date"). The Corporation
shall be deemed to have made such announcement if it shall issue a
release to the Dow Jones News Service, Reuters Information Services or
any successor news wire service. From and after the making of such
announcement, the Corporation shall have no obligation to redeem
shares of this Series called for redemption pursuant to such notice of
redemption or to pay the redemption price therefor and all rights of
holders of shares of this Series shall be restored as if such notice
of redemption had not been given. The Corporation shall give notice of
any such rescission by one of the means specified in Section 8.2 as
promptly as practicable, but in no event later than the close of
business on that date which is five (5) Trading Days following the
Rescission Date to each record holder of shares of this Series at the
close of business on the Rescission Date and to any other Person or
entity that was a record holder of shares of this Series and that
shall have surrendered shares of this Series for conversion following
the giving of notice of the subsequently rescinded redemp tion. Each
notice of rescission shall (w) state that the redemption described in
the notice of redemption has been rescinded, (x) state that any
Converting Holder shall be entitled to rescind the conversion of
shares of this Series surrendered for conversion following the day on
which notice of redemption was given but prior to the close of
business on the later of (1) the Trading Day next succeeding the date
on which public announcement of the rescission of such redemption
shall have been made and (2) the Trading Day on which the
Corporation's notice of rescission is deemed given pursuant to Section
8.2, (y) be accompanied by a form
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27
prescribed by the Corporation to be used by any Converting Holder
rescinding the conversion of shares so surrendered for conversion (and
instructions for the completion and delivery of such form, including
instructions with respect to payments that may be required to
accompany such delivery shall be in accordance with Section 3.5) and
(z) state that such form must be properly completed and received by
the Corporation no later than the close of business on a date that
shall be ten (10) Trading Days following the date of the mailing of
such notice of rescission is deemed given pursuant to Section 8.2.
4.6 The shares of this Series shall not be
subject to the provisions of Section 5 of Article IV of the
Certificate of Incorporation.
5. Pro Rata Repurchase.
5.1 Upon a Pro Rata Repurchase, each holder
of shares of this Series shall have the right to require that the
Corporation repurchase, out of funds legally available therefor, a Pro
Rata Portion (as defined below) of the shares of such holder, or any
lesser number requested by the holder, at a price per share equal to
the highest price per share of Common Stock paid in the Pro Rata
Repurchase multiplied by the Conversion Rate then in effect plus an
amount equal to the accrued but unpaid dividends on such shares to the
date of repurchase.
5.2 At any time prior to or within thirty
(30) days following any Pro Rata Repurchase, the Corporation shall
mail a notice to each holder of shares of this Series stating:
(a) that a Pro Rata Repurchase will
occur or has occurred and that such holder will have (upon
such Pro Rata Repurchase) or has the right to require the
Corporation to repurchase such holder's shares in an amount
not in excess of the Pro Rata Portion at a repurchase price in
cash determined as set forth above plus an amount equal to
accrued and unpaid dividends, if any, to the date of
repurchase;
(b) the repurchase date for the Series
I Stock (which shall be no earlier than fifteen (15) days nor
later than sixty (60) days from the date such notice is
mailed); and
(c) the instructions determined by the
Corporation, consistent with this Section, that a holder must
follow in order to have its shares repurchased.
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28
5.3 Holders electing to have any shares
repurchased will be required to surrender such shares, with an
appropriate form duly completed, to the Corporation at the address
specified in the notice at least five (5) days prior to the repurchase
date. Holders will be entitled to withdraw their election if the
Corporation receives, not later than three (3) days prior to the
repurchase date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the certificate numbers of the
shares delivered for purchase by the holder and a statement that such
holder is withdrawing his election to have such shares repurchased.
Holders will have such additional withdrawal and other rights as may
be required pursuant to applicable law.
5.4 On the repurchase date, the Corporation
shall (i) pay the repurchase price plus an amount equal to accrued and
unpaid dividends as provided in Section 5.1, if any, to the holders
entitled thereto and (ii) issue to such holders any equity securities
of the Corporation (other than Common Stock) that would at the time be
issuable upon conversion of the shares of Series I Stock which are
then being repurchased pursuant hereto.
5.5 The Board of Directors will not approve
any tender or exchange offer by the Corporation or a third party for
shares of Common Stock or recommend that the holders of Common Stock
accept any offer or tender their shares into any offer unless a Pro
Rata Portion of the shares of this Series of all holders are entitled
to be tendered into such offer at a price not less than the price per
share for shares of Common Stock pursuant to such offer multiplied by
the Conversion Rate then in effect plus an amount equal to accrued but
unpaid dividends on such shares to the date of payment for such shares
in such tender or exchange offer.
5.6 For purposes hereof, "Pro Rata Portion"
with respect to the shares of this Series held by any holder shall
mean all the shares of this Series then owned by such holder times a
fraction, the numerator of which is the number of outstanding shares
of Common Stock (a) purchased in the applicable Pro Rata Repurchase or
(b) for which a tender or exchange offer referred to in Section 5.5 is
made, as the case may be, and the denominator of which is the number
of outstanding shares of Common Stock immediately prior to such Pro
Rata Repurchase or the commencement of such tender or exchange offer,
as the case may be.
6. Voting. The shares of this Series shall
have no voting rights except as required by law or as set
forth below.
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29
6.1 Each share of this Series shall be
entitled to vote together with holders of the shares of Common Stock
(and any other class or series which may similarly be entitled to vote
with the shares of Common Stock) as a single class upon all matters
upon which holders of Common Stock are entitled to vote. In any such
vote, the holders of this Series shall be entitled to two (2) votes
per $100 of Liquidation Value of Series I Stock, subject to adjustment
at the same time and in the same manner as each adjustment of the
Conversion Rate pursuant to Section 3, so that the holders of this
Series shall be entitled following such adjustment to the number of
votes equal to the number of votes such holders were entitled to under
this Section 6.1 immediately prior to such adjustment multiplied by a
fraction (x) the numerator of which is the Conversion Rate as adjusted
pursuant to Section 3 and (y) the denominator of which is the
Conversion Rate immediately prior to such adjustment.
6.2 (a) So long as any shares of this
Series remain outstanding, unless a greater percentage shall then be
required by law, the Corporation shall not, without the affirmative
vote at a meeting or the written consent with or without a meeting of
the holders of shares of this Series representing at least 66-2/3% of
the aggregate voting power of shares of this Series then outstanding
(i) autho rize any Senior Stock or reclassify (by merger, consolida
tion or otherwise) any Junior Stock or Parity Stock as Senior Stock,
(ii) merge into or consolidate with any Person where the surviving or
continuing corporation will have any authorized Senior Stock other
than capital stock correspond ing to shares of Senior Stock of the
Corporation existing immediately before such merger or consolidation)
or (iii) amend, alter or repeal (by operation of law or other wise)
any of the provisions of the Certificate or the Certificate of
Incorporation, so as in any such case to adversely affect the voting
powers, designations, prefer ences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions of the shares of this Series.
(b) No consent of holders of shares of
this Series shall be required for (i) the creation of any indebtedness
of any kind of the Corporation, (ii) the authorization or issuance of
any class of Junior Stock or Parity Stock, (iii) the authorization,
designation or issu ance of additional shares of Series I Stock or
(iv) subject to Section 6.2(a), the authorization or issuance of any
other shares of Preferred Stock.
6.3 (a) If and whenever at any time or
times dividends payable on shares of this Series shall have been in
arrears and unpaid in an aggregate amount equal to
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30
or exceeding the amount of dividends payable thereon for six quarterly
dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of
this Series, together with the holders of any shares of any Parity
Stock as to which in each case dividends are in arrears and unpaid in
an aggre gate amount equal to or exceeding the amount of dividends
payable thereon for six quarterly dividend periods, shall have the
exclusive right, voting separately as a class with such other series,
to elect two directors of the Corporation.
(b) Such voting right may be exercised
initially either by written consent or at a special meeting of the
holders of the Preferred Stock having such voting right, called as
hereinafter provided, or at any annual meeting of stockholders held
for the purpose of electing directors, and thereafter at each such
annual meeting until such time as all dividends in arrears on the
shares of this Series shall have been paid in full and all dividends
payable on the shares of this Series on four subsequent consecutive
Dividend Payment Dates shall have been paid in full on such dates or
funds shall have been set aside for the payment thereof, at which time
such voting right and the term of the directors elected pursuant to
Section 6.3(a) shall terminate.
(c) At any time when such voting right
shall have vested in holders of shares of such series of Preferred
Stock described in Section 6.3(a), and if such right shall not already
have been exercised by written consent, a proper officer of the
Corporation may call, and, upon the written request, addressed to the
Secretary of the Corporation, of the record holders of shares
representing ten percent (10%) of the voting power of the shares then
outstanding of such Preferred Stock having such voting right, shall
call, a special meeting of the holders of such Preferred Stock having
such voting right. Such meeting shall be held at the earliest
practicable date upon the notice required for annual meetings of
stockholders at the place for holding annual meetings of stockholders
of the Corporation, or, if none, at a place designated by the Board of
Directors. Notwithstanding the provisions of this Section 6.3(c), no
such special meeting shall be called during a period within 60 days
immediately preceding the date fixed for the next annual meeting of
stockholders.
(d) At any meeting held for the purpose
of electing directors at which the holders of such Preferred Stock
shall have the right to elect directors as provided herein, the
presence in Person or by proxy of the holders of shares representing
more than fifty percent (50%) in voting power of the then outstanding
shares of such Preferred Stock
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<PAGE>
31
having such right shall be required and shall be sufficient to
constitute a quorum of such class for the election of directors by
such class.
(e) Any director elected by holders of
Preferred Stock pursuant to the voting right created under this
Section 6.3 shall hold office until the next annual meeting of
stockholders (unless such term has previously terminated pursuant to
Section 6.3(b)) and any vacancy in respect of any such director shall
be filled only by vote of the remaining director so elected, or if
there be no such remaining director, by the holders of such Preferred
Stock, entitled to elect such director or directors by written consent
or at a special meeting called in accordance with the procedures set
forth in Section 6.3(c), or, if no special meeting is called or
written consent executed, at the next annual meeting of stockholders.
Upon any termina tion of such voting right, subject to applicable law,
the term of office of all directors elected by holders of such
Preferred Stock voting separately as a class pursuant to this Section
6.3 shall terminate.
(f) In exercising the voting rights set
forth in this Section 6.3, each share of this Series shall have a
number of votes equal to its Liquidation Value.
7. Liquidation Rights.
7.1 Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involun tary, the
holders of the shares of this Series shall be entitled to receive out
of the assets of the Corporation available for distribution to
stockholders, in preference to the holders of, and before any payment
or distribution shall be made on, Junior Stock, the amount of $100 per
share (the "Liquidation Value"), plus an amount equal to all accrued
and unpaid dividends to the date of final distribution.
7.2 Neither the sale, exchange or other con
veyance (for cash, shares of stock, securities or other con
sideration) of all or substantially all the property and assets of the
Corporation nor the merger or consolidation of the Corporation into or
with any other corporation, or the merger or consolidation of any
other corporation into or with the Corporation, shall be deemed to be
a dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 7.
7.3 After the payment to the holders of the
shares of this Series of full preferential amounts provided for in
this Section 7, the holders of this Series as such shall have no right
or claim to any of the remaining assets of the Corporation.
<PAGE>
<PAGE>
32
7.4 In the event the assets of the Corpora
tion available for distribution to the holders of shares of this
Series upon any dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, shall be insufficient
to pay in full all amounts to which such holders are entitled pursuant
to Section 7.1, no such distribution shall be made on account of any
shares of any Parity Stock upon such dissolution, liquidation or
winding up unless proportionate distributive amounts shall be paid on
account of the shares of this Series, ratably, in propor tion to the
full distributable amounts for which holders of all Parity Stock are
entitled upon such dissolution, liquidation or winding up.
8. Other Provisions.
8.1 All notices from the Corporation to the
holders shall be given by one of the methods specified in Section 8.2.
With respect to any notice to a holder of shares of this Series
required to be provided hereunder, neither failure to give such
notice, nor any defect therein or in the transmission thereof, to any
particular holder shall affect the sufficiency of the notice or the
validity of the proceedings referred to in such notice with respect to
the other holders or affect the legality or validity of any
distribution, right, warrant, reclassification, consoli dation,
merger, conveyance, transfer, dissolution, liquida tion or winding up,
or the vote upon any such action. Any notice which was mailed in the
manner herein provided shall be conclusively presumed to have been
duly given whether or not the holder receives the notice.
8.2 All notices and other communications
hereunder shall be deemed given (i) on the first Trading Day following
the date received, if delivered personally, (ii) on the Trading Day
following timely deposit with an overnight courier service, if sent by
overnight courier specifying next day delivery and (iii) on the first
Trading Day that is at least five days following deposit in the mails,
if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series I Stock and
(y) the Corporation at the following address (or at such other address
as the Corporation shall specify in a notice pursuant to this
Section): Time Warner Inc., 75 Rockefeller Plaza, New York, New York
10019, Attention: General Counsel.
8.3 Any shares of this Series which have
been converted, redeemed, exchanged or otherwise acquired by the
Corporation shall, after such conversion, redemption, exchange or
acquisition, as the case may be, be retired and promptly cancelled and
the Corporation shall take all appro priate action to cause such
shares to obtain the status of
<PAGE>
<PAGE>
33
authorized but unissued shares of Preferred Stock, without designation
as to series, until such shares are once more designated as part of a
particular series by the Board of Directors. The Corporation may cause
a certificate setting forth a resolution adopted by the Board of
Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of
Delaware. When such certificate becomes effective, all references to
Series I Stock shall be eliminated from the Certificate of
Incorporation and the shares of Preferred Stock designated hereby as
Series I Stock shall have the status of authorized and unissued shares
of Preferred Stock and may be reissued as part of any new series of
Preferred Stock to be created by resolution or resolutions of the
Board of Directors.
8.4 The shares of this Series shall be issu-
able in whole shares or, if authorized by the Board of Directors (or
any authorized committee thereof), in any fraction of a whole share so
authorized or any integral multiple of such fraction.
8.5 The Corporation shall be entitled to
recognize the exclusive right of a Person registered on its records as
the holder of shares of this Series, and such record holder shall be
deemed the holder of such shares for all purposes.
8.6 All notice periods referred to in the
Certificate shall commence on the date of the mailing of the
applicable notice.
<PAGE>
<PAGE>
34
8.7 Certificates for shares of this Series
shall bear such legends as the Corporation shall from time to time
deem appropriate.
IN WITNESS WHEREOF, Time Warner Inc. has caused this
certificate to be signed and attested this ____ day of October, 1995.
TIME WARNER INC.
By:__________________________________
Name:
Title:
Attest:
- ------------------------
Name:
Title:
<PAGE>
<PAGE>
================================================================================
AMENDED AND RESTATED DECLARATION OF TRUST
between
TIME WARNER INC.
and
HOLDERS
Dated as of August 15, 1995
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
SECTION 1.01. Terms Generally ............................................. 2
SECTION 1.02. Definitions ................................................. 2
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application ............................ 9
SECTION 2.02. Lists of Holders of Preferred
Securities ................................................ 10
SECTION 2.03. Reports by the Property Trustee ............................. 10
SECTION 2.04. Periodic Reports to Property Trustee ........................ 10
SECTION 2.05. Evidence of Compliance with Conditions
Precedent ................................................. 11
SECTION 2.06. Events of Default; Waiver ................................... 11
SECTION 2.07. Disclosure of Information ................................... 13
ARTICLE III
Organization
SECTION 3.01. Name ........................................................ 13
SECTION 3.02. Office ...................................................... 14
SECTION 3.03. Purpose ..................................................... 14
SECTION 3.04. Authority ................................................... 14
SECTION 3.05. Title to Property of the Trust .............................. 14
SECTION 3.06. Powers and Duties of the Regular
Trustees .................................................. 15
SECTION 3.07. Prohibition of Actions by Trust and
Trustees .................................................. 17
SECTION 3.08. Powers and Duties of the Property
Trustee ................................................... 19
SECTION 3.09. Delaware Trustee ............................................ 22
SECTION 3.10. Certain Rights and Duties of the
Property Trustee .......................................... 22
SECTION 3.11. Registration Statement and Related
Matters ................................................... 25
<PAGE>
<PAGE>
2
SECTION 3.12. Filing of Amendments to Certificate of
Trust ..................................................... 27
SECTION 3.13. Execution of Documents by Regular
Trustees .................................................. 27
SECTION 3.14. Trustees Not Responsible for Recitals
or Issuance of Trust Securities ........................... 27
SECTION 3.15. Duration of Trust ........................................... 28
ARTICLE IV
Sponsor
SECTION 4.01. Purchase of Common Securities by
Sponsor ................................................... 28
SECTION 4.02. Expenses .................................................... 28
SECTION 4.03. Exchanges of LYONs and
Redemptions ............................................... 29
ARTICLE V
Trustees
SECTION 5.01. Number of Trustees; Qualifications .......................... 29
SECTION 5.02. Appointment, Removal and Resignation
of Trustees ............................................... 32
SECTION 5.03. Vacancies Among Trustees .................................... 34
SECTION 5.04. Effect of Vacancies ......................................... 35
SECTION 5.05. Meetings .................................................... 35
SECTION 5.06. Delegation of Power ......................................... 35
ARTICLE VI
Distributions
SECTION 6.01. Distributions ............................................... 36
ARTICLE VII
Issuance of Trust Securities
SECTION 7.01. General Provisions Regarding Trust
Securities ................................................ 36
<PAGE>
<PAGE>
3
ARTICLE VIII
Termination of Trust
SECTION 8.01. Termination of Trust ........................................ 38
ARTICLE IX
Transfer of Interests
SECTION 9.01. Transfer of Trust Securities ................................ 39
SECTION 9.02. Transfer of Certificates .................................... 40
SECTION 9.03. Deemed Security Holders ..................................... 40
SECTION 9.04. Book-Entry Interests ........................................ 40
SECTION 9.05. Notices to Holders of Certificates .......................... 41
SECTION 9.06. Appointment of Successor Clearing
Agency .................................................... 41
SECTION 9.07. Definitive Preferred Securities
Certificates .............................................. 41
SECTION 9.08. Mutilated, Destroyed, Lost or Stolen
Certificates .............................................. 42
ARTICLE X
Limitation of Liability; Indemnification
SECTION 10.01. Liability .................................................. 42
SECTION 10.02. Exculpation ................................................ 43
SECTiON 10.03. Indemnification ............................................ 43
SECTION 10.04. Outside Businesses ......................................... 44
ARTICLE XI
Accounting
SECTION 11.01. Fiscal Year ................................................ 45
SECTION 11.02. Certain Accounting Matters ................................. 45
SECTION 11.03. Banking .................................................... 46
SECTION 11.04. Withholding ................................................ 46
<PAGE>
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4
ARTICLE XII
Amendments and Meetings
SECTION 12.01. Amendments ................................................. 47
SECTION 12.02. Meetings of the Holders of Trust
Securities; Action by Written
Consent .................................................. 48
ARTICLE XIII
Representations and Warranties of Property Trustee
and Delaware Trustee
SECTION 13.01. Representations and Warranties of
Property Trustee and Delaware
Trustee .................................................. 50
ARTICLE XIV
Miscellaneous
SECTION 14.01. Notices .................................................... 52
SECTION 14.02. Undertaking for Costs ...................................... 53
SECTION 14.03. Governing Law .............................................. 54
SECTION 14.04. Headings ................................................... 54
SECTION 14.05. Partial Enforceability ..................................... 54
SECTION 14.06. Counterparts ............................................... 54
SECTION 14.07. Intention of the Parties ................................... 54
SECTION 14.08. Successors and Assigns ..................................... 55
Exhibits
- --------
Exhibit A Certificate of Trust of Time Warner Financing
Trust
Exhibit B Terms of Preferred Security
Annex I Certificate Evidencing Preferred Securities
Exhibit C Terms of Common Securities
Annex I Certificate Evidencing Common Securities of
Time Warner Financing Trust
<PAGE>
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST
("Declaration"), dated as of August 15, 1995, by the
undersigned trustees (together with all other Persons from
time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the
"Trustees"), Time Warner Inc., a Delaware corporation, as
trust sponsor ("Time Warner" or the "Sponsor"), and by the
holders, from time to time, of undivided beneficial interests
in the assets of the Trust to be issued pursuant to this
Declaration.
WHEREAS the Sponsor and the Trustees entered into a Declaration of
Trust dated as of June 7, 1995 (the "Original Declaration") in order to
establish a statutory business trust (the "Trust") under the Business Trust Act
(as hereinafter defined);
WHEREAS the Certificate of Trust (the "Certificate of Trust") of the
Trust was filed with the office of the Secretary of State of the State of
Delaware on June 9, 1995;
WHEREAS the Trustees and the Sponsor desire to continue the Trust
pursuant to the Business Trust Act for the sole purpose of, as described more
fully in Section 3.03 hereof, issuing and selling certain securities
representing undivided beneficial interests in the assets of the Trust and
investing the proceeds thereof in certain Subordinated Notes (as defined herein)
of Time Warner issued under the Indenture (as defined herein) and to engage
pursuant to the terms hereof in only those other activities necessary or
incidental thereto; and
WHEREAS, as of the date hereof, no interests in the Trust have been
issued; and
WHEREAS all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to
continue the Trust as a business trust under the Business Trust Act, that the
Original Declaration
<PAGE>
<PAGE>
2
be amended and restated in its entirety as provided herein and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to or purchased by the Trust will
be held in trust for the benefit of the holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE I
Definitions
SECTION 1.01. Terms Generally. (a) The definitions in Section 1.02
shall apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Annexes shall be
deemed references to Articles and Sections of, and Exhibits and Annexes to this
Declaration unless the context shall otherwise require. Except as otherwise
expressly provided herein, any reference in this Declaration to any other
document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time.
(b) Capitalized terms used in this Declaration but not defined in
the preamble above have the respective meanings assigned to them in Section
1.02.
(c) A term defined anywhere in this Declaration has the same meaning
throughout.
SECTION 1.02. Definitions. As used in this Declaration, the
following terms have the meanings specified below:
"Affiliate" has the same meaning as given to that term in Rule 405
of the Trust Indenture Act or any successor rule thereunder.
"Appointment Event" means an event defined in the terms of the
Preferred Securities set forth in Exhibit B which entitles the Holders of a
Majority in Stated Amount of
<PAGE>
<PAGE>
3
the Preferred Securities to appoint a Special Regular Trustee.
"Book Entry Interest" means a beneficial interest in a Certificate
registered in the name of a Clearing Agency or a nominee thereof, ownership and
transfers of which shall be maintained and made through book entries by such
Clearing Agency as described in Section 9.04.
"Business Day" means any day other than a Saturday or Sunday or any
other day on which banking institutions in New York, New York, are authorized or
required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. C. SS SS 3801 et seq., as it may be amended from time to time.
"Certificate" means a Common Security Certificate or a Preferred
Security Certificate.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Preferred Securities and in whose name or in the name of a nominee of
that organization shall be registered a Global Certificate and which shall
undertake to effect book entry transfers and pledges of the Preferred
Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means August 15, 1995.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time or any successor legislation. A reference to a specific section ((Sec.))
of the Code refers not only to such specific section but also to any
corresponding provision of any federal tax statute enacted after the date of
this Declaration, as such specific section or corresponding provision is in
effect on the date of application of the provisions of this Declaration
containing such reference.
<PAGE>
<PAGE>
4
"Commission" means the Securities and Exchange Commission.
"Common Security" has the meaning specified in Section 7.01(b).
"Common Security Certificate" means a definitive certificate in
fully registered form representing a Common Security substantially in the form
of Annex I to Exhibit C.
"Covered Person" means (i) any officer, director, shareholder,
partner, member, representative, employee or agent of the Trust or its
Affiliates, (ii) any officer, director, shareholder, employee, representative or
agent of Time Warner or its Affiliates and (iii) the Holders from time to time
of the Trust Securities.
"Delaware Trustee" has the meaning set forth in Section 5.01(a)(C).
"Distribution" means a distribution payable to Holders of Trust
Securities in accordance with Section 6.01.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Event of Default" in respect of the Trust Securities means an
Indenture Event of Default that has occurred and is continuing in respect of the
Subordinated Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time or any successor legislation.
"Fiscal Year" has the meaning specified in Section 11.01.
"Global Certificate", when used with respect to any Preferred
Security, means a Preferred Security executed by the Trust and delivered to the
Depositary or pursuant to the Depositary's instruction, all in accordance with
this Declaration, which shall be registered in the name of the Depositary or its
nominee and which shall represent all of the outstanding Preferred Securities.
<PAGE>
<PAGE>
5
"Guarantee" means the Guarantee Agreement dated as of August 15,
1995, of Time Warner in respect of the Preferred Securities.
"Holder" means a Person in whose name a Certificate representing a
Trust Security is registered, such Person being a beneficial owner within the
meaning of the Business Trust Act.
"Indemnified Person" means any Trustee, any Affiliate of any
Trustee, any officer, director, shareholder, member, partner, employee,
representative or agent of any Trustee, or any employee or agent of the Trust or
its Affiliates.
"Indenture" means the Indenture dated as of August 15, 1995, between
Time Warner and the Indenture Trustee pursuant to which the Subordinated Notes
are to be issued.
"Indenture Event of Default" means any event or condition defined as
an "Event of Default" with respect to the Subordinated Notes under Section
6.01(a) of the Indenture that has occurred and is continuing.
"Indenture Trustee" means Chemical Bank as trustee under the
Indenture until a successor is appointed thereunder and thereafter means such
successor trustee.
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940,
as amended from time to time or any successor legislation.
"Legal Action" has the meaning specified in Section 3.06(e).
"Liquidation Distribution" has the meaning set forth in Exhibits B
and C hereto establishing the terms of the Trust Securities.
"Majority in Stated Amount of the Trust Securities" means, except as
otherwise required by the Trust Indenture Act and except as provided in the
penultimate paragraph of Section 5 of Exhibit B hereto, Holder(s) of outstanding
Trust Securities voting together as a single
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6
class or, as the context may require, Holder(s) of outstanding Preferred
Securities or Common Securities voting separately as a class, who are the record
owners of a relevant class of Trust Securities whose Stated Amount represents
more than 50% of the Stated Amount of all outstanding Trust Securities of such
class.
"Maturity Payment Amount" has the meaning assigned to such term in
the Indenture.
"Ministerial Action" has the meaning set forth in the terms of the
Trust Securities as set forth in Exhibits B and C hereto.
"Paying Agent" has the meaning specified in Section 3.08(i).
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Security" has the meaning specified in Section 7.01(b).
"Preferred Security Beneficial Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Preferred Security Certificate" means a definitive certificate in
fully registered form representing a Preferred Security substantially in the
form of Annex I to Exhibit B.
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.01(c) and having the duties set forth for
the Property Trustee herein.
"Property Account" has the meaning specified in Section 3.08(c)(i).
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"Quorum" means a majority of the Regular Trustees or, if there are
only two Regular Trustees, both such Regular Trustees.
"Redemption Payment Amount" has the meaning assigned to such term in
the Indenture.
"Regular Trustee" means any Trustee other than the Property Trustee
and the Delaware Trustee.
"Related Party" means any direct or indirect wholly owned subsidiary
of Time Warner or any other Person which owns, directly or indirectly, 100% of
the outstanding voting securities of Time Warner.
"Resignation Request" has the meaning specified in Section 5.02(d).
"Responsible Officer" means, with respect to the Property Trustee,
the chairman of the board of directors, any vice chairman, the president, any
executive vice president, any senior vice president, any vice-president, any
assistant vice president, the secretary, any assistant secretary, the treasurer,
any assistant treasurer, any trust officer or assistant trust officer or any
other officer of the Property Trustee customarily performing functions similar
to those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any
successor rule thereunder.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
"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
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8
(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.
"Special Redemption Price" has the meaning set forth in the terms of
the Trust Securities as set forth in Exhibits B and C hereto.
"Special Regular Trustee" means a Regular Trustee appointed by the
Holders of a Majority in Stated Amount of the Preferred Securities in accordance
with Section 5.02(a)(ii)(B).
"Sponsor" or "Time Warner" means Time Warner Inc., a Delaware
corporation, or any successor entity, in its capacity as sponsor of the Trust.
"Stated Amount" means, with respect to each Trust Security, $31.
"Subordinated Notes" means the series of Subordinated Notes issued
by Time Warner under the Indenture to the Property Trustee and entitled the 4%
Subordinated Notes due December 23, 1997.
"Successor Delaware Trustee" has the meaning specified in Section
5.02(b)(ii).
"Successor Property Trustee" means a successor Trustee possessing
the qualifications to act as Property Trustee set forth in Section 5.01(c).
"10% in Stated Amount of the Trust Securities" means, except as
otherwise required by the Trust Indenture Act and except as provided in the
penultimate paragraph of paragraph 5 of Exhibit B hereto, Holder(s) of
outstanding Trust Securities voting together as a single class or, as
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9
the context may require, Holder(s) of outstanding Preferred Securities or Common
Securities, voting separately as a class, who are the record owners of a
relevant class of Trust Securities whose Stated Amount represents 10% or more of
the Stated Amount of all outstanding Trust Securities of such class.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions hereof, and references herein to a Trustee or the Trustees shall
refer to such Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Trust Securities" means the Common Securities and the Preferred
Securities.
"Underwriting Agreement" means the underwriting agreement dated
August 9, 1995, among Time Warner, the Trust and Morgan Stanley & Co.
Incorporated, as representative of the several underwriters named therein, with
respect to, among other things, the Preferred Securities.
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and shall,
to the extent applicable, be governed by such provisions;
(b) if and to the extent that any provision of this Declaration
limits, qualifies or conflicts with
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10
the duties imposed by ss.ss. 310 to 317, inclusive, of the Trust Indenture
Act, such imposed duties shall control;
(c) the Property Trustee shall be the only Trustee which is a
trustee for the purposes of the Trust Indenture Act; and
(d) the application of the Trust Indenture Act to this Declaration
shall not affect the nature of the Trust Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.02. Lists of Holders of Preferred Securities. (a) Each of
the Sponsor and the Regular Trustees on behalf of the Trust shall provide the
Property Trustee with such information as is required under ss. 312(a) of the
Trust Indenture Act at the times and in the manner provided in ss. 312 (a).
(b) The Property Trustee shall comply with its obligations under
ss.ss. 310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Property Trustee. Within 60 days after
May 15 of each year, the Property Trustee shall provide to the Holders of the
Trust Securities such reports as are required by ss. 313 of the Trust Indenture
Act, if any, in the form, in the manner and at the times provided by ss. 313 of
the Trust Indenture Act. The Property Trustee shall also comply with the
requirements of ss. 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Property Trustee. Each of the
Sponsor and the Regular Trustees on behalf of the Trust shall provide to the
Property Trustee, the Commission and the Holders of the Trust Securities, as
applicable, such documents, reports and information as required by ss.
314(a)(l)-(3), if any, of the Trust Indenture Act and the compliance
certificates required by ss. 314(a)(4) and (c) of the Trust Indenture Act, any
such certificates to be provided in the form, in the manner and at the times
required by ss. 314(a)(4) and (c) of the Trust Indenture Act, provided that any
certificate to be provided pursuant to ss. 314(a)(4) of the Trust Indenture Act
shall be provided within 120 days of the end of each Fiscal Year.
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11
SECTION 2.05. Evidence of Compliance with Conditions Precedent. Each
of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to
the Property Trustee such evidence of compliance with any conditions precedent,
if any, provided for in this Declaration which relate to any of the matters set
forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given pursuant to ss. 314(c) shall comply with ss. 314(e) of the
Trust Indenture Act.
SECTION 2.06. Events of Default; Waiver. (a) Subject to Section
2.06(c), Holders of Preferred Securities may by vote of at least a Majority in
Stated Amount of the Preferred Securities (i) in accordance with the terms of
the Preferred Securities direct the time, method, and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising any
trust or power conferred upon the Property Trustee hereunder or (ii) on behalf
of the Holders of all Preferred Securities waive any past Event of Default in
respect of the Preferred Securities and its consequences, provided that if the
Event of Default arises out of an Indenture Event of Default:
(A) which is not waivable under the Indenture, the Event of Default
under this Declaration shall also be not waivable; or
(B) which requires the consent or vote of (1) holders of
Subordinated Notes representing a specified percentage greater than a
majority in Principal Amount (as such term is defined in the Indenture) of
the Subordinated Notes, or (2) each holder of Subordinated Notes, the
Event of Default under this Declaration may only be waived by, in the case
of clause (1) above, the vote of Holders of Preferred Securities
representing such specified percentage of the aggregate Stated Amount of
the Preferred Securities, or, in the case of clause (2) above, each Holder
of Preferred Securities.
Upon such waiver, any such default shall cease to exist, and any Event of
Default with respect to the Preferred Securities arising therefrom shall be
deemed to have been cured, for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or Event of Default with
respect to the Preferred Securities or impair any right consequent thereon.
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12
(b) Subject to Section 2.06(c), Holders of Common Securities may by
vote of at least a Majority in Stated Amount of the Common Securities, (i) in
accordance with the terms of the Common Securities, direct the time, method, and
place of conducting any proceeding for any remedy available to the Property
Trustee, or exercising any trust or power conferred upon the Property Trustee or
(ii) on behalf of the Holders of all of the Common Securities, waive any past
Event of Default with respect to the Common Securities and its consequences,
provided that, if the Event of Default arises out of an Indenture Event of
Default:
(A) which is not waivable under the Indenture, except where the
Holders of the Common Securities are deemed to have waived such Event of
Default under the Declaration as provided below, the Event of Default
under this Declaration shall also not be waivable; or
(B) which requires the consent or vote of (1) holders of
Subordinated Notes representing a specified percentage greater than a
majority in Principal Amount of the Subordinated Notes or (2) each holder
of Subordinated Notes, except where the holders of the Common Securities
are deemed to have waived such Event of Default under this Declaration as
provided below, the Event of Default under this Declaration may only be
waived by, in the case of clause (1) above, the vote of Holders of Common
Securities representing such specified percentage of the aggregate Stated
Amount of the Common Securities, or, in the case of clause (2) above, each
holder of Common Securities; and
provided, further that, each Holder of Common Securities will be deemed to have
waived any Event of Default with respect to the Common Securities and its
consequences until all Events of Default with respect to the Preferred
Securities have been cured, waived by the Holders of Preferred Securities as
provided in this Declaration or otherwise eliminated and until all Events of
Default with respect to the Preferred Securities have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of the Preferred Securities and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of this Declaration or the Trust Securities. In the
event that any Event of Default with respect to the Preferred Securities is
waived by the Holders of Preferred Securities as provided in this
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13
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.
(c) The right of any Holder of Trust Securities to receive payment
of Distributions on the Trust Securities in accordance with this Declaration and
the terms of the Trust Securities set forth in Exhibits B and C on or after the
respective payment dates therefor, or to institute suit for the enforcement of
any such payment on or after such payment dates, shall not be impaired without
the consent of each such Holder.
(d) As provided in the terms of the Trust Securities set forth in
Exhibits B and C hereto, a waiver of an Indenture Event of Default by the
Property Trustee at the written direction of the Holders of the Preferred
Securities constitutes a waiver of the corresponding Event of Default under this
Declaration in respect of the Trust Securities.
SECTION 2.07. Disclosure of Information. The disclosure of
information as to the names and addresses of the Holders of the Trust Securities
in accordance with ss. 312 of the Trust Indenture Act, regardless of the source
from which such information was derived, shall not be deemed to be a violation
of any existing law, or any law hereafter enacted which does not specifically
refer to ss. 312 of the Trust Indenture Act, nor shall the Property Trustee be
held accountable by reason of mailing any material pursuant to a request made
under ss. 312(b) of the Trust Indenture Act.
ARTICLE III
Organization
SECTION 3.01. Name. The Trust is named "Time Warner Financing Trust"
as such name may be modified from
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14
time to time by the Regular Trustees following written notice to the Holders of
Trust Securities. The Trust's activities may be conducted under the name of the
Trust or any other name deemed advisable by the Regular Trustees.
SECTION 3.02. Office. The address of the principal office of the
Trust is c/o Time Warner Inc., 75 Rockefeller Plaza, New York, New York 10019.
Upon ten days written notice to the Holders, the Regular Trustees may change the
location of the Trust's principal office.
SECTION 3.03. Purpose. The exclusive purposes and functions of the
Trust are: (a) to issue and sell Trust Securities and use the proceeds from such
sale to acquire the Subordinated Notes and (b) except as otherwise limited
herein, to engage in only those other activities necessary or incidental
thereto. The Trust shall not borrow money, issue debt or reinvest proceeds
derived from investments, pledge any of its assets or at any time otherwise
undertake (or permit to be undertaken) any activity that would result in or
cause the Trust to be treated as an association taxable as a corporation or
partnership for United States Federal income tax purposes or as anything other
than a grantor trust for United States Federal income tax purposes.
SECTION 3.04. Authority. Subject to the limitations provided in this
Declaration and to the specific duties of the Property Trustee, the Regular
Trustees shall have exclusive and complete authority to carry out the purposes
of the Trust. An action taken by the Regular Trustees in accordance with their
powers shall constitute the act of and serve to bind the Trust and an action
taken by the Property Trustee in accordance with its powers shall constitute the
act of and serve to bind the Trust. In dealing with the Trustees acting on
behalf of the Trust, no Person shall be required to inquire into the authority
of the Trustees to bind the Trust. Persons dealing with the Trust are entitled
to rely conclusively on the power and authority of the Trustees as set forth in
this Declaration.
SECTION 3.05. Title to Property of the Trust. Except as provided in
Section 3.08 with respect to the Subordinated Notes and the Property Account or
unless otherwise provided in this Declaration, legal title to all assets of the
Trust shall be vested in the Trust. The Holders of Trust Securities shall not
have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
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15
SECTION 3.06. Powers and Duties of the Regular Trustees. The Regular
Trustees shall have the exclusive power, authority and duty to cause the Trust,
and shall cause the Trust, to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities, in each case in accordance with this Declaration; provided,
however, that the Trust may issue no more than one series of Preferred
Securities and no more than one series of Common Securities; and, provided
further, there shall be no interests in the Trust other than the Trust
Securities and the issuance of Trust Securities shall be limited to a
one-time, simultaneous issuance of both Preferred Securities and Common
Securities;
(b) to acquire the Subordinated Notes with the proceeds of the sale
of the Preferred Securities and the Common Securities; provided, however,
the Regular Trustees shall cause legal title to all of the Subordinated
Notes to be vested in, and the Subordinated Notes to be held of record in
the name of, the Property Trustee for the benefit of the Holders of the
Preferred Securities and the Common Securities;
(c) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of any Special Event and to take any Ministerial
Actions in connection therewith; provided, that the Regular Trustees shall
consult with the Sponsor and the Property Trustee before taking or
refraining to take any Ministerial Action in relation to a Special Event;
(d) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including for
the purposes of Section 316(c) of the Trust Indenture Act and with respect
to Distributions, voting rights, redemptions, and exchanges, and to issue
relevant notices to Holders of the Preferred Securities and Common
Securities as to such actions and applicable record dates;
(e) to bring or defend, pay, collect, compromise, arbitrate, resort
to legal action, or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless pursuant to Section 3.08(e), the Property
Trustee has the exclusive power to bring such Legal Action;
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16
(f) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors,
and consultants and pay reasonable compensation for such services;
(g) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(h) to give the certificate to the Property Trustee required by ss.
314(a)(4) of the Trust Indenture Act, which certificate may be executed by
any Regular Trustee;
(i) to incur expenses which are necessary or incidental to carrying
out any of the purposes of the Trust;
(j) to act as, or appoint another Person to act as, registrar and
transfer agent for the Trust Securities, the Regular Trustees hereby
initially appointing the Property Trustee for such purposes;
(k) to take all actions and perform such duties as may be required
of the Regular Trustees pursuant to the terms of the Trust Securities set
forth in Exhibits B and C hereto;
(l) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing (including the establishment of a
segregated non-interest bearing bank account in the name of the Trust for
the purpose of effecting the issuance of the Common Securities and the
purchase of Subordinated Notes);
(m) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of
the State of Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Holders of
the Trust Securities or to enable the Trust to effect the purposes for
which the Trust has been created;
(n) to take any action, not inconsistent with this Declaration or
with applicable law, which the Regular
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17
Trustees determine in their discretion to be reasonable and necessary or
desirable in carrying out the activities of the Trust as set out in this
Section 3.06, in order that:
(i) the Trust will not be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(ii) the Trust will not be classified for United States
federal income tax purposes as an association taxable as a
corporation or a 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;
(o) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to
the Trust to be duly prepared and filed by the Regular Trustees, on behalf
of the Trust; and
(p) subject to the requirements of ss.317(b) of the Trust Indenture
Act, to appoint one or more Paying Agents in addition to the Property
Trustee.
The Regular Trustees must exercise the powers set forth in this
Section 3.06 in a manner which is consistent with the purposes and functions of
the Trust set out in Section 3.03 and the Regular Trustees shall not take any
action which is inconsistent with the purposes and functions of the Trust set
forth in Section 3.03; and
Subject to this Section 3.06, the Regular Trustees shall have none
of the powers nor any of the authority of the Property Trustee set forth in
Section 3.08.
SECTION 3.07. Prohibition of Actions by Trust and Trustees. The
Trust shall not, and the Trustees (including the Property Trustee) shall cause
the Trust not to, engage in any activity other than as required or authorized by
this
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18
Declaration. In particular, the Trust shall not and the Trustees (including the
Property Trustee) shall cause the Trust not to:
(a) invest any proceeds received by the Trust from holding the
Subordinated Notes but shall promptly distribute all such proceeds to
Holders of Trust Securities pursuant to the terms of this Declaration and
of the Trust Securities;
(b) acquire any assets other than as expressly provided herein;
(c) possess Trust property for other than a Trust purpose;
(d) make any loans, other than loans represented by the Subordinated
Notes;
(e) possess any power or otherwise act in such a way as to vary the
Trust assets or the terms of the Trust Securities in any way whatsoever;
(f) issue any securities or other evidences of beneficial ownership
of, or beneficial interests in, the Trust other than the Trust Securities;
(g) incur any indebtedness for borrowed money;
(h) except as contemplated by Section 2.06, (i) direct the time,
method and place of exercising any trust or power conferred upon the
Indenture Trustee with respect to the Subordinated Notes, (ii) waive any
past default that is waivable under Section 6.04 of the Indenture, (iii)
exercise any right to rescind or annul any declaration that the
Subordinated Notes shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the
Subordinated Notes, where such consent shall be required, unless the
Property Trustee shall have received an unqualified opinion of nationally
recognized independent tax counsel experienced in such matters to the
effect that such action will not result in the Trust being treated as an
association taxable as a corporation or partnership for United States
Federal income tax purposes and that, following such action, each holder
of Trust Securities will be treated for United States Federal income tax
purposes as owning an
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undivided beneficial interest in the Subordinated Notes; or
(i) consolidate, amalgamate, merge with or into, or be replaced by,
or convey, transfer or lease its properties and assets to, any corporation
or other body.
SECTION 3.08. Powers and Duties of the Property Trustee. (a) The
legal title to the Subordinated Notes shall be owned by and held of record in
the name of the Property Trustee in trust for the benefit of the Trust and the
Holders of the Trust Securities. The right, title and interest of the Property
Trustee to the Subordinated Notes shall vest automatically in each Person who
may hereafter be appointed as Property Trustee in accordance with Article V.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Subordinated Notes to the Regular Trustees or, if the Property
Trustee does not also act as the Delaware Trustee, the Delaware Trustee.
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing bank
account (the "Property Account") in the name of and under the exclusive
control of the Property Trustee on behalf of the Trust and the Holders of
the Trust Securities and on the receipt of payments of funds made in
respect of the Subordinated Notes held by the Property Trustee, deposit
such funds into the Property Account and, without any further acts of the
Property Trustee or the Regular Trustees, promptly make payments to the
Holders of the Preferred Securities and Common Securities from the
Property Account in accordance with Section 6.01. Funds in the Property
Account shall be held uninvested, and without liability for interest
thereon, until disbursed in accordance with this Declaration. The Property
Account shall be an account which is maintained with a banking institution
whose long term unsecured indebtedness is rated by a "nationally
recognized statistical rating organization", as such term is defined for
purposes of Rule 436(g)(2) under the Securities Act, at least equal to
(but in no event
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less than "A" or the equivalent) the rating assigned to the Preferred
Securities by a nationally recognized statistical rating organization;
(ii) engage in such ministerial activities as shall be necessary or
appropriate to effect promptly the redemption of the Preferred Securities
and the Common Securities to the extent the Subordinated Notes are
redeemed or mature;
(iii) upon notice of distribution issued by the Regular Trustees in
accordance with the terms of the Preferred Securities and the Common
Securities, engage 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;
(iv) have the legal power to exercise all of the rights, powers and
privileges of a holder of the Subordinated Notes under the Indenture and,
if an Event of Default occurs and is continuing, the Property Trustee,
subject to Section 2.06, shall for the benefit of the Holders of the Trust
Securities, enforce its rights as holder of the Subordinated Notes under
the Indenture, subject to the rights of the Holders of the Trust
Securities pursuant to the terms of the Trust Securities, this
Declaration, the Business Trust Act and the Trust Indenture Act; and
(v) have the legal power to enforce the Sponsor's obligations under
Section 4.02 to the extent the Sponsor shall default on such obligations.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Trust Securities set forth in Exhibits B and C hereto.
(e) Subject to Section 2.06, the Property Trustee shall take any
Legal Action which arises out of or in connection with an Event of Default or
the Property Trustee's duties and obligations under this Declaration, the
Business Trust Act or the Trust Indenture Act.
(f) All moneys deposited in the Property Account, and all
Subordinated Notes held by the Property Trustee for
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21
the benefit of the Trust and the Holders of the Trust Securities, will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of, or for the benefit of, the Property Trustee or its agents or their
creditors.
(g) The Property Trustee shall, within 90 days after the occurrence
of a default with respect to the Trust Securities, transmit by mail, first class
postage prepaid, to the holders of the Trust Securities, as their names and
addresses appear upon the register, notice of all defaults with respect to the
Trust Securities known to the Property Trustee, unless such defaults shall have
been cured before the giving of such notice (the term "defaults" for the
purposes of this Section 3.08(g) being hereby defined to be an Indenture Event
of Default, not including any periods of grace provided for in the Indenture and
irrespective of the giving of any notice provided therein); provided, that,
except in the case of default in the payment of the Maturity Payment Amount or
any Redemption Payment Amount or interest on any of the Subordinated Notes, the
Property Trustee shall be protected in withholding such notice if and so long as
the board of directors, the executive committee, or a trust committee of
directors and/or Responsible Officers, of the Property Trustee in good faith
determine that the withholding of such notice is in the interests of the Holders
of the Trust Securities. The Property Trustee shall not be deemed to have
knowledge of any default, except (i) a default in the payment of Maturity
Payment Amount or Redemption Payment Amount or interest on the Subordinated
Notes or (ii) any default as to which the Property Trustee shall have received
written notice or a Responsible Officer charged with the administration of this
Declaration shall have obtained written notice.
(h) The Property Trustee shall continue to serve as Property Trustee
unless either:
(i) the Trust has been completely liquidated and the proceeds
thereof distributed to the Holders of Trust Securities pursuant to the
terms of the Trust Securities; or
(ii) a Successor Property Trustee has been appointed and accepted
that appointment in accordance with Article V.
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(i) The Property Trustee shall act as paying agent in respect of the
Trust Securities and may authorize one or more Persons (each, a "Paying Agent")
to pay Distributions, redemption payments or liquidation payments on behalf of
the Trust with respect to the Trust Securities. Any such Paying Agent shall
comply with ss. 317(b) of the Trust Indenture Act. Any Paying Agent may be
removed by the Property Trustee, after consultation with the Regular Trustees,
at any time and a successor Paying Agent or additional Paying Agents may be
appointed at any time by the Property Trustee.
(j) Subject to this Section 3.08, the Property Trustee shall have
none of the powers or the authority of the Regular Trustees set forth in Section
3.06.
The Property Trustee shall exercise the powers, duties and rights set forth in
this Section 3.08 and Section 3.10 in a manner that is consistent with the
purposes and functions of the Trust set out in Section 3.03 and the Property
Trustee shall not take any action which is inconsistent with the purposes and
functions of the Trust set forth in Section 3.03.
SECTION 3.09. Delaware Trustee. Notwithstanding any other provision
of this Declaration other than Section 5.01(a)(C), the Delaware Trustee shall
not be entitled to exercise any powers, nor shall the Delaware Trustee have any
of the duties and responsibilities of the Regular Trustees and the Property
Trustee described in this Declaration. Except as set forth in Section
5.01(a)(C), the Delaware Trustee shall be a Trustee for the sole and limited
purpose of fulfilling the requirements of ss. 3807 of the Business Trust Act.
SECTION 3.10. Certain Rights and Duties of the Property Trustee. (a)
The Property Trustee, before the occurrence of an Event of Default and after the
curing or waiver of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Declaration, and no implied covenants shall be read into this Declaration
against the Property Trustee. In case an Event of Default has occurred (that has
not been cured or waived pursuant to Section 2.06), the Property Trustee shall
exercise such of the rights and powers vested in it by this Declaration, and use
the same degree of care and skill in their exercise, as a
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23
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act or its own wilful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee shall
be determined solely by the express provisions of this Declaration,
and the Property Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Declaration, and no implied covenants or obligations
shall be 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
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24
remedy available to the Property Trustee hereunder or under the Indenture,
or exercising any trust or power conferred upon the Property Trustee under
this Declaration; and
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or adequate
indemnity against such risk or liability is not reasonably assured to it.
(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
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25
attorneys and the Property Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed by
it in good faith and with due care;
(iv) the Property Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Declaration at the
request or direction of any Holders, unless such Holders shall have
offered to the Property Trustee reasonable security and indemnity against
the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction; provided that nothing contained in this clause (iv) shall
relieve the Property Trustee of the obligation, upon the occurrence of an
Event of Default (which has not been cured or waived) to exercise such of
the rights and powers vested in it by this Declaration, and to use the
same degree of care and skill in this exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his or her own
affairs; and
(v) any action taken by the Property Trustee or its agents hereunder
shall bind the Trust and the Holders of the Trust Securities and the
signature of the Property Trustee or its agents alone shall be sufficient
and effective to perform any such action; and no third party shall be
required to inquire as to the authority of the Property Trustee to so act,
or as to its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by the Property
Trustee's or its agent's taking such action.
SECTION 3.11. Registration Statement and Related Matters. In
accordance with the Original Declaration, Time Warner and the Trustees have
authorized and directed, and hereby confirm the authorization of, Time Warner,
as the sponsor of the Trust, (a) to file with the Commission and execute, in
each case on behalf of the Trust, (i) the Registration Statement on Form S-3
(File Nos. 33-60203 and 33-60203-01) (the "1933 Act Registration Statement")
including any pre-effective or post-effective amendments to such Registration
Statement, relating to the registration under the Securities Act of the
Preferred Securities of the Trust and (ii) a Registration Statement on Form 8-A
or other appropriate form (the "1934 Act Registration Statement")
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26
(including all pre-effective and post-effective amendments thereto) relating to
the registration of the Preferred Securities of the Trust under Section 12(b) of
the Exchange Act; (b) to file with the New York Stock Exchange or any other
national securities exchange and execute on behalf of the Trust a listing
application and all other applications, statements, certificates, agreements and
other instruments as shall be necessary or desirable to cause the Preferred
Securities to be listed on the New York Stock Exchange or such other national
securities exchange; (c) to file and execute on behalf of the Trust such
applications, reports, surety bonds, irrevocable consents, appointments of
attorney for service of process and other papers and documents as shall be
necessary or desirable to register the Preferred Securities under the securities
or "Blue Sky" laws of such jurisdictions as Time Warner on behalf of the Trust
may deem necessary or desirable and (d) to execute on behalf of the Trust the
Underwriting Agreement relating to the issuance and sale of the Preferred
Securities, substantially in the form included as Exhibit 1 to the 1933 Act
Registration Statement with such changes thereto as may be approved by the
authorized officer of the Sponsor executing the same, such approval to be
evidenced by such officer's execution thereof. In the event that any filing
referred to in clauses (a)-(c) above is required by the rules and regulations of
the Commission, the New York Stock Exchange or state securities or blue sky
laws, to be executed on behalf of the Trust by the Trustees, the Regular
Trustees, in their capacities as Trustees of the Trust, are hereby authorized
and directed to join in any such filing and to execute on behalf of the Trust
any and all of the foregoing, it being understood that the Property Trustee and
the Delaware Trustee, in their capacities as Trustees of the Trust, shall not be
required to join in any such filing or execute on behalf of the Trust any such
document unless required by the rules and regulations of the Commission, the New
York Stock Exchange or state securities or blue sky laws. In connection with all
of the foregoing, Time Warner and each Trustee, solely in its capacity as
Trustee of the Trust, have constituted and appointed, and hereby confirm the
appointment of, Gerald M. Levin, Richard D. Parsons, Richard J. Bressler, Peter
R. Haje and Philip R. Lochner, and each of them, as his, her or its, as the case
may be, true and lawful attorneys-in-fact, and agents, with full power of
substitution and resubstitution, for Time Warner or such Trustee or in Time
Warner's or such Trustee's name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to the
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27
1933 Act Registration Statement and the 1934 Act Registration Statement and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Commission, and to execute and file with the New York Stock
Exchange or any other national securities exchange a listing application and all
other applications and documents as shall be necessary or desirable in
connection therewith, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as Time Warner or such Trustee might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his or her substitute or substitutes, shall do or cause to be
done by virtue hereof.
SECTION 3.12. Filing of Amendments to Certificate of Trust. The
Restated Certificate of Trust as filed with the Secretary of State of the State
of Delaware as of August 15, 1995 is attached hereto as Exhibit A. On or after
the date of execution of this Declaration, the Trustees shall cause the filing
with the Secretary of State of the State of Delaware of such amendments to the
Certificate of Trust as the Trustees shall deem necessary or desirable.
SECTION 3.13. Execution of Documents by Regular Trustees. Unless
otherwise determined by the Regular Trustees and except as otherwise required by
the Business Trust Act with respect to the Certificate of Trust or otherwise, a
majority of, or if there are only two, both of, the Regular Trustees are
authorized to execute and deliver on behalf of the Trust any documents which the
Regular Trustees have the power and authority to execute or deliver pursuant to
this Declaration; provided that any listing application prepared by the Sponsor
referred to in Section 3.11(b) may be executed by any Regular Trustee.
SECTION 3.14. Trustees Not Responsible for Recitals or Issuance of
Trust Securities. The recitals contained in this Declaration and the Trust
Securities shall be taken as the statements of the Sponsor and the Trustees do
not assume any responsibility for their correctness. The Trustees make no
representations as to the value or condition of the property of the Trust or any
part thereof. The Trustees make no representations as to the validity or
sufficiency of this Declaration or the Trust Securities.
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SECTION 3.15. Duration of Trust. The Trust, absent termination
pursuant to the provisions of Article VIII hereof, shall have existence until
December 31, 1998.
ARTICLE IV
Sponsor
SECTION 4.01. Purchase of Common Securities by Sponsor. The Sponsor
will purchase all the Common Securities issued by the Trust at the same time as
the Preferred Securities are sold, in an amount equal to 3% of the capital of
the Trust after giving effect to such purchase.
SECTION 4.02. Expenses. (a) The Sponsor, in its capacity as Sponsor
and not as a Holder, shall be responsible for and shall pay for all debts and
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust (including costs and expenses relating to the organization
of the Trust, the issuance of the Preferred Securities, the fees and expenses
(including reasonable counsel fees and expenses) of the Trustees (including any
amounts payable under Article X) and the costs and expenses relating to the
operation of the Trust, including costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying agent(s), registrar(s), transfer
agent(s), duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the disposition of
Trust assets).
(b) The Sponsor, in its capacity as Sponsor and not as a Holder,
will pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
(c) The Sponsor's obligations under this Section 4.02 shall be for
the benefit of, and shall be enforceable by, any Person to whom any such debts,
obligations, costs, expenses and taxes are owed (a "Creditor") whether or not
such Creditor has received notice hereof. Any such Creditor and the Property
Trustee may enforce the Sponsor's obligations under this Section 4.02
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29
directly against the Sponsor and the Sponsor irrevocably waives any right or
remedy to require that any such Creditor take any action against the Trust or
any other Person before proceeding against the Sponsor. The Sponsor agrees to
execute such additional agreements as may be necessary or desirable in order to
give full effect to the provisions of this Section 4.02.
SECTION 4.03. Exchanges of LYONs and Redemptions. So long as it is
subject to Section 16 of the Exchange Act with respect to Hasbro, the Sponsor
shall take such steps as may be necessary in connection with any exchange of
LYONs by the holders thereof or any redemption of PERCS or Subordinated Notes so
that it is not in a net short position with respect to its obligations to
deliver Hasbro Common Stock (treating the outstanding LYONs and PERCS, Preferred
Securities (or, if distributed to the holders of the Preferred Securities,
Subordinated Notes) as "derivative securities" (as defined under Rule 16a-1(c)
under the Exchange Act) and treating the Hasbro Common Stock subject to only one
put equivalent position (as defined under Rule 16a-1(h) under the Exchange
Act)), including through the redemption or purchase of Preferred Securities (or,
if distributed to the holders of the Preferred Securities, Subordinated Notes,
the purchase of LYONs, the settlement of exchanges or redemptions in cash
(rather than Hasbro Common Stock) and the purchase of additional shares of
Hasbro Common Stock.
ARTICLE V
Trustees
SECTION 5.01. Number of Trustees; Qualifications. (a) The number of
Trustees initially shall be five. At any time (i) before the issuance of the
Trust Securities, the Sponsor may, by written instrument, increase or decrease
the number of, and appoint, remove and replace the, Trustees, and (ii) after the
issuance of the Trust Securities and except as provided in subsection (E) below
and Section 5.02(a)(ii)(B) with respect to the Special Regular Trustee, the
number of Trustees may be increased or decreased solely by, and Trustees may be
appointed, removed or replaced solely by, vote of Holders of Common Securities
representing a Majority in Stated Amount of the Common Securities voting as a
class; provided that in any case:
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(A) the number of Trustees shall be at least five unless the Trustee
that acts as the Property Trustee also acts as the Delaware Trustee, in
which case the number of Trustees shall be at least four;
(B) unless a Special Regular Trustee has been appointed (which
appointment shall not impair the right of the Holders of Common Securities
to increase or decrease the number of, or to appoint, remove or replace,
Trustees (other than the Special Regular Trustee) as provided above), at
least a majority of the Trustees shall at all times be officers, directors
or employees of Time Warner;
(C) if required by the Business Trust Act, one Trustee (the
"Delaware Trustee") shall be either a natural person who is a resident of
the State of Delaware or, if not a natural person, an entity that has its
principal place of business in the State of Delaware and otherwise is
permitted to act as a Delaware Trustee hereunder under the laws of the
State of Delaware, except that if the Property Trustee has its principal
place of business in the State of Delaware and otherwise is permitted to
act as a Trustee hereunder under the laws of the State of Delaware, then
the Property Trustee shall also be the Delaware Trustee and Section 3.09
shall have no application;
(D) there shall at all times be a Property Trustee hereunder that
shall satisfy the requirements of Section 5.01(c); and
(E) the number of Trustees shall be increased automatically by one
if an Appointment Event has occurred and is continuing and the Holders of
a Majority in Stated Amount of the Preferred Securities appoint a Special
Regular Trustee in accordance with Section 5.02(a)(ii)(B) and the terms of
the Preferred Securities.
Each Trustee shall be either a natural person at least 21 years of age or a
legal entity which shall act through one or more duly appointed representatives.
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(b) The initial Regular Trustees shall be:
Peter R. Haje
Richard J. Bressler
Thomas W. McEnerney
c/o Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
(c) There shall at all times be one Trustee that shall act as
Property Trustee. In order to act as Property Trustee hereunder, such Trustee
shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least $50,000,000, and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the supervising
or examining authority referred to above, then for the purposes of this
Section 5.01(c)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
If at any time the Property Trustee shall cease to satisfy any of the
requirements of clauses (i) and (ii) above, the Property Trustee shall
immediately resign in the manner and with the effect set out in Section 5.02(d).
If the Property Trustee has or shall acquire any "conflicting interest" within
the meaning of ss. 310(b) of the Trust Indenture Act, the Property Trustee and
the Holders of the Common Securities (as if such Holders were the obligor
referred to in ss. 310(b) of the Trust Indenture Act) shall in all respects
comply with the provisions of ss. 310(b) of the Trust Indenture Act. The
Guarantee shall be deemed to be specifically described in this Declaration for
the purposes of clause (i) of the first proviso contained in ss. 310(b) of the
Trust Indenture Act.
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The initial Trustee that shall serve as the Property Trustee is The
First National Bank of Chicago, whose address is as set forth in Section
14.01(b).
(d) The initial Trustee that shall serve as the Delaware Trustee is
Michael J. Majchrzak, whose address is as set forth in Section 14.01(c).
(e) Any action taken by (i) Holders of Common Securities pursuant to
this Article V or (ii) Holders of Preferred Securities pursuant to this Article
V to appoint or remove a Special Regular Trustee upon the occurrence of an
Appointment Event, shall be taken at a meeting of Holders of Common Securities
or Preferred Securities, as the case may be, convened for such purpose or by
written consent as provided in Section 12.02.
(f) No amendment may be made to this Section 5.01 which would change
any rights with respect to the number, existence or appointment and removal of
Trustees (other than any Special Regular Trustee), except with the consent of
each Holder of Common Securities.
(g) No amendment may be made to this Section 5.01 or Section
5.02(a)(ii)(B), which would change the rights of Holders of Preferred Securities
to appoint, remove or replace a Special Regular Trustee except with the consent
of each Holder of Preferred Securities.
SECTION 5.02. Appointment, Removal and Resignation of Trustees. (a)
Subject to Section 5.02(b), Trustees may be appointed or removed without cause
at any time:
(i) until the issuance of the Trust Securities, by written
instrument executed by the Sponsor; and
(ii) after the issuance of the Trust Securities,
(A) other than with respect to the Special Regular Trustee, by
vote of the Holders of a Majority in Stated Amount of the Common
Securities voting as a class; and
(B) if an Appointment Event has occurred and is continuing,
one additional Regular Trustee (the "Special Regular Trustee") may
be appointed, who shall not be an Affiliate of the Sponsor, by vote
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of the Holders of a Majority in Stated Amount of the Preferred
Securities, voting as a class and such Special Regular Trustee may
only be removed (otherwise than by the operation of Section
5.02(c)), by vote of the Holders of a Majority in Stated Amount of
the Preferred Securities voting as a class.
(b) (i) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.02(a) until a Successor Property
Trustee possessing the qualifications to act as Property Trustee under
Section 5.01(c) has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and
delivered to the Regular Trustees, the Sponsor and the Property Trustee
being removed; and
(ii) the Trustee that acts as Delaware Trustee shall not be removed
in accordance with Section 5.02(a) until a successor Trustee possessing
the qualifications to act as Delaware Trustee under Section 5.01(a)(C) (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware
Trustee and delivered to the Regular Trustees, the Sponsor and the
Delaware Trustee being removed.
(c) A Trustee appointed to office shall hold office until such
Trustee's successor shall have been appointed or until such Trustee's death,
removal or resignation, provided that a Special Regular Trustee shall only hold
office while an Appointment Event is continuing and shall cease to hold office
immediately after the Appointment Event pursuant to which the Special Regular
Trustee was appointed and all other Appointment Events cease to be continuing.
(d) Any Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument (a "Resignation Request") in writing
signed by the Trustee and delivered to the Sponsor and the Trust, which
resignation
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shall take effect upon such delivery or upon such later date as is specified
therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the Property
Trustee shall be effective until a Successor Property Trustee possessing
the qualifications to act as Property Trustee under Section 5.01(c) has
been appointed and has accepted such appointment by instrument executed by
such Successor Property Trustee and delivered to the Trust, the Sponsor
and the resigning Property Trustee;
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee; and
(iii) no such resignation of a Special Regular Trustee shall be
effective until the 60th day following delivery of the Resignation Request
to the Sponsor and the Trust or such later date specified in the
Resignation Request during which period the Holders of the Preferred
Securities shall have the right to appoint a successor Special Regular
Trustee as provided in this Article V.
(e) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.02 within 60 days after delivery to the Sponsor and the Trust of a Resignation
Request, the resigning Property Trustee or Delaware Trustee may petition any
court of competent jurisdiction for appointment of a Successor Property Trustee
or Successor Delaware Trustee. Such court may thereupon after such notice, if
any, as it may deem proper and prescribe, appoint a Successor Property Trustee
or Successor Delaware Trustee, as the case may be.
SECTION 5.03. Vacancies Among Trustees. If a Trustee ceases to hold
office for any reason and the number of Trustees is not reduced pursuant to
Section 5.01 or if the number of Trustees is increased pursuant to Section 5.01,
a vacancy shall occur. A resolution certifying the existence of such vacancy by
a majority of the Regular Trustees shall be conclusive evidence of the existence
of
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such vacancy. The vacancy shall be filled with a Trustee appointed in accordance
with the requirements of this Article V.
SECTION 5.04. Effect of Vacancies. The death, resignation,
retirement, removal, bankruptcy, dissolution, liquidation, incompetence or
incapacity to perform the duties of a Trustee, or any one of them, shall not
operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees
shall occur until such vacancy is filled as provided in this Article V, the
Regular Trustees in office, regardless of their number, shall have all the
powers granted to the Regular Trustees and shall discharge all the duties
imposed upon the Regular Trustees by this Declaration.
SECTION 5.05. Meetings. Meetings of the Regular Trustees shall be
held from time to time upon the call of any Trustee. Regular meetings of the
Regular Trustees may be held at a time and place fixed by resolution of the
Regular Trustees. Notice of any in-person meeting of the Regular Trustees shall
be hand-delivered or otherwise delivered in writing (including by facsimile) not
less than 24 hours before such meeting. Notice of any telephonic meeting of the
Regular Trustees or any committee thereof shall be hand- delivered or otherwise
delivered in writing (including by facsimile) not less than 24 hours before such
meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice
of such meeting except where a Regular Trustee attends a meeting for the express
purpose of objecting to the transaction of any activity on the ground that the
meeting has not been lawfully called or convened. Unless provided otherwise in
this Declaration, any action of the Regular Trustees may be taken at a meeting
by vote of a majority of the Regular Trustees present (whether in person or by
telephone) and eligible to vote with respect to such matter, provided that a
Quorum is present, or without a meeting by the unanimous written consent of the
Regular Trustees.
SECTION 5.06. Delegation of Power. (a) Any Regular Trustee may, by
power of attorney consistent with applicable law, delegate to any other natural
person over the age of 21 his or her power for the purpose of executing any
documents contemplated in Section 3.11, including any registration statement or
amendment thereto or other
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36
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 or Maturity Payment Amount or Redemption
Payment Amount on the Subordinated Notes held by the Property Trustee (the
amount of any such payment being a "Payment Amount"), the Property Trustee shall
and is directed to promptly make a Distribution of the Payment Amount to Holders
in accordance with the terms of the Trust Securities as set forth in Exhibits B
and C hereto.
ARTICLE VII
Issuance of Trust Securities
SECTION 7.01. General Provisions Regarding Trust Securities. (a) The
Regular Trustees shall issue on behalf of the Trust securities in fully
registered form representing undivided beneficial interests in the assets of the
Trust in accordance with Section 7.01(b).
(b) The Regular Trustees shall issue on behalf of the Trust one
class of preferred securities representing undivided beneficial interests in the
assets of the Trust
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having such terms as are set forth in Exhibit B (the "Preferred Securities"),
which terms are incorporated by reference in, and made a part of, this
Declaration as if specifically set forth herein, and one class of common
securities representing undivided beneficial interests in the assets of the
Trust having such terms as are set forth in Exhibit C (the "Common Securities"),
which terms are incorporated by reference in, and made a part of, this
Declaration as if specifically set forth herein. The Trust shall have no
securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities.
(c) The Certificates shall be signed on behalf of the Trust by the
Regular Trustees (or, if there are more than two Regular Trustees, by any two of
the Regular Trustees). Such signatures may be the manual or facsimile signatures
of the present or any future Regular Trustee. Typographical and other minor
errors or defects in any such reproduction of any such signature shall not
affect the validity of any Certificate. In case any Regular Trustee of the Trust
who shall have signed any of the Certificates shall cease to be such Regular
Trustee before the Certificate so signed shall be delivered by the Trust, such
Certificate nevertheless may be delivered as though the person who signed such
Certificate had not ceased to be such Regular Trustee; and any Certificate may
be signed on behalf of the Trust by such persons as, at the actual date of the
execution of such Certificate, shall be the Regular Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Trust Securities may be listed or of any Clearing Agency in which the Trust
Securities have been accepted for trading, or to conform to usage.
(d) The consideration received by the Trust for the issuance of the
Trust Securities shall constitute a contribution to the capital of the Trust and
shall not constitute a loan to the Trust.
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(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.
ARTICLE VIII
Termination of Trust
SECTION 8.01. Termination of Trust. This Declaration and the Trust
shall terminate and be of no further force or effect upon the earliest of:
(a) when all the Trust Securities shall have been called for
redemption and the amounts necessary for redemption thereof (whether cash
or Exchange Property (as defined in the Guarantee)), including any accrued
and unpaid Distributions thereon to the applicable date of redemption,
shall have been paid to the Holders of the Trust Securities in accordance
with the terms of the Trust Securities;
(b) when all the Subordinated Notes shall have been distributed to
the Holders of Trust Securities in exchange for all the Trust Securities
in accordance with the terms of the Trust Securities;
(c) upon the expiration of the term of the Trust
as set forth in Section 3.15; or
(d) if Time Warner shall direct the Trustees to terminate the Trust,
provided that Time Warner shall be the holder at such time of all the
outstanding Preferred Securities as a result of the exercise of the
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Time Warner Exchange Right (as defined in the Guarantee) or otherwise;
and a certificate of cancellation is filed by the Trustees with the Secretary of
State of the State of Delaware. The Trustees shall so file such a certificate as
soon as practicable after the occurrence of an event referred to in this Article
VIII.
The provisions of Sections 3.10 and Article X shall survive the
termination of the Trust.
ARTICLE IX
Transfer of Interests
SECTION 9.01. Transfer of Trust Securities. (a) Trust Securities may
only be transferred, in whole or in part, in accordance with the terms and
conditions set forth in this Declaration. Any transfer or purported transfer of
any Trust Security not made in accordance with this Declaration shall be null
and void.
(b) Subject to this Article IX, Preferred Securities shall be freely
transferable.
(c) Subject to this Article IX, Time Warner and any Related Party
may only transfer Common Securities to Time Warner or a Related Party; provided
that any such transfer shall be subject to the condition that the transferor
shall have obtained (i) either a ruling from the Internal Revenue Service or an
unqualified written opinion addressed to the Trust and delivered to the Trustees
of nationally recognized independent tax counsel experienced in such matters to
the effect that such transfer will not (A) cause the Trust to be treated as
issuing a class of interests in the Trust differing from the class of interests
represented by the Common Securities originally issued to Time Warner, (B)
result in the Trust acquiring or disposing of, or being deemed to have acquired
or disposed of, an asset or (C) result in or cause the Trust to be treated as an
association taxable as a corporation or partnership for United States Federal
income tax purposes or as anything other than a grantor trust for United States
Federal income tax purposes and (ii) an unqualified written opinion addressed to
the Trust and delivered to the Trustees of a nationally recognized independent
counsel experienced in
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such matters that such transfer will not cause the Trust to be an Investment
Company or controlled by an Investment Company.
SECTION 9.02. Transfer of Certificates. The Regular Trustees shall
provide for the registration of Certificates and of transfers of Certificates,
which will be effected without charge but only upon payment (with such indemnity
as the Regular Trustees may require) in respect of any tax or other government
charges which may be imposed in relation to such transfers. Upon surrender for
registration of transfer of any Certificate, the Regular Trustees shall cause
one or more new Certificates to be issued in the name of the designated
transferee or transferees. Every Certificate surrendered for registration of
transfer shall be accompanied by a written instrument of transfer in form
satisfactory to the Regular Trustees duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer shall be canceled by the Regular Trustees. A transferee
of a Certificate shall be entitled to the rights and subject to the obligations
of a Holder hereunder upon the receipt by such transferee of a Certificate. By
acceptance of a Certificate, each transferee shall be deemed to have agreed to
be bound by this Declaration.
SECTION 9.03. Deemed Security Holders. The Trustees may treat the
Person in whose name any Certificate shall be registered on the books and
records of the Trust as the sole holder of such Certificate and of the Trust
Securities represented by such Certificate for purposes of receiving
Distributions and for all other purposes whatsoever and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
Certificate or in the Trust Securities represented by such Certificate on the
part of any Person, whether or not the Trustees shall have actual or other
notice thereof.
SECTION 9.04. Book-Entry Interests. The Preferred Securities
Certificates, on original issuance, will be issued in fully registered form.
With respect to any Certificates registered on the books and records of the
Trust in the name of a Clearing Agency or the nominee of a Clearing Agency:
(a) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the
payment of
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Distributions on such Certificates and receiving approvals, votes or
consents hereunder) as the Preferred Security Holder and the sole holder
of such Certificates and, except as set forth herein, shall have no
obligation to the Preferred Security Beneficial Owners;
(b) to the extent that the provisions of this Section 9.04 conflict
with any other provisions of this Declaration, the provisions of this
Section 9.04 shall control; and
(c) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security
Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants. The Clearing Agency will make book-entry transfers among
Clearing Agency Participants and receive and transmit payments of
Distributions on such Certificates to such Clearing Agency Participants.
SECTION 9.05. Notices to Holders of Certificates. Whenever a notice
or other communication to the Holders is required to be given under this
Declaration, the relevant Trustees shall give such notices and communications to
the Holders and, with respect to any Preferred Security Certificate registered
in the name of a Clearing Agency or the nominee of a Clearing Agency, the
Trustees shall, except as set forth herein with respect to the Property Trustee,
have no obligations to the Preferred Security Beneficial Owners.
SECTION 9.06. Appointment of Successor Clearing Agency. If any
Clearing Agency elects to discontinue its services as securities depositary with
respect to the Preferred Securities, the Regular Trustees may, in their sole
discretion, appoint a successor Clearing Agency with respect to the Preferred
Securities.
SECTION 9.07. Definitive Preferred Securities Certificates. If (a) a
Clearing Agency elects to discontinue its services as securities depositary with
respect to the Preferred Securities and a successor Clearing Agency is not
appointed within 90 days after such discontinuance pursuant to Section 9.06 or
(b) the Regular Trustees elect after consultation with the Sponsor to
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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.
SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates. If
(a) any mutilated Certificates should be surrendered to the Regular Trustees or
if the Regular Trustees shall receive evidence to their satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Regular Trustees such security or indemnity as may be required by them to
keep each of them harmless, then in the absence of notice that such Certificate
shall have been acquired by a bona fide purchaser, any two Regular Trustees on
behalf of the Trust shall execute and deliver, in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
denomination. In connection with the issuance of any new Certificate under this
Section 9.08, the Regular Trustees may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this Section shall
constitute conclusive evidence of an ownership interest in the relevant
securities, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
ARTICLE X
Limitation of Liability; Indemnification
SECTION 10.01. Liability. (a) Except as expressly set forth in this
Declaration, the Guarantee and the terms of the Trust Securities the Sponsor:
(i) shall not be personally liable for the return of any portion of
the capital contributions of the
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Holders of the Trust Securities, which shall be made solely from assets of
the Trust; and
(ii) shall not be required to pay to the Trust or to any Holder of
Trust Securities any deficit upon dissolution of the Trust or otherwise.
(b) Pursuant to Section 3803(a) of the Business Trust Act, the
Holders of the Trust Securities shall be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of Delaware.
SECTION 10.02. Exculpation. (a) No Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Trust or any
Covered Person for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of the Trust and in a manner such Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Indemnified Person by this
Declaration or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's gross
negligence (or, in the case of the Property Trustee, except as otherwise set
forth in Section 3.10 hereof) or wilful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Trust, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits,
losses or any other facts pertinent to the existence and amount of assets from
which Distributions to Holders of Trust Securities might properly be paid.
SECTION 10.03. Indemnification. (a) To the fullest extent permitted
by applicable law, the Sponsor shall indemnify and hold harmless each
Indemnified Person from and against any loss, damage or claim incurred by such
Indemnified Person by reason of any act or omission
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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, except as otherwise
set forth in Section 3.10 hereof) or wilful misconduct with respect to such acts
or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal fees) incurred by an Indemnified Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Sponsor prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Sponsor of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 10.03(a).
SECTION 10.04. Outside Businesses. Any Covered Person, the Sponsor,
the Delaware Trustee and the Property Trustee may engage in or possess an
interest in other business ventures of any nature or description, independently
or with others, similar or dissimilar to the business of the Trust, and the
Trust and the Holders of Trust Securities shall have no rights by virtue of this
Declaration in and to such independent ventures or the income or profits derived
therefrom and the pursuit of any such venture, even if competitive with the
business of the Trust, shall not be deemed wrongful or improper. No Covered
Person, the Sponsor, the Delaware Trustee or the Property Trustee shall be
obligated to present any particular investment or other opportunity to the Trust
even if such opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and any Covered Person, the Sponsor, the Delaware
Trustee and the Property Trustee shall have the right to take for its own
account (individually or as a partner or fiduciary) or to recommend to others
any such particular investment or other opportunity. Any Covered Person, the
Delaware Trustee and the Property Trustee may engage or be interested in any
financial or other transaction with the Sponsor or any Affiliate of the Sponsor,
or may act as depositary for, trustee or agent for, or act on any committee or
body of
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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 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
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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 may maintain one or more bank
accounts in the name and for the sole benefit of the Trust; provided, however,
that all payments of funds in respect of the Subordinated Notes held by the
Property Trustee shall be made directly to the Property Account and no other
funds from the Trust shall be deposited in the Property Account. The sole
signatories for such accounts shall be designated by the Regular Trustees;
provided, however, that the Property Trustee shall designate the sole
signatories for the Property Account.
SECTION 11.04. Withholding. The Trust and the Trustees shall comply
with all withholding requirements under United States Federal, state and local
law. The Trust shall request, and the Holders shall provide to the Trust, such
forms or certificates as are necessary to establish an exemption from
withholding with respect to each Holder and any representations and forms as
shall reasonably be requested by the Trust to assist it in determining the
extent of, and in fulfilling, its withholding obligations. The Trust shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to the applicable jurisdiction. To the extent that
the Trust is required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder, the amount withheld shall
be deemed to be a distribution in the amount of the withholding to the Holder.
In the event of any claimed overwithholding, Holders shall be limited to an
action against the applicable jurisdiction. If the amount to be withheld was not
withheld from a Distribution, the
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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 result in the Trust being
treated as an association taxable as a corporation or a partnership for United
States Federal income tax purposes and that, following such action, each holder
of Trust Securities will be treated as owning an undivided beneficial interest
in the Subordinated Notes and (B) a written unqualified opinion of nationally
recognized independent counsel experienced in such matters to the effect that
such amendment will not cause the Trust to be an Investment Company that is
required to be registered under the Investment Company Act, (ii) at such time
after the Trust has issued any Trust Securities which remain outstanding, any
amendment which would adversely affect the rights, privileges or preferences of
any Holder of Trust Securities may be effected only with such additional
requirements as may be set forth in the terms of such Trust Securities, (iii)
Section 4.02, Section 9.01(c) and this Section 12.01 shall not be amended
without the consent of all the Holders of the Trust Securities, (iv) no
amendment which adversely affects the rights, powers and privileges of the
Property Trustee shall be made without the consent of the Property Trustee, (v)
Article IV shall not be amended without the consent of the Sponsor, (vi) the
rights of Holders of Common Securities under Article V to increase or decrease
the number of, and to appoint, replace or remove, Trustees (other than a Special
Regular Trustee) shall not be amended without the consent of each Holder of
Common Securities and (vii) the rights of Holders of Preferred Securities to
appoint or remove a Special Regular Trustee shall not be amended without the
consent of each Holder of Preferred Securities.
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(b) Subject to Section 12.01(a)(i) and notwithstanding Section
12.01(a)(ii), this Declaration may be amended without the consent of the Holders
of the Trust Securities to (i) cure any ambiguity, (ii) correct or supplement
any provision in this Declaration that may be defective or inconsistent with any
other provision of this Declaration, (iii) add to the covenants, restrictions or
obligations of the Sponsor and (iv) conform to any changes in Rule 3a-5 or any
change in interpretation or application of Rule 3a-5 by the Commission, which
amendment does not adversely affect the rights, preferences or privileges of the
Holders.
SECTION 12.02. Meetings of the Holders of Trust Securities; Action
by Written Consent. (a) Meetings of the Holders of Preferred Securities and/or
Common Securities may be called at any time by the Regular Trustees (or as
provided in the terms of the Trust Securities) to consider and act on any matter
on which Holders of such class of Trust Securities are entitled to act under the
terms of this Declaration, the terms of the Trust Securities or the rules of any
stock exchange or other self-regulatory organization (including the Nasdaq Stock
Market) on which the Preferred Securities are listed or admitted for trading.
The Regular Trustees shall call a meeting of Holders of Preferred Securities or
Common Securities, if directed to do so by Holders of at least 10% in Stated
Amount of such class of Trust Securities. Such direction shall be given by
delivering to the Regular Trustees one or more written notifications stating
that the signing Holders of Trust Securities wish to call a meeting and
indicating the general or specific purpose for which the meeting is to be
called. Any Holders of Trust Securities calling a meeting shall specify in
writing the Certificates held by the Holders of Trust Securities exercising the
right to call a meeting and only those specified Certificates shall be counted
for purposes of determining whether the required percentage set forth in the
second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Trust Securities, the following provision shall apply to meetings of Holders of
Trust Securities:
(i) notice of any such meeting shall be given by mail to all the
Holders of Trust Securities having a right to vote thereat not less than
seven days nor more than 60 days prior to the date of such meeting.
Whenever a vote, consent or approval of the Holders of
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securities is permitted or required under this Declaration or the rules of
any stock exchange or other self-regulatory organization (including the
Nasdaq Stock Market) on which the Preferred Securities are listed or
admitted for trading, such vote, consent or approval may be given at a
meeting of the Holders of Trust Securities. Any action that may be taken
at a meeting of the Holders of Trust Securities may be taken without a
meeting if a consent in writing setting forth the action so taken is
signed by Holders of Trust Securities owning not less than the minimum
aggregate Stated Amount of Trust Securities that would be necessary to
authorize or take such action at a meeting at which all Holders of Trust
Securities having a right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting shall be given to the
Holders of Trust Securities entitled to vote who have not consented in
writing. The Regular Trustees may specify that any written ballot
submitted to the Holders of Trust Securities for the purpose of taking any
action without a meeting shall be returned to the Trust within the time
specified by the Regular Trustees;
(ii) each Holder of a Trust Security may authorize any Person to act
for it by proxy on all matters in which a Holder of a Trust Security is
entitled to participate, including waiving notice of any meeting or voting
or participating at a meeting. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the Holder of
the Trust Security executing it. Except as otherwise provided herein or in
the terms of the Trust Securities, all matters relating to the giving,
voting or validity of proxies shall be governed by the General Corporation
Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation
and the Holders of the Trust Securities were stockholders of a Delaware
corporation;
(iii) each meeting of the Holders of the Trust Securities shall be
conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
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(iv) unless otherwise provided in the Business Trust Act, this
Declaration or the rules of any stock exchange or other self-regulatory
organization (including the Nasdaq Stock Market) on which the Preferred
Securities are then listed or admitted for trading, the Regular Trustees,
in their sole discretion, shall establish all other provisions relating to
meetings of Holders of Trust Securities, including notice of the time,
place or purpose of any meeting at which any matter is to be voted on by
any Holders of Trust Securities, waiver of any such notice, action by
consent without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
ARTICLE XIII
Representations and Warranties of Property Trustee
and Delaware Trustee
SECTION 13.01. Representations and Warranties of Property Trustee
and Delaware Trustee. (a) The Trustee that acts as initial Property Trustee
represents and warrants to the Trust and to the Sponsor at the date of this
Declaration, and each Successor Property Trustee represents and warrants to the
Trust and the Sponsor at the time of the Successor Property Trustee's acceptance
of its appointment as Property Trustee that:
(i) The Property Trustee is a banking association with trust powers,
duly organized, validly existing and in good standing under the laws of
the United States, or any State therein, with trust power and authority to
execute and deliver, and to carry out and perform its obligations under
the terms of, this Declaration.
(ii) The execution, delivery and performance by the Property Trustee
of this Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. The Declaration has been duly
executed and delivered by the Property Trustee and constitutes a legal,
valid and binding obligation of the Property Trustee, enforceable against
it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency and other similar laws affecting
creditors' rights
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generally and to general principles of equity and the discretion of the
court (regardless of whether the enforcement of such remedies is
considered in a proceeding in equity or at law).
(iii) The execution, delivery and performance of this Declaration by
the Property Trustee does not conflict with or constitute a breach of any
of the terms or provisions of or constitute a default under (i) the
Articles of Association or By-laws of the Property Trustee or any other
agreement or instrument to which the Property Trustee is a party or by
which it may be bound, (ii) any existing applicable law, rule or
regulation or (iii) any judgment, order or decree of any government,
governmental instrumentality or court having jurisdiction over the
Property Trustee.
(iv) No consent, approval or authorization of, or registration with
or notice to, any banking authority which supervises or regulates the
Property Trustee is required for the execution, delivery or performance by
the Property Trustee of this Declaration.
(v) The Property Trustee satisfies the qualifications set forth in
Section 5.01(c).
(b) The Trustee which acts as initial Delaware Trustee represents
and warrants to the Trust and the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Delaware Trustee's acceptance of its
appointment as Delaware Trustee, that:
(i) it satisfies the qualifications set forth in Section 5.01(a)(C);
(ii) it has been authorized to perform its obligations under the
Certificate of Trust and the Declaration; and
(iii) the Declaration under Delaware law constitutes a legal, valid
and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the
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enforcement of such remedies is considered in a proceeding in equity or at
law).
ARTICLE XIV
Miscellaneous
SECTION 14.01. Notices. All notices provided for in this Declaration
shall be in writing, duly signed by the party giving such notice, and shall be
delivered, telecopied or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the
Regular Trustees on behalf of the Trust may give notice of to the Holders
of the Trust Securities):
Time Warner Financing Trust
In care of Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Attention of Peter R. Haje,
Richard J. Bressler and
Thomas W. McEnerney,
Trustees
Facsimile No.: (212) 333-3987
(b) if given to the Property Trustee, at the mailing address of the
Property Trustee set forth below (or such other address as the Property
Trustee may give notice of to the Holders of the Trust Securities):
The First National Bank of Chicago
Corporate Trust Services Division
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Attention of: Trust #19-203169
Facsimile No.: (312) 407-1708
(c) if given to the Delaware Trustee, at the mailing address of the
Delaware Trustee set forth below
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(or such other address as the Delaware Trustee may give notice of to the
Holders of the Trust Securities):
Michael J. Majchrzak
300 King Street
Wilmington, Delaware 19801
Facsimile No.: (302) 594-8622
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice of to the Trust):
Time Warner Inc.
75 Rockefeller Center
New York, NY 10019
Attention of General Counsel
Facsimile No.: (212) 956-7281
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust.
A copy of any notice to the Property Trustee or the Delaware Trustee
shall also be sent to the Trust. Except as otherwise provided in the terms of
the Trust Securities, all notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed or three Business Days
after mailed by first class mail, postage prepaid, except that, if a notice or
other document is refused delivery or cannot be delivered because of a changed
address of which no notice was given, such notice or other document shall be
deemed to have been delivered on the date of such refusal or inability to
deliver.
SECTION 14.02. Undertaking for Costs. All parties to this
Declaration agree, and each Holder of any Trust Securities by his or her
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Declaration or in any suit against the Property Trustee for any action
taken or omitted by it as Property Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any
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54
party litigant in such suit, having due regard to the merits and good faith of
the claims or defenses made by such party litigant; but the provisions of this
Section 14.02 shall not apply to any suit instituted by the Property Trustee, to
any suit instituted by any Holder or group of Holders of Preferred Securities
holding more than 10% in aggregate Stated Amount of the outstanding Preferred
Securities, or to any suit instituted by any Holder of Preferred Securities for
the enforcement of the payment of the Maturity Payment Amount or Redemption
Payment Amount or interest on the Subordinated Notes, on or after the respective
due dates expressed in such Subordinated Notes.
SECTION 14.03. Governing Law. This Declaration and the rights of the
parties hereunder shall be governed by and interpreted in accordance with the
laws of the State of Delaware and all rights and remedies shall be governed by
such laws without regard to principles of conflict of laws.
SECTION 14.04. Headings. Headings contained in this Declaration are
inserted for convenience of reference only and do not affect the interpretation
of this Declaration or any provision hereof.
SECTION 14.05. Partial Enforceability. If any provision of this
Declaration, or the application of such provision to any Person or circumstance,
shall be held invalid, the remainder of this Declaration, or the application of
such provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
SECTION 14.06. Counterparts. This Declaration may contain more than
one counterpart of the signature pages and this Declaration may be executed by
the affixing of the signature of the Sponsor and each of the Trustees to one of
such counterpart signature pages. All such counterpart signature pages shall be
read as though one, and they shall have the same force and effect as though all
the signers had signed a single signature page.
SECTION 14.07. Intention of the Parties. (a) It is the intention of
the parties hereto that the Trust not be classified for United States federal
income tax purposes as an association taxable as a corporation or partnership
but that the Trust be treated as a grantor trust for United States federal
income tax purposes. The provisions of this
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55
Declaration shall be interpreted to further this intention of the parties.
(b) The Trust, the Trustees, Time Warner and each Holder of a Trust
Security, by his or her acceptance thereof, agree to treat the Subordinated
Notes as debt instruments for United States Federal, state and local income and
franchise tax purposes and shall not take any contrary position before any
taxing authority or on any tax return.
SECTION 14.08. Successors and Assigns. Whenever in this Declaration
any of the parties hereto is named or referred to, the successors and assigns of
such party shall be deemed to be included, and all covenants and agreements 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.
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56
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: Thomas W.McEnerney
Title: Vice President
by
--------------------------
Peter R. Haje,
as Trustee
by
--------------------------
Richard J. Bressler,
as Trustee
by
--------------------------
Thomas W. McEnerney,
as Trustee
THE FIRST NATIONAL BANK OF
CHICAGO, as Trustee,
by
--------------------------
Name: Melissa G. Weisman
Title: Assistant Vice
President
by
--------------------------
Michael J. Majchrzak,
as Trustee
<PAGE>
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF TRUST
OF
TIME WARNER FINANCING TRUST
This Restated Certificate of Trust of Time Warner Financing Trust
(the "Trust"), dated August 14, 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.), to amend and restate the original
Certificate of Trust of the Trust, which was filed on June 9, 1995 (the
"Certificate"), with the Delaware Secretary of State.
The Certificate is hereby amended and restated in its entirety as
follows:
1. Name. The name of the business trust is Time Warner Financing
Trust.
2. Delaware Trustee. The name and business address of the trustee of
the Trust in the State of Delaware is Michael J. Majchrzak, c/o FCC National
Bank, 300 King Street, Wilmington, Delaware 19801.
3. Effective Date. This Restated Certificate of Trust shall be
effective on August 15, 1995 at 9:00 a.m.
IN WITNESS WHEREOF, the undersigned, being the sole trustees of the
Trust, have executed this Restated 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
by
--------------------------
Michael J. Majchrzak,
as trustee
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<PAGE>
2
by
--------------------------
Peter R. Haje,
as trustee
by
--------------------------
Richard J. Bressler,
as trustee
by
--------------------------
Thomas W. McEnerney,
as trustee
<PAGE>
<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 August 15, 1995
(as amended from time to time, the "Declaration"), the designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Preferred Securities are set forth below (each capitalized term used but not
defined herein having the meaning set forth in the Declaration or, to the extent
not defined therein, the Guarantee Agreement dated as of August 15, 1995 (as
amended from time to time, the "Guarantee") executed by Time Warner on behalf of
the holders of the Preferred Securities):
1. Designation and Number. Preferred Securities of the Trust with an
aggregate Stated Amount in the assets of the Trust of Three Hundred
Seventy-Three Million, Seven Hundred Eighty-Four Thousand, Three Hundred
Ninety-One Dollars ($373,784,391) and a Stated Amount in the assets of the Trust
of $31 per Preferred Security, are hereby designated as "$1.24 Preferred
Exchangeable Redemption Cumulative Securities". The Preferred Security
Certificates evidencing the Preferred Securities shall be substantially in the
form attached hereto as Annex I, with such changes and additions thereto or
deletions therefrom as may be required by ordinary usage, custom or practice or
to conform to the rules of any stock exchange on which the Preferred Securities
are listed or to the rules of any Clearing Agency in which the Trust Securities
have been accepted for trading. The Trust will invest the gross proceeds from
the issuance of the Preferred Securities together with the gross proceeds from
the sale to Time Warner Inc. ("Time Warner") of the Common Securities in
Subordinated Notes of Time Warner having an aggregate principal amount equal to
$385,344,733, and bearing interest at an annual percentage rate of 4%, 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 $1.24 (the "Coupon
Rate") per Preferred
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2
Security. Distributions in arrears for more than one quarter will bear interest
at the rate per annum of 4% thereof (to the extent permitted by law), compounded
quarterly. The term "Distributions" as used in these terms means such periodic
cash distributions and any such interest payable unless otherwise stated. A
Distribution will be made by the Property Trustee only to the extent that
interest payments are made in respect of the Subordinated Notes held by the
Property Trustee. The amount of Distributions (or amounts equal to accrued and
unpaid Distributions) payable for any period will be computed (i) for any full
quarterly Distribution period, on the basis of a 360-day year of twelve 30-day
months, and (ii) for any period shorter than a full quarterly Distribution
period, on the basis of a 360-day year of twelve 30-day months and on the basis
of the actual number of days elapsed in any such 30-day month.
(b) Distributions on the Preferred Securities will be cumulative,
will accrue from and including August 15, 1995 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
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3
the Declaration, each payment in respect of the Preferred Securities will be
made as described in paragraph 9 hereof. If any date on which Distributions are
payable on the Preferred Securities is not a Business Day, then payment of the
Distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), except that if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
(d) All Distributions paid with respect to the Preferred Securities
and the Common Securities will be paid on a Pro Rata Basis (as defined herein)
to the Holders thereof entitled thereto.
(e) In the event that there is any money or other property held by
or for the Trust that is not accounted for under the Declaration or these terms
of the Preferred Securities or the terms of the Common Securities, such money or
property shall be distributed on a Pro Rata Basis among the Holders of the
Preferred Securities and Common Securities.
3. Liquidation Distribution Upon Dissolution. In the event of any
voluntary or involuntary liquidation, dissolution, winding-up or termination of
the Trust (each a "Liquidation Event"), the Holders of the Trust Securities on
the date of such Liquidation Event will be entitled to be paid on a Pro Rata
Basis out of the assets of the Trust the Liquidation Distribution in connection
with such Liquidation Event, unless Subordinated Notes in an aggregate principal
amount equal to the aggregate Stated Amount of, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on, the
Trust Securities have been distributed on a Pro Rata Basis (determined without
regard to the proviso in the definition of such term) to the Holders of the
Trust Securities in exchange for such Trust Securities. The "Liquidation
Distribution" will be equal to (a)(i) if such Liquidation Event occurs at the
stated maturity of the Subordinated Notes, the Mandatory Redemption Price, (ii)
if such Liquidation Event occurs in connection with the optional redemption of
the Subordinated Notes, the Call Price, (iii) if such Liquidation Event occurs
in connection with the special redemption of the Subordinated Notes, the Special
Redemption Price and (iv) if such Liquidation Event occurs in connection with an
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<PAGE>
4
acceleration of the Subordinated Notes in any other circumstance, the
Acceleration Price (as defined in the Indenture), in each case plus (b) the
amount of accrued and unpaid Distributions on the Trust Securities to but
excluding the date of payment. In the event that the assets of the Trust exceed
the amount necessary to pay to all Holders of the Trust Securities the full
amount of the Liquidation Distribution, such excess will be paid to the Holders
of the Trust Securities on a Pro Rata Basis (determined without regard to the
proviso in the definition of such term).
4. Redemption and Distribution of Subordinated Notes. The Trust
Securities may be redeemed only if Subordinated Notes having an aggregate
principal amount equal to the aggregate Stated Amount and accrued and unpaid
interest equal to accrued and unpaid distributions on the Trust Securities are
repaid, redeemed or distributed as set forth below:
(a) Subject to the exercise by Time Warner of the Time Warner
Exchange Right (as defined in the Guarantee) with respect to the Preferred
Securities, on December 23, 1997 (the "Mandatory Redemption Date"), each of the
Trust Securities then outstanding will be redeemed on a Pro Rata Basis by the
Trust, in cash, at a mandatory redemption price per Trust Security equal to (i)
the lesser of (A) $54.41 and (B) the Exchange Valuation Price on the Trading Day
immediately preceding December 17, 1997, of such amount of Exchange Property
(which as of the date of this Declaration consists of one share of Hasbro Common
Stock for each Preferred Security) as relates to one Preferred Security at such
time (determined by reference only to the Exchange Property and the Preferred
Securities) (the "Mandatory Redemption Price") plus (ii) an amount equal to all
accrued and unpaid distributions on such Trust Security to but excluding the
Mandatory Redemption Date.
(b) At any time and from time to time prior to the Mandatory
Redemption Date, upon the call for redemption prior to maturity by Time Warner
of the Subordinated Notes, the proceeds of such redemption shall be promptly
applied to redeem, and the Trust shall call for redemption on a Pro Rata Basis,
outstanding Trust Securities having an aggregate Stated Amount equal to the
aggregate principal amount of the Subordinated Notes so redeemed, upon not less
than 20 nor more than 45 Business Days' notice, and deliver to the Holders
thereof in exchange for each Trust Security so
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<PAGE>
5
called for redemption, subject to the exercise of the Time Warner Exchange
Right, cash in an amount equal to the Call Price in effect on the date of
redemption (the "Optional Redemption Date"), plus cash in an amount equal to all
accrued and unpaid Distributions on such Trust Security, whether or not
declared, for the period to but excluding the Optional Redemption Date. The
"Call Price" is equal to (a) $54.41 per Trust Security plus (b) an amount
initially equal to $2.30 per Trust Security, declining by $.002712 for each day
that shall have elapsed in the period from the Issue Date to but excluding the
Optional Redemption Date (the number of days in such period being computed on
the basis of a 360-day year of twelve 30-day months) to $.16 on October 23,
1997, and $0 thereafter. The date of any such redemption of Preferred Securities
and Common Securities shall be established to coincide with the redemption date
of the Subordinated Notes.
(c) If fewer than all the outstanding Trust Securities are to be so
redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and the
Preferred Securities to be redeemed will be redeemed as described in 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 automated
inter-dealer quotation system, including The Nasdaq Stock Market) on which the
Preferred Securities are then listed, Time Warner pursuant to the Indenture will
only redeem the Subordinated Notes in whole and, as a result, the Trust may only
redeem the Preferred Securities in whole.
(d) (i) If, at any time, a Tax Event or an Investment Company Event
(each as hereinafter defined, and each a "Special Event") shall occur and
be continuing, the Regular Trustees shall notify Time Warner thereof and
Time Warner shall elect to either (A) direct the Regular Trustees to
dissolve the Trust and cause Subordinated Notes having an aggregate
principal amount equal to the aggregate Stated Amount of, and accrued and
unpaid interest equal to accrued and unpaid Distributions on, and having
the same record date for payment as, the Trust Securities outstanding
Securities at such time, to be distributed to the Holders of the Trust
Securities on a Pro Rata Basis (determined without regard to the proviso
in the definition of such term) in liquidation of such Holders' interests
in the Trust, within 90 days following the occurrence of such Special
Event,
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<PAGE>
6
provided, however, that in the case of the occurrence of a Tax Event, as a
condition of any such dissolution and distribution, the Regular Trustees
shall have received an opinion of nationally recognized independent tax
counsel experienced in such matters (a "No Recognition Opinion"), which
opinion may rely on any then applicable published revenue ruling of the
Internal Revenue Service, to the effect that the Holders of the Preferred
Securities will not recognize any gain or loss for United States Federal
income tax purposes as a result of the dissolution of the Trust and
distribution of Subordinated Notes; (B) to redeem the Subordinated Notes
in accordance with the Indenture and the Trust Securities as described
under paragraph (ii) below or (C) in the case of a Tax Event, allow the
Subordinated Notes and the Trust Securities to remain outstanding and
indemnify the Trust for all taxes payable by it as a result of such change
in law or interpretation; provided that, if and as long as at the time
there is available to the Trust the opportunity to eliminate, within 90
days following the occurrence of such Special Event (the "90-Day Period"),
the Special Event by taking some ministerial action, such as filing a form
or making an election, or pursuing some other similar reasonable measure
that has no adverse effect on the Trust, Time Warner or the Holders of the
Trust Securities (a "Ministerial Action"), the Trust will pursue such
measure in lieu of dissolution or redemption; provided further, that Time
Warner shall have no right to redeem the Subordinated Notes or to direct
the Regular Trustees to dissolve the Trust while the Regular Trustees are
pursuing such Ministerial Action unless the Special Event shall not have
been so eliminated by the 85th day following the occurrence thereof, in
which case Time Warner shall be permitted to so direct the Regular
Trustees or to provide notice to the holders of the redemption of the
Subordinated Notes; provided further, that if dissolution of the Trust and
distribution of the Subordinated Notes to the holders of the Trust
Securities would eliminate the condition causing the Tax Event or the
Investment Company Event and all other conditions to such dissolution and
distribution have been satisfied, Time Warner will not be permitted to
redeem the Subordinated Notes at the Special Redemption Price; and
provided further, that Time Warner shall not be permitted to direct the
Regular Trustees to dissolve the Trust and distribute the Subordinated
Notes to the holders of the
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<PAGE>
7
Trust Securities upon the occurrence of the condition described in clause
(2) in the definition of "Tax Event" if, after giving effect to such
dissolution and distribution, Time Warner would not be permitted to deduct
a greater percentage of the interest payable on the Subordinated Notes
than it had been permitted to deduct for United States Federal income tax
purposes prior to the occurrence of such Tax Event.
(ii) Subject to the exercise of the Time Warner Exchange Right, upon
the occurrence and continuation of a Tax Event or an Investment Company
Event, Time Warner shall have the right to redeem the Subordinated Notes
in whole (but not in part), upon not less than 20 nor more than 45
Business Days' notice, within the 90-Day Period (such date of redemption a
"Special Redemption Date"), in which case the Trust shall (unless the
Trust shall have been dissolved) redeem in cash on a Pro Rata Basis Trust
Securities having an aggregate Stated Amount equal to the aggregate
principal amount of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Subordinated Notes so redeemed, at a price
per Trust Security equal to (A) the lesser of (1) $54.41 and (2) the
Exchange Valuation Price on the Trading Day immediately preceding such
Special Redemption Date of the amount of Exchange Property that relates to
one Preferred Security at such time (determined by reference only to the
Exchange Property and the Preferred Securities and based on the Exchange
Rate in effect as of such Trading Day), plus (B) an amount initially equal
to $2.30 per Trust Security, declining by $.002712 on each day following
the issue date (computed on the basis of a 360-day year of twelve 30-day
months) to $.16 on October 23, 1997, and $0 thereafter (such price the
"Special Redemption Price"), plus an amount equal to all accrued and
unpaid distributions on such Trust Security to but excluding the Special
Redemption Date. The Common Securities and the Preferred Securities will
be redeemed on a Pro Rata Basis.
(iii) "Tax Event" means that the Regular Trustees shall have
obtained an opinion of nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the effect
that on or after August 9, 1995, as a result of (A) any amendment to, or
change (including any announced prospective change) in, the laws (or any
regulations thereunder) of
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<PAGE>
8
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 August 9, 1995, there is more than an
insubstantial risk that at such time or within 90 days of the date thereof
(1) the Trust is, or would be, subject to United States Federal income tax
with respect to income accrued or received on the Subordinated Notes, (2)
less than 25% of the interest payable by Time Warner to the Trust on the
Subordinated Notes is, or would be, deductible by Time Warner for United
States Federal income tax purposes, (3) the Trust is, or would be, subject
to more than a de minimis amount of other taxes, duties or other
governmental charges or (4) as a result of the issuance of the Preferred
Securities and/or the Subordinated Notes Time Warner (or an affiliate of
Time Warner) is or would be treated as having disposed, for United States
Federal income tax purposes, of the Hasbro Common Stock owned by it.
(iv) "Investment Company Event" means that the Regular Trustees
shall have received an opinion of nationally recognized independent
counsel experienced in such matters that, as a result of the occurrence of
a change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court,
governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be
considered an Investment Company that is required to be registered under
the Investment Company Act, which Change in 1940 Act Law becomes effective
on or after August 9, 1995.
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9
(v) On the date fixed for any distribution of Subordinated Notes,
upon dissolution of the Trust, (i) the Preferred Securities will no longer
be deemed to be outstanding, (ii) neither the Trust nor Time Warner shall
have any further obligation to the Holders of the Preferred Securities
with respect to the Preferred Securities or under the Guarantee, (iii) the
Depositary or its nominee, as the record holder of the Preferred
Securities, will receive a registered global certificate or certificates
representing the Subordinated Notes to be delivered upon such distribution
and (iv) any certificates representing Preferred Securities not held by
the Depositary or its nominee will be deemed to represent beneficial
interests in the Subordinated Notes having an aggregate principal amount
equal to the aggregate Stated Amount of, and bearing accrued and unpaid
interest equal to accrued and unpaid Distributions on, such Preferred
Securities until such certificates are presented to Time Warner or its
agent for transfer or reissuance.
(e) The Trust may not redeem fewer than all the outstanding
Preferred Securities on any Optional Redemption Date (it being understood that
at any other time the Preferred Securities may be redeemed only in whole) unless
all accrued and unpaid Distributions have been or are concurrently being paid on
all Preferred Securities for all quarterly Distribution periods terminating on
or prior to the applicable Optional Redemption Date.
(f) If Subordinated Notes are distributed to Holders of the
Preferred Securities, Time Warner, pursuant to the terms of the Indenture, will
use its best efforts to have the Subordinated Notes listed on the New York Stock
Exchange or on such other exchange or self-regulatory organization (including
The Nasdaq Stock Market) as the Preferred Securities were listed immediately
prior to the distribution of the Subordinated Notes.
(g) (i) Notice of any redemption (other than mandatory redemption)
of, or notice of distribution of Subordinated Notes in exchange for, the
Preferred Securities and Common Securities (a "Redemption/ Distribution
Notice") will be given by the Regular Trustees on behalf of the Trust by
mail to each Holder of Preferred Securities and Common Securities to be
redeemed or exchanged not less than 20 nor more than 45 Business Days
prior to the date fixed for redemption or
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10
distribution thereof. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given pursuant
to this paragraph (g)(i), a Redemption/Distribution Notice shall be deemed
to be given on the day such notice is first mailed by first-class mail,
postage prepaid, to Holders of Preferred Securities and Common Securities.
Each Redemption/ Distribution Notice shall be addressed to the Holders of
Preferred Securities and Common Securities at the address of each such
Holder appearing in the books and records of the Trust. Such
Redemption/Distribution Notice shall set forth the aggregate Stated Amount
of Trust Securities to be redeemed, the applicable Redemption Payment
Date, the Call Price or Special Redemption Price, as the case may be, and
in the case of a Special Event, a brief description thereof. No defect in
the Redemption/Distribution Notice or in the mailing of either thereof
with respect to any Holder shall affect the validity of the redemption or
exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Preferred
Securities are to be redeemed, the Preferred Securities to be redeemed
will be redeemed on a Pro Rata Basis from each Holder of Preferred
Securities.
(iii) Payment of the Mandatory Redemption Price, Call Price or
Special Redemption Price (each a "Redemption Payment Amount") in respect
of each Preferred Security, together with any accrued and unpaid
distributions thereon, is conditioned upon delivery or book-entry transfer
of such Preferred Security (together with necessary endorsements) to the
Property Trustee at any time (whether prior to, on or 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
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11
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 at the close of business on the redemption date, so
long as Time Warner has paid to the Property Trustee in immediately
available funds a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Notes, Distributions will cease
to accrue on the Preferred Securities called for redemption, such
Preferred Securities will no longer be deemed to be outstanding and all
rights of Holders of such Preferred Securities so called for redemption
will cease, except the right of the Holders of such Preferred Securities
to receive the Redemption Payment Amount, together with any accrued and
unpaid Distributions on the Preferred Securities being redeemed, but
without interest on such amount. Neither the Trustees nor the Trust shall
be required to register or cause to be registered the transfer of any
Preferred Securities which have been so called for redemption. If any date
fixed for redemption of Preferred Securities is not a Business Day, then
payment of the Redemption Payment Amount payable on such date, together
with any accrued and unpaid Distributions to such date, will be made on
the next succeeding day that is a Business Day (and without any interest
or other payment in respect of any such delay) except that, if such
Business Day falls in the next calendar year, such payment will be made on
the immediately preceding Business Day, in each case with the same force
and effect as if made on such date fixed for redemption. If payment of the
Redemption Payment Amount in respect of Preferred Securities, together
with any accrued and unpaid Distributions on such Preferred Securities, is
improperly withheld or refused and not paid either by the Property Trustee
or by Time Warner pursuant to the Guarantee, Distributions on such
Preferred Securities will continue to accrue, from the original redemption
date to the date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Payment Amount and the amount of any such accrued and unpaid
distributions.
(v) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to the Holders of the Preferred
Securities.
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12
(vi) Upon the date of dissolution of the Trust and distribution of
Subordinated Notes as a result of the occurrence of a Special Event,
Preferred Security Certificates shall be deemed to represent beneficial
interests in the Subordinated Notes so distributed, and the Preferred
Securities will no longer be deemed outstanding and may be canceled by the
Regular Trustees. The Subordinated Notes so distributed shall have an
aggregate principal amount equal to the aggregate Stated Amount of the
Preferred Securities in respect of which the Subordinated Notes shall have
been so distributed.
(vii) Subject to the foregoing and applicable law (including,
without limitation, United States Federal securities laws), Time Warner or
any of its affiliates may at any time and from time to time purchase
outstanding Preferred Securities by tender, in the open market or by
private agreement. Any such Preferred Securities purchased by Time Warner
shall be surrendered to the Trust for cancellation.
5. Voting Rights. (a) Except as provided under paragraph 5(b) below
and as otherwise required by law and the Declaration, the Holders of the
Preferred Securities will have no voting rights.
(b) (i) If (A) the Trust (1) fails to pay Distributions in full on
the Preferred Securities and such failure continues unremedied for 30 days
or (2) fails to pay the Redemption Payment Amount of any Preferred
Securities to be redeemed on the applicable Redemption Payment Date; or
(B) an Event of Default occurs and is continuing (each an "Appointment
Event"), then the Holders of the Preferred Securities, acting as a single
class, will be entitled by the vote of Holders of Preferred Securities
representing a Majority in Stated Amount of the Preferred Securities to
appoint a Special Regular Trustee in accordance with Section
5.02(a)(ii)(B) of the Declaration. Any Holder of Preferred Securities
(other than the Sponsor or any Affiliate of the Sponsor) will have the
right to nominate any Person to be appointed as Special Regular Trustee.
Not later than 30 days after such right to appoint a Special Regular
Trustee arises, the Regular Trustees will convene a meeting of the Holders
of the Preferred Securities for the purpose of appointing a Special
Regular Trustee. If the Regular Trustees fail
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13
to convene such meeting within such 30-day period, the Holders of
Preferred Securities representing not less than 10% in Stated Amount of
the outstanding Preferred Securities will be entitled to convene such
meeting in accordance with Section 12.02 of the Declaration. The record
date for such meeting will be the close of business on the Business Day
next preceding the day on which notice of the meeting is sent to Holders
of Preferred Securities. The provisions of the Declaration relating to the
convening and conduct of the meetings of the Holders will apply with
respect to any such meeting. If, at any such meeting, Holders of less than
a Majority in Stated Amount of Preferred Securities entitled to vote for
the appointment of a Special Regular Trustee vote for such appointment, no
Special Regular Trustee shall be appointed. Any Special Regular Trustee
may be removed without cause at any time by the Holders of Preferred
Securities representing a Majority in Stated Amount of the Preferred
Securities in accordance with Section 5.02(a)(ii)(B) of the Declaration.
The Holders of 10% in Stated Amount of the Preferred Securities will be
entitled to convene such a meeting to remove the Special Regular Trustee
in accordance with Section 12.02 of the Declaration. The record date for
such meeting will be the close of business on the Business Day next
preceding the day on which notice of the meeting is sent to Holders of
Preferred Securities. Any Special Regular Trustee appointed shall cease to
be a Special Regular Trustee as provided in Section 5.02(c) of the
Declaration. Notwithstanding the appointment of any such Special Regular
Trustee, Time Warner shall retain all its rights under the Indenture.
(ii) If any proposed amendment to the Declaration provides for, or
the Regular Trustees otherwise propose to effect (A) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise,
or (B) the liquidation, dissolution, winding-up or termination of the
Trust, other than in connection with the distribution of Subordinated
Notes held by the Property Trustee, upon the occurrence of a Special Event
or in connection with the redemption of Preferred Securities as a
consequence of a redemption of Subordinated Notes, then the Holders of
outstanding Trust Securities will be entitled to
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14
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 at least 66-2/3% in Stated Amount of Trust
Securities affected thereby; provided, however, (1) if any amendment or
proposal referred to in clause (A) above would adversely affect only the
Preferred Securities or the Common Securities, then only the affected
class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of
Holders of Trust Securities representing at least 66-2/3% in Stated Amount
of such class of Trust Securities, (2) the rights of Holders of Preferred
Securities under Article V of the Declaration to appoint and remove a
Special Regular Trustee shall not be amended without the consent of each
Holder of Preferred Securities, and (3) amendments to the Declaration
shall be subject to such further requirements as are set forth in Sections
12.01 and 12.02 of the Declaration.
(iii) In the event the consent of the Property Trustee, as the
holder of the Subordinated Notes, is required under the Indenture with
respect to any amendment, modification or termination of the Indenture or
the Subordinated Notes, the Property Trustee shall request the written
direction of the Holders of the Trust Securities with respect to such
amendment, modification or termination. The Property Trustee shall vote
with respect to such amendment, modification or termination as directed by
a Majority in Stated Amount of the Trust Securities voting together as a
single class; provided that where such amendment, modification or
termination of the Indenture or the Subordinated Notes requires the
consent or vote of (A) holders of Subordinated Notes representing a
specified percentage greater than a majority in principal amount of the
Subordinated Notes or (B) each holder of Subordinated Notes, the Property
Trustee may only vote with respect to that amendment, modification or
termination as directed by, in the case of clause (A) above, the vote of
Holders of Trust Securities representing such specified percentage of the
aggregate Stated Amount of the Trust Securities, or, in the case of clause
(B) above, each Holder of Trust Securities; and provided further that the
Property Trustee shall not take any action in
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15
accordance with the directions of the Holders of Trust Securities unless
the Property Trustee shall have received, at the expense of the Sponsor,
an opinion of nationally recognized independent tax counsel experienced in
such matters to the effect that such action will not result in the Trust
being treated as an association taxable as a corporation or a partnership
for United States Federal income tax purposes and that, following such
action, each Holder of Trust Securities will be treated for United States
Federal income tax purposes as owning an undivided beneficial interest in
the Subordinated Notes.
(iv) Subject to Section 2.06 of the Declaration, and the provisions
of this and the next succeeding paragraph, the Holders of a Majority in
Stated Amount of the Preferred Securities, voting separately as a class,
shall have the right to (A) on behalf of all Holders of Preferred
Securities, waive any past default that is waivable under the Declaration
(subject to, and in accordance with the Declaration) and (B) direct the
time, method, and place of conducting any proceeding for any remedy
available to the Property Trustee, or to direct the exercise of any trust
or power conferred upon the Property Trustee under the Declaration,
including the right to direct the Property Trustee, as the holder of the
Subordinated Notes, to (1) direct the time, method and place of conducting
any proceeding for any remedy available to the Indenture Trustee, or
exercising any trust or power conferred on the Indenture Trustee with
respect to the Subordinated Notes, (2) waive any past default that is
waivable under Section 6.06 of the Indenture or (3) exercise any right to
rescind or annul a declaration that the principal of all the Subordinated
Notes shall be due and payable; provided that where the taking of any
action under the Indenture requires the consent or vote of (x) holders of
Subordinated Notes representing a specified percentage greater than a
majority in principal amount of the Subordinated Notes or (y) each holder
of Subordinated Notes, the Property Trustee may only take such action if
directed by, in the case of clause (x) above, the vote of Holders of
Preferred Securities representing such specified percentage of the
aggregate Stated Amount of the Preferred Securities, or, in the case of
clause (y) above, each Holder of Preferred Securities. The Property
Trustee shall not revoke any action previously authorized or
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<PAGE>
16
approved by a vote of the Holders of the Preferred Securities. The
Property Trustee shall not take any of the foregoing actions at the
direction of the Holders of Preferred Securities unless the Property
Trustee shall have received, at the expense of the Sponsor, an opinion of
nationally recognized independent tax counsel experienced in such matters
to the effect that such action will not result in the Trust being treated
for United States Federal income tax purposes as an association taxable as
a corporation or a partnership and that, following such action, each
Holder of Trust Securities will be treated for United States Federal
income tax purposes as owning an undivided beneficial interest in the
Subordinated Notes. If the Property Trustee fails to enforce its rights
under the Declaration (including its rights, powers and privileges as a
holder of the Subordinated Notes under the Indenture), any Holder of
Preferred Securities may, after a period of 30 days has elapsed from such
Holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against Time Warner to enforce the
Property Trustee's rights under the Declaration, without first instituting
a legal proceeding against the Property Trustee or any other Person.
(v) A waiver of an Indenture Event of Default by the Property
Trustee at the direction of the Holders of the Preferred Securities will
constitute a waiver of the corresponding Event of Default under the Declaration
in respect of the Trust Securities.
(vi) Any required approval or direction of Holders of Preferred
Securities may be given at a separate meeting of Holders of Preferred Securities
convened for such purpose, at a meeting of all of the Holders of Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which Holders of Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such Holders is
to be taken, to be mailed to each Holder of record of Preferred Securities. Each
such notice will include a statement setting forth (A) the date of such meeting
or the date by which such action is to be taken, (B) a description of any
resolution proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is sought and (C)
instructions for the delivery of proxies or consents.
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<PAGE>
17
(vii) No vote or consent of the Holders of Preferred Securities will
be required for (A) the Trust to redeem and cancel Preferred Securities in
accordance with the Declaration and (B) Time Warner to exercise the Time Warner
Exchange Right.
(viii) Notwithstanding that Holders of Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Preferred Securities at such time that are owned by Time Warner or by any
entity directly or indirectly controlling or controlled by or under direct or
indirect common control with Time Warner shall not be entitled to vote or
consent and shall, for purposes of such vote or consent, be treated as if they
were not outstanding.
(ix) Except as provided in this paragraph 5, Holders of the
Preferred Securities will have no rights to increase or decrease the number of
Trustees or to appoint, remove or replace a Trustee, which voting rights are
vested solely in the Holders of the Common Securities.
6. Pro Rata Treatment. A reference in these terms of the Preferred
Securities to any payment, distribution or treatment as being made on a "Pro
Rata Basis" shall mean, with respect to such payment, distribution or treatment,
pro rata to each Holder of Trust Securities according to the aggregate Stated
Amount of the Trust Securities held by such Holder in relation to the aggregate
Stated Amount of all Trust Securities outstanding; provided, however, that if
the assets of the Trust are insufficient to make such payment in full as a
result of a default with respect to the Subordinated Notes, any funds available
to make such payment shall be paid (i) first to each Holder of the Preferred
Securities pro rata according to the aggregate Stated Amount of Preferred
Securities held by such Holder in relation to the aggregate Stated Amount of all
Preferred Securities outstanding up to an aggregate amount equal to the amount
then owed to the Holders of the Preferred Securities, and (ii) only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate Stated
Amount of Common Securities held by such Holder in relation to the aggregate
Stated Amount of all Common Securities outstanding.
7. Ranking. The Preferred Securities rank pari passu, and payments
will be made thereon on a Pro Rata
<PAGE>
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18
Basis, with the Common Securities, except that if, as a result of an Event of
Default with respect to the Subordinated Notes, the assets of the Trust are
insufficient to make payments of Distributions or payments upon liquidation,
redemption of the Trust Securities or otherwise, the rights of Holders of the
Common Securities to receive such payments will be subordinated to the rights of
the Holders of the Preferred Securities.
8. Mergers, Consolidations or Amalgamations. The Trust may not
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets to, any corporation or other body.
9. Transfer, Exchange, Method of Payments. Payment of Distributions
and payments on redemption of the Preferred Securities or on dissolution of the
Trust will be payable, the transfer of the Preferred Securities will be
registrable, and Preferred Securities will be exchangeable for Preferred
Securities of other denominations of a like aggregate Stated Amount, at the
principal corporate trust office of the Property Trustee in The City of New
York; provided that payment of Distributions may be made at the option of the
Regular Trustees on behalf of the Trust by check mailed to the address of the
persons entitled thereto and that the payment on redemption of any Preferred
Security or on dissolution of the Trust will be made only upon surrender of such
Preferred Security to the Property Trustee.
10. Acceptance of Indenture and Guarantee and Certain Other Matters.
Each Holder of Preferred Securities, by the acceptance thereof, agrees (a) to
the provisions of (i) the Guarantee, including the subordination provisions
therein and (ii) the Indenture and the Subordinated Notes, including the
subordination provisions of the Indenture and (b) to treat the Subordinated
Notes as debt instruments for United States Federal, state and local income and
franchise tax purposes and not to take any contrary position before any taxing
authority or on any tax return.
11. No Preemptive Rights. The Holders of Preferred Securities shall
have no preemptive rights to subscribe to any additional Preferred Securities or
Common Securities.
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19
12. Miscellaneous. These terms shall constitute a part of the
Declaration. The Regular Trustees will provide a copy of the Declaration, the
Guarantee and the Indenture to a Holder without charge on written request to the
Trust at its principal place of business.
13. Time Warner Exchange Right. The Holders of Preferred Securities
acknowledge the rights of Time Warner in connection with the Time Warner
Exchange Right as set forth in the Guarantee.
<PAGE>
<PAGE>
Annex I
Certificate Number Number of Preferred Securities
B-1
CUSIP NO. 88731L203
Certificate Evidencing Preferred Securities
of
Time Warner Financing Trust
$1.24 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 $1.24 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 August 15, 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 August 15,
1995 (the "Guarantee") to the extent provided therein. The Regular Trustees will
furnish a copy of the Declaration, the Guarantee and the Indenture to the Holder
without charge upon written request to the Trust at its principal place of
business or registered office.
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2
The Holder of this Certificate, by accepting this Certificate, is
deemed to have (i) agreed to the terms of the Indenture and the Subordinated
Notes, including that the Subordinated Notes are (a) subordinate and junior in
right of payment to all Senior Indebtedness (as defined in the Indenture, which
term includes Time Warner's outstanding 8-3/4% Convertible Subordinated
Debentures due 2015) as and to the extent provided in the Indenture and (ii)
agreed to the terms of the Guarantee, including that the Guarantee is (a)
subordinate and junior in right of payment to all other liabilities of Time
Warner, including the Subordinated Notes, except those made pari passu or
subordinate by their terms, (b) pari passu with the most senior preferred stock
issued from time to time, by Time Warner and any guarantee now or hereafter
entered into by Time Warner in respect of any such preferred stock and (c)
senior to all common stock now or hereafter issued by Time Warner and to any
guarantee now or hereafter entered into by Time Warner in respect of any of its
common stock.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
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3
IN WITNESS WHEREOF, Trustees of the Trust have executed this
certificate this fifteenth day of August, 1995.
TIME WARNER FINANCING TRUST,
by
------------------------
Thomas W. McEnerney,
as Trustee
by
------------------------
Richard J. Bressler,
as Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Preferred Security certificates referred to in
the within-mention Declaration.
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Trustee,
By:
-----------------------
Authorized Officer
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4
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>
<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 August 15, 1995
(as amended from time to time, the "Declaration"), the designations, rights,
privileges, restrictions, preferences and other terms and provisions of the
Common Securities are set forth below (each capitalized term used but not
defined herein having the meaning set forth in the Declaration):
SECTION 1. Designation and Number. Common Securities of the Trust
with an aggregate Stated Amount in the assets of the Trust of Three Hundred
Seventy-Three Million, Seven Hundred Eighty-Four Thousand, Three Hundred
Ninety-Nine Dollars ($373,784,399) and a Stated Amount in the assets of the
Trust of $31 per Common Security, are hereby designated as "$1.24 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 $11,560,334 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 $11,560,334, 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 $1.24 (the "Coupon Rate")
per Common Security. Distributions in arrears for more than one quarter will
bear interest at the rate per annum of 4% 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
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2
of Distributions (or amounts equal to accrued and unpaid Distributions) payable
for any period will be computed (i) for any full quarterly Distribution period,
on the basis of a 360-day year of twelve 30-day months, and for any period
shorter than a full quarterly Distribution period, on the basis of a 360-day
year of twelve 30-day months and on the basis of the actual number of days
elapsed in any such 30-day month.
(b) Distributions on the Common Securities will be cumulative, will
accrue from and including August 15, 1995, 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
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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 on a Pro Rata Basis to the Holders thereof
entitled thereto.
(e) In the event that there is any money or other property held by
or for the Trust that is not accounted for under the Declaration or the terms of
the Preferred Securities or these terms of the Common Securities, such money or
property shall be distributed on a Pro Rata Basis among the Holders of the
Preferred Securities and Common Securities.
3. Liquidation Distribution Upon Dissolution. In the event of any
voluntary or involuntary liquidation, dissolution, winding-up or termination of
the Trust (each a "Liquidation Event"), the Holders of the Trust Securities on
the date of such Liquidation Event will be entitled to be paid on a Pro Rata
Basis out of the assets of the Trust the Liquidation Distribution in connection
with such Liquidation Event unless Subordinated Notes in an aggregate principal
amount equal to the aggregate Stated Amount of, and bearing accrued and unpaid
interest in an amount equal to the accrued and unpaid Distributions on, the
Trust Securities have been distributed on a Pro Rata Basis (determined without
regard to the proviso in the definition of such term) to the Holders of the
Trust Securities in exchange for such Trust Securities. The "Liquidation
Distribution" will be equal to (a)(i) if such Liquidation Event occurs at the
stated maturity of the Subordinated Notes, the Mandatory Redemption Price, (ii)
if such Liquidation Event occurs in connection with the optional redemption of
the Subordinated Notes, the Call Price, (iii) if such Liquidation Event occurs
in connection with the special redemption of the Subordinated Notes, the Special
Redemption Price and (iv) if such Liquidation Event occurs in connection with an
acceleration of the Subordinated Notes in any other circumstance, the Note
Acceleration Price (as defined in the Indenture), in each case plus (b) the
amount of accrued and unpaid Distributions on the Trust Securities to but
excluding the date of payment. In addition, in the event that the assets of the
Trust exceed the amount necessary to pay to all holders of 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
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4
(determined without regard to the proviso in the definition of such term).
SECTION 4. Redemption and Distribution of Subordinated Notes. The
Trust Securities may only be redeemed if Subordinated Notes having an aggregate
principal amount equal to the aggregate Stated Amount of the Trust Securities
are repaid, redeemed or distributed as set forth below:
(a) Subject to the exercise by Time Warner of the Time Warner
Exchange Right with respect to the Preferred Securities, on December 23, 1997
(the "Mandatory Redemption Date"), each of the Trust Securities then outstanding
will be redeemed (on a Pro Rata Basis) by the Trust, in cash, at a mandatory
redemption price per Trust Security equal to (i) the lesser of (A) $54.41 and
(B) the Exchange Valuation Price, on the Trading Day immediately preceding
December 17, 1997 of such amount of Exchange Property (which as of the date of
this Declaration consists of one share of Hasbro Common Stock for each Preferred
Security) as relates to one Preferred Security at such time (determined by
reference only to the Exchange Property and the Preferred Securities) (the
"Mandatory Redemption Price") plus (ii) an amount equal to all accrued and
unpaid Distributions on such Trust Security to but excluding the Mandatory
Redemption Date.
(b) At any time and from time to time prior to the Mandatory
Redemption Date, upon the call for redemption prior to maturity by Time Warner
of the Subordinated Notes, the proceeds of such redemption shall be promptly
applied to redeem, and the Trust shall call for redemption, on a Pro Rata Basis,
Trust Securities having an aggregate Stated Amount equal to the aggregate
principal amount of the Subordinated Notes so redeemed, upon not less than 20
nor more than 45 Business Days' notice, and deliver to the Holders thereof in
exchange for each Trust Security so called for redemption, subject to the
exercise of the Time Warner Exchange Right with respect to the Preferred
Securities, cash in an amount equal to the Call Price in effect on the date of
redemption (the "Optional Redemption Date"), plus cash in an amount equal to all
accrued and unpaid Distributions on such Trust Security, whether or not
declared, for the period to but excluding the Optional Redemption Date. The
"Call Price" is equal to (a) $54.41 per Trust Security plus (b) an amount
initially equal to $2.30 per Trust Security, declining by $.002712 for each day
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<PAGE>
5
that shall have elapsed in the period from the Issue Date to but excluding the
Optional Redemption Date (the number of days in such period being computed on
the basis of a 360-day year of twelve 30-day months) to $.16 on October 23,
1997, and $0 thereafter. The date of any such redemption of Common Securities
and Preferred Securities shall be established to coincide with the redemption
date of the Subordinated Notes.
(c) If fewer than all the outstanding Trust Securities are to be so
redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and the
Common Securities to be redeemed will be redeemed as described in paragraph
4(f)(ii) below. If a partial redemption would result in the delisting of the
Preferred Securities by any national securities exchange or other
self-regulatory organization (including The Nasdaq Stock Market) on which the
Preferred Securities are then listed, Time Warner pursuant to the Indenture will
only redeem the Subordinated Notes in whole and, as a result, the Trust may only
redeem the Common Securities in whole.
(d) (i) If, at any time, a Tax Event or an Investment Company Event
(each as hereinafter defined, and each a "Special Event") shall occur and
be continuing, the Regular Trustees shall notify Time Warner thereof and
Time Warner shall elect to either (A) direct the Regular Trustees to
dissolve the Trust and cause Subordinated Notes having an aggregate
principal amount equal to the aggregate Stated Amount of, and accrued and
unpaid interest equal to accrued and unpaid Distributions on, and having
the same record date for payment as, the Trust Securities outstanding at
such time, to be distributed to the Holders of the Trust Securities on a
Pro Rata Basis in liquidation of such Holders' interests in the Trust,
within 90 days following the occurrence of such Special Event, provided,
however, that in the case of the occurrence of a Tax Event, as a condition
of any such dissolution and distribution, the Regular Trustees shall have
received an opinion of nationally recognized independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion
may rely on any then applicable published revenue ruling of the Internal
Revenue Service, to the effect that the Holders of the Preferred
Securities will not recognize any gain or loss for United States Federal
income tax purposes as a result of the dissolution of the Trust
<PAGE>
<PAGE>
6
and distribution of Subordinated Notes; (B) to redeem the Subordinated
Notes in accordance with the Indenture and the Trust Securities as
described under paragraph (ii) below or (C) in the case of a Tax Event,
allow the Subordinated Notes and the Trust Securities to remain
outstanding and indemnify the Trust for all taxes payable by it as a
result of such change in law or interpretation; provided that, if and as
long as at the time there is available to the Trust the opportunity to
eliminate, within 90 days following the occurrence of such Special Event
(the "90-Day Period"), the Special Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some
other similar reasonable measure that has no adverse effect on the Trust,
Time Warner or the Holders of the Trust Securities (a "Ministerial
Action"), the Trust will pursue such measure in lieu of dissolution or
redemption; provided further, that Time Warner shall have no right to
redeem the Subordinated Notes or to direct the Regular Trustees to
dissolve the Trust while the Regular Trustees are pursuing such
Ministerial Action unless the Special Event shall not have been so
eliminated by the 85th day following the occurrence thereof, in which case
Time Warner shall be permitted to so direct the Regular Trustees or to
provide notice to the holders of the redemption of the Subordinated Notes;
provided further, that if dissolution of the Trust and distribution of the
Subordinated Notes to the holders of the Trust Securities would eliminate
the condition causing the Tax Event or the Investment Company Event and
all other conditions to such dissolution and distribution have been
satisfied, Time Warner will not be permitted to redeem the Subordinated
Notes at the Special Redemption Price; and provided further, that Time
Warner shall not be permitted to direct the Regular Trustees to dissolve
the Trust and distribute the Subordinated Notes to the holders of the
Trust Securities upon the occurrence of the condition described in clause
(2) in the definition of "Tax Event" if, after giving effect to such
dissolution and distribution, Time Warner would not be permitted to deduct
a greater percentage of the interest payable on the Subordinated Notes
than it had been permitted to deduct for United States Federal income tax
purposes prior to the occurrence of such Tax Event.
(ii) Subject to the exercise of the Time Warner Exchange Right with
respect to the Preferred
<PAGE>
<PAGE>
7
Securities, upon the occurrence and continuation of a Tax Event or an
Investment Company Event, Time Warner shall have the right to redeem the
Subordinated Notes in whole (but not in part), upon not less than 20 nor
more than 45 Business Days' notice, within the 90-Day Period (such date of
redemption a "Special Redemption Date"), in which case the Trust shall
(unless the Trust shall have been dissolved) redeem in cash Trust
Securities having an aggregate Stated Amount equal to the aggregate
principal amount of the Subordinated Notes so redeemed, at a price per
Trust Security equal to (A) the lesser of (1) $54.41 and (2) the Exchange
Valuation Price on the Trading Day immediately preceding such Special
Redemption Date of the amount of Exchange Property that relates to one
Preferred Security at such time (determined by reference only to the
Exchange Property and the Preferred Securities and based on the Exchange
Rate in effect as of such Trading Day), plus (B) an amount initially equal
to $2.30 per Trust Security, declining by $.002712 on each day following
the issue date (computed on the basis of a 360-day year of twelve 30-day
months) to $.16 on October 23, 1997, and $0 thereafter (such price the
"Special Redemption Price"), plus an amount equal to all accrued and
unpaid distributions on such Trust Security to but excluding the Special
Redemption Date. The Common Securities and the Preferred Securities will
be redeemed on a Pro Rata Basis.
(iii) "Tax Event" means that the Regular Trustees shall have
obtained an opinion of nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the effect
that on or after August 9, 1995, 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
<PAGE>
<PAGE>
8
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 August 9, 1995, there is more than an
insubstantial risk that at such time or within 90 days of the date thereof
(1) the Trust is, or would be, subject to United States Federal income tax
with respect to income accrued or received on the Subordinated Notes, (2)
less than 25% of the interest payable by Time Warner to the Trust on the
Subordinated Notes is, or would be, deductible by Time Warner for United
States Federal income tax purposes, (3) the Trust is, or would be, subject
to more than a de minimis amount of other taxes, duties or other
governmental charges or (4) as a result of the issuance of the Preferred
Securities and/or the Subordinated Notes Time Warner (or an affiliate of
Time Warner) is or would be treated as having disposed for United States
Federal income tax purposes of the Hasbro Common Stock owned by it.
(iv) "Investment Company Event" means that the Regular Trustees
shall have received an opinion of nationally recognized independent
counsel experienced in such matters that, as a result of the occurrence of
a change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court,
governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be
considered an Investment Company that is required to be registered under
the Investment Company Act, which Change in 1940 Act Law becomes effective
on or after August 9, 1995.
(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 Amount
of, and bearing accrued and unpaid interest equal to accrued and unpaid
Distributions on, such Common Securities until such
<PAGE>
<PAGE>
9
certificates are presented to Time Warner or its agent for transfer or
reissuance.
(e) The Trust may not redeem fewer than all the outstanding Common
Securities unless all accrued and unpaid Distributions have been or are
concurrently being paid on all Common Securities for all quarterly Distribution
periods terminating on or prior to the date of redemption.
(f) (i) Notice of any redemption (other than a mandatory redemption)
of, or notice of distribution of Subordinated Notes in exchange for, the
Preferred Securities and Common Securities (a "Redemption/Distribution
Notice") will be given by the Regular Trustees on behalf of the Trust by
mail to each Holder of Preferred Securities and Common Securities to be
redeemed or exchanged not less than 20 nor more than 45 Business Days
prior to the date fixed for redemption or distribution thereof. For
purposes of the calculation of the date of redemption or exchange and the
dates on which notices are given pursuant to this paragraph (f)(i), a
Redemption/Distribution Notice shall be deemed to be given on the day such
notice is first mailed by first-class mail, postage prepaid, to Holders of
Preferred Securities and Common Securities. Each Redemption/Distribution
Notice shall be addressed to the Holders of Preferred Securities and
Common Securities at the address of each such Holder appearing in the
books and records of the Trust. Such Redemption/Distribution Notice shall
set forth the aggregate Stated Amount of Trust Securities to be redeemed,
the applicable Redemption Payment Date, the Call Price or Special
Redemption Price, as the case may be, and, in the case of a Special Event,
a brief description thereof. No defect in the Redemption/ Distribution
Notice or in the mailing of either thereof with respect to any Holder
shall affect the validity of the redemption or exchange proceedings with
respect to any other Holder.
(ii) In the event that fewer than all the outstanding Common
Securities are to be redeemed, the Common Securities to be redeemed will
be redeemed on a Pro Rata Basis from each Holder of Common Securities.
(iii) Payment of the Mandatory Redemption Price, Call Price or
Special Redemption Price (each a "Redemption Payment Amount") in respect
of each Common
<PAGE>
<PAGE>
10
Security, together with any accrued and unpaid Distributions thereon, is
conditioned upon delivery or book-entry transfer of such Common Security
(together with necessary endorsements) to the Property Trustee at any time
(whether prior to, on or after the relevant Redemption Payment Date) after
the Redemption/Distribution Notice is given (to the extent such notice is
required). Payment of the Redemption Payment Amount, together with any
accrued and unpaid distributions on each Common Security, will be made by
the delivery of cash no later than the applicable Redemption Payment Date
with respect to such Common Security or, if later, the time of delivery or
transfer of such Common Security.
(iv) If the Trust gives a Redemption/Distribution Notice in respect
of a redemption of Common Securities as provided in this paragraph 4
(which notice will be irrevocable) then immediately prior to the close of
business on the redemption date, provided that Time Warner has paid to the
Property Trustee in immediately available funds a sufficient amount of
cash in connection with the related redemption or maturity of the
Subordinated Notes, Distributions will cease to accrue on the Common
Securities called for redemption, such Common Securities will no longer be
deemed to be outstanding and all rights of Holders of such Common
Securities so called for redemption will cease, except the right of the
Holders of such Common Securities to receive the Redemption Payment
Amount, together with any accrued and unpaid Distributions on the Common
Securities being redeemed, but without interest on such amount. Neither
the Trustees nor the Trust shall be required to register or cause to be
registered the transfer of any Common Securities which have been so called
for redemption. If any date fixed for redemption of Common Securities is
not a Business Day, then payment of the Redemption Payment Amount payable
on such date, together with any accrued and unpaid Distributions to such
date, will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay) except
that, if such Business Day falls in the next calendar year, such payment
will be made on the immediately preceding Business Day, in each case with
the same force and effect as if made on such date fixed for redemption. If
payment of the Redemption Payment Amount in respect
<PAGE>
<PAGE>
11
of Common Securities, together with any accrued and unpaid Distributions
on such Common Securities, is improperly withheld or refused and not paid
by the Property Trustee, Distributions on such Common Securities will
continue to accrue, from the original redemption date to the date of
payment, in which case the actual payment date will be considered the date
fixed for redemption for purposes of calculating the Redemption Payment
Amount and the amount of any such accrued and unpaid Distributions.
(v) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to the Holders of the Common Securities.
(vi) Upon the date of dissolution of the Trust and distribution of
Subordinated Notes as a result of the occurrence of a Special Event,
Common Security Certificates shall be deemed to represent beneficial
interests in the Subordinated Notes so distributed, and the Common
Securities will no longer be deemed outstanding and may be canceled by the
Regular Trustees. The Subordinated Notes so distributed shall have an
aggregate principal amount equal to the aggregate Stated Amount of the
Common Securities so distributed.
SECTION 5. Voting Rights. (a) Except as provided under paragraph
5(b) below and as otherwise required by law and the Declaration, the Holders of
the Common Securities will have no voting rights.
(b) (i) Except as provided in the Declaration with respect to a
Special Regular Trustee, Holders of Common Securities have the sole right under
the Declaration to increase or decrease the number of Trustees, and to appoint,
remove or replace a Trustee, any such increase, decrease, appointment, removal
or replacement to be approved by Holders of Common Securities representing a
Majority in Stated Amount of the Common Securities.
(ii) If any proposed amendment to the Declaration provides for, or
the Regular Trustees otherwise propose to effect (A) any action that would
adversely affect the powers, preferences or special rights of the Trust
Securities, whether by way of amendment to the Declaration or otherwise, or (B)
the liquidation, dissolution, winding-up or termination of the Trust, other than
in connection
<PAGE>
<PAGE>
12
with the distribution of Subordinated Notes held by the Property Trustee, upon
the occurrence of a Special Event or in connection with the redemption of Common
Securities as a consequence of a redemption of Subordinated Notes, then the
Holders of outstanding Trust Securities will be entitled to vote on such
amendment or proposal as a class and such amendment or proposal shall not be
effective except with the approval of the Holders of Trust Securities
representing a Majority in Stated Amount of such securities affected thereby;
provided, however, (1) if any amendment or proposal referred to in clause (A)
above would adversely affect only the Preferred Securities or the Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a Majority in Stated Amount of such class of Trust
Securities, (2) the rights of Holders of Common Securities under Article V of
the Declaration to increase or decrease the number of, and to appoint, replace
or remove, Trustees (other than a Special Regular Trustee) shall not be amended
without the consent of each Holder of Common Securities and (3) amendments to
the Declaration shall be subject to such further requirements as are set forth
in Sections 12.01 and 12.02 of the Declaration.
(iii) In the event the consent of the Property Trustee as the holder
of the Subordinated Notes, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
Notes, the Property Trustee shall request the written direction of the Holders
of the Trust Securities with respect to such amendment, modification or
termination. The Property Trustee shall vote with respect to such amendment,
modification or termination as directed by a Majority in Stated Amount of the
Trust Securities voting together as a single class; provided that where such
amendment, modification or termination of the Indenture or the Subordinated
Notes requires the consent or vote of (1) holders of Subordinated Notes
representing a specified percentage greater than a majority in principal amount
of the Subordinated Notes or (2) each holder of Subordinated Notes, the Property
Trustee may only vote with respect to that amendment, modification or
termination as directed by, in the case of clause (1) above, the vote of Holders
of Trust Securities representing such specified percentage of the aggregate
Stated Amount of the Trust Securities, or, in the case of clause (2) above, each
Holder of Trust Securities; and provided further, that the Property Trustee
<PAGE>
<PAGE>
13
shall not take any action in accordance with the directions of the Holders of
the Trust Securities unless the Property Trustee shall have received, at the
expense of the Sponsor, an opinion of nationally recognized independent tax
counsel experienced in such matters to the effect that such action will not
result in the Trust being treated as an association taxable as a corporation or
a partnership for United States Federal income tax purposes and that, following
such action, each holder of Trust Securities will be treated for United States
Federal income tax purposes as owning an undivided beneficial interest in the
Subordinated Notes.
(iv) Subject to Section 2.06 of the Declaration, and the provisions
of this and the next succeeding paragraph, the Holders of a Majority in Stated
Amount of the Common Securities, voting separately as a class, shall have the
right to (A) on behalf of all Holders of Common Securities, waive any past
default that is waivable under the Declaration (subject to, and in accordance
with the Declaration) and (B) direct the time, method, and place of conducting
any proceeding for any remedy available to the Property Trustee, or to direct
the exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Subordinated Notes, to (1) direct the time, method and place of conducting
any proceeding for any remedy available to the Indenture Trustee, or exercising
any trust or power conferred on the Indenture Trustee with respect to the
Subordinated Notes, (2) waive any past default and its consequences that is
waivable under Section 6.06 of the Indenture, or (3) exercise any right to
rescind or annul a declaration that the principal of all the Subordinated Notes
shall be due and payable; provided that where the taking of any action under the
Indenture requires the consent or vote of (x) holders of Subordinated Notes
representing a specified percentage greater than a majority in principal amount
of the Subordinated Notes or (y) each holder of Subordinated Notes, the Property
Trustee may only take such action if directed by, in the case of clause (x)
above, the vote of Holders of Common Securities representing such specified
percentage of the aggregate Stated Amount of the Common Securities, or, in the
case of clause (y) above, each Holder of Common Securities. Pursuant to this
paragraph, the Property Trustee shall not revoke, or take any action
inconsistent with, any action previously authorized or approved by a vote of the
Holders of the Preferred Securities, and shall not take any action in accordance
with the direction of the Holders of the
<PAGE>
<PAGE>
14
Common Securities under this paragraph if the action is prejudicial to the
Holders of Preferred Securities. The Property Trustee shall not take any of the
foregoing actions at the direction of the Holders of Common Securities unless
the Property Trustee shall have received, at the expense of the Sponsor, an
opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that such action will not result in the Trust being
treated as an association taxable as a corporation or a partnership for United
States Federal income tax purposes and that, following such action, each Holder
of Trust Securities will be treated for United States Federal income tax
purposes as owning an undivided beneficial interest in the Subordinated Notes.
(c) (i) Notwithstanding any other provision of these terms, each
Holder of Common Securities will be deemed to have waived any Event of Default
with respect to the Common Securities and its consequences until Events of
Default with respect to the Preferred Securities have been cured, waived by the
Holders of Preferred Securities as provided in the Declaration or otherwise
eliminated, and until all Events of Default with respect to the Preferred
Securities have been so cured, waived by the Holders of Preferred Securities or
otherwise eliminated, the Property Trustee will be deemed to be acting solely on
behalf of the Holders of Preferred Securities and only the Holders of the
Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of the Declaration or of the Trust Securities. In the
event that any Event of Default with respect to the Preferred Securities is
waived by the Holders of Preferred Securities as provided in the Declaration,
the Holders of Common Securities agree that such waiver shall also constitute
the waiver of such Event of Default with respect to the Common 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
<PAGE>
<PAGE>
15
all of the Holders of Trust Securities or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which Holders of Common
Securities are entitled to vote, or of any matter upon which action by written
consent of such Holders is to be taken, to be mailed to each Holder of record of
Common Securities. Each such notice will include a statement setting forth (i)
the date of such meeting or the date by which such action is to be taken, (ii) a
description of any resolution proposed for adoption at such meeting on which
such Holders are entitled to vote or of such matter upon which written consent
is sought and (iii) instructions for the delivery of proxies or consents.
(e) No vote or consent of the Holders of Common Securities will be
required for the Trust to redeem and cancel Common Securities in accordance with
the Declaration.
6. Pro Rata Treatment. A reference in these terms of the Common
Securities to any payment, distribution or treatment as being made on a "Pro
Rata Basis" shall mean, with respect to such payment, distribution or treatment,
pro rata to each Holder of Trust Securities according to the aggregate Stated
Amount of the Trust Securities held by such Holder in relation to the aggregate
Stated Amount of all Trust Securities outstanding; provided, however, that if
the assets of the Trust are insufficient to make such payment in full as a
result of a default with respect to the Subordinated Notes, any funds available
to make such payment shall be paid (a) first to each Holder of the Preferred
Securities pro rata according to the aggregate Stated Amount of Preferred
Securities held by such Holder in relation to the aggregate Stated Amount of all
Preferred Securities outstanding up to an aggregate amount equal to the amount
then owed to the Holders of the Preferred Securities, and (b) only after
satisfaction of all amounts owed to the Holders of the Preferred Securities, to
each Holder of Common Securities pro rata according to the aggregate Stated
Amount of Common Securities held by such Holder in relation to the aggregate
Stated Amount of all Common Securities outstanding.
7. Ranking. The Common Securities rank pari passu, and payments will
be made thereon on a Pro Rata Basis with, the Preferred Securities, except that
if, as a result of an Event of Default with respect to the Subordinated Notes,
the assets of the Trust are insufficient to make payments of Distributions or
payments upon liquidation,
<PAGE>
<PAGE>
16
redemption of the Trust Securities or otherwise, the rights of Holders of the
Common Securities to receive such payments will be subordinated to the rights of
the Holders of the Preferred Securities.
8. Mergers, Consolidations or Amalgamations. The Trust may not
consolidate, amalgamate, merge with or into, or be replaced by, or convey,
transfer or lease its properties and assets to, any corporation or other body.
9. Transfers, Exchanges, Method of Payments. Payment of
Distributions and payments on redemption of the Common Securities or on
dissolution of the Trust will be payable, the transfer of the Common Securities
will be registrable, and Common Securities will be exchangeable for Common
Securities of other denominations of a like aggregate Stated Amount, at the
principal corporate trust office of the Property Trustee in The City of New
York; provided that payment of Distributions may be made at the option of the
Regular Trustees on behalf of the Trust by check mailed to the address of the
persons entitled thereto and that the payment on redemption of any Common
Security or on dissolution of the Trust will be made only upon surrender of such
Common Security to the Property Trustee. Notwithstanding the foregoing,
transfers of Common Securities are subject to conditions set forth in Section
9.01(c) of the Declaration.
10. Acceptance of Indenture and Certain Other Matters. Each Holder
of Common Securities, by the acceptance thereof, agrees (a) to the provisions of
the Indenture and the Subordinated Notes, including the subordination provisions
thereof and (b) to treat the Subordinated Notes as debt instruments for United
States Federal, state and local income and franchise tax purposes and not to
take any contrary position before any taxing authority or on any tax return.
11. No Preemptive Rights. The Holders of Common Securities shall
have no preemptive rights to subscribe to any additional Common Securities or
Preferred Securities.
12. Miscellaneous. These terms shall constitute a part of the
Declaration. The Regular Trustees will provide a copy of the Declaration and the
Indenture to a Holder without charge on written request to the Trust at its
principal place of business.
<PAGE>
<PAGE>
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
$1.24 Common Securities
Time Warner Financing Trust, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that [ ] (the
"Holder") is the registered owner of ( )common securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the $1.24 Common Securities (the "Common Securities"). The Common
Securities are transferable on the books and records of the Trust, in person or
by a duly authorized attorney, upon surrender of this certificate duly endorsed
and in proper form for transfer and satisfaction of the other conditions set
forth in the Declaration (as defined below) including, without limitation
Section 9.01(c) thereof. The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities are set
forth in, and this certificate and the Common Securities represented hereby are
issued and shall in all respects be subject to the terms and provisions of, the
Amended and Restated Declaration of Trust of the Trust dated as of August 15,
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 ("Time Warner"),
to the Trust pursuant to the
<PAGE>
<PAGE>
2
Indenture referred to in the Declaration. The Regular Trustees will furnish a
copy of the Declaration and the Indenture to the Holder without charge upon
written request to the Trust at its principal place of business or registered
office.
The Holder of this Certificate, by accepting this Certificate, is
deemed to have agreed to the terms of the Indenture and the Subordinated Notes,
including that the Subordinated Notes are subordinate and junior in right of
payment to all Senior Indebtedness (as defined in the Indenture, which term
includes Time Warner's outstanding 8-3/4% Convertible Subordinated Debentures
due 2015) as and to the extent provided in the Indenture.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, Trustees of the Trust have executed this
certificate this day of , 1995.
TIME WARNER FINANCING TRUST
By ___________________
Thomas W. McEnerney,
as Trustee
By ____________________
Richard J. Bressler,
as Trustee
<PAGE>
<PAGE>
3
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Common Security certificates referred to in the
within-mentioned Declaration.
THE FIRST NATIONAL BANK OF CHICAGO,
not in its individual capacity but
solely as Property Trustee,
By:
--------------------------------
Authorized Officer
<PAGE>
<PAGE>
4
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>
<PAGE>
================================================================================
TIME WARNER INC.
4% Subordinated Notes
due December 23, 1997
INDENTURE
Dated as of August 15, 1995
Chemical Bank,
a New York banking corporation,
Trustee
================================================================================
<PAGE>
<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 ......................................... 6
SECTION 1.04. Rules of Construction ...................................... 6
ARTICLE II
The Notes
SECTION 2.01. Form and General Terms ..................................... 7
SECTION 2.02. Execution and Authentication ............................... 7
SECTION 2.03. Registrar and Paying Agent ................................. 8
SECTION 2.04. Paying Agent to Hold Money in
Trust ................................................. 8
SECTION 2.05. Noteholder Lists ........................................... 9
SECTION 2.06. Transfer and Exchange ...................................... 9
SECTION 2.07. Replacement Notes .......................................... 9
SECTION 2.08. Outstanding Notes .......................................... 10
SECTION 2.09. Temporary Notes ............................................ 10
SECTION 2.10. Cancellation ............................................... 11
SECTION 2.11. Defaulted Interest ......................................... 11
SECTION 2.12. Global Note ................................................ 12
ARTICLE III
Redemption; Distribution
SECTION 3.01. Optional Redemption ........................................ 14
SECTION 3.02. Selection of Notes To Be Redeemed .......................... 15
SECTION 3.03. Special Event Redemption
or Distribution ..................................... 15
<PAGE>
<PAGE>
2
SECTION 3.04. Notice of Redemption ....................................... 17
SECTION 3.05. Effect of Note Redemption Notice ........................... 18
ARTICLE IV
Covenants
SECTION 4.01. Payment of Notes............................................ 20
SECTION 4.02. Maintence of Office or Agency............................... 20
SECTION 4.03. Money for Security Payments to
be Held in Trust.......................................... 21
SECTION 4.04. SEC Reports................................................. 22
SECTION 4.05 Compliance Certificate...................................... 22
SECTION 4.06 Listing of Notes............................................ 22
SECTION 4.07 Exchanges of LYONs and Redemptions.......................... 22
SECTION 4.08 Expenses.................................................... 23
ARTICLE V
Successor Corporation
SECTION 5.01. When Corporation May Merge, etc ............................ 23
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default .......................................... 24
SECTION 6.02. Acceleration ............................................... 25
SECTION 6.03. Other Remedies ............................................. 27
SECTION 6.04. Waiver of Past Defaults .................................... 27
SECTION 6.05. Control of Majority ........................................ 28
SECTION 6.06. Limitation on Suits ........................................ 28
SECTION 6.07. Rights of Holders To Receive
Payment ............................................... 28
SECTION 6.08. Collection Suit by Trustee ................................. 29
SECTION 6.09. Trustee May File Proofs of Claim ........................... 29
SECTION 6.10. Priorities ................................................. 29
SECTION 6.11. Undertaking for Costs ...................................... 30
SECTION 6.12. Restoration of Rights on
Abandonment of Proceedings ............................ 30
<PAGE>
<PAGE>
3
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee .......................................... 30
SECTION 7.02. Rights of Trustee .......................................... 32
SECTION 7.03. Individual Rights of Trustee, etc .......................... 32
SECTION 7.04. Trustee's Disclaimer ....................................... 32
SECTION 7.05. Notice of Defaults ......................................... 32
SECTION 7.06. Reports by Trustee to Holders .............................. 33
SECTION 7.07. Compensation and Indemnity ................................. 33
SECTION 7.08. Replacement of Trustee ..................................... 34
SECTION 7.09. Successor Trustee by Merger, etc ........................... 35
SECTION 7.10. Eligibility; Disqualification .............................. 35
SECTION 7.11. Preferential Collection of Claims
Against Corporation ................................... 35
ARTICLE VIII
[Reserved]
ARTICLE IX
Amendments, Supplements and Waivers
SECTION 9.01. Without Consent of Holders ................................. 36
SECTION 9.02. With Consent of Holders .................................... 36
SECTION 9.03. Compliance with Trust Indenture
Act ................................................... 37
SECTION 9.04. Revocation and Effect of Consents .......................... 37
SECTION 9.05. Notation on or Exchange of Notes ........................... 38
SECTION 9.06. Trustee To Sign Amendments, etc ............................ 38
ARTICLE X
Exchange Right
SECTION 10.01. Exchange Right ............................................. 38
SECTION 10.02. Exchange Rights Upon Maturity .............................. 38
SECTION 10.03. Optional Redemption and Special
Redemption ............................................ 39
SECTION 10.04. Definitions ................................................ 40
SECTION 10.05. Notice of Exercise ......................................... 42
SECTION 10.06. Delivery of Exchange Property;
Effect on Holders ..................................... 42
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4
SECTION 10.07. Fractional Shares .......................................... 43
SECTION 10.08. Adjustment of Exchange Rate ................................ 43
ARTICLE XI
Subordination
SECTION 11.01. Agreement to Subordinate ................................... 54
SECTION 11.02. Certain Definitions ........................................ 55
SECTION 11.03. Liquidation, Dissolution,
Bankruptcy ............................................ 56
SECTION 11.04. Default on Senior Indebtedness ............................. 58
SECTION 11.05. Disputes with Holders of Certain
Senior Indebtedness ................................... 59
SECTION 11.06. Acceleration of Notes ...................................... 60
SECTION 11.07. When Distribution Must Be Paid
Over .................................................. 60
SECTION 11.08. Relative Rights ............................................ 60
SECTION 11.09. Subordination May Not Be Impaired
by Corporation ........................................ 61
SECTION 11.10. Distribution or Notice to
Representative ........................................ 61
SECTION 11.11. Rights of Trustee and Paying
Agent ................................................. 61
SECTION 11.12. Notice to Trustee .......................................... 61
SECTION 11.13. Trustee Not a Fiduciary .................................... 62
SECTION 11.14. Effectuation of Subordination by
Trustee ............................................... 62
SECTION 11.15. Article Applicable to Paying
Agents ................................................ 62
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls ............................... 63
SECTION 12.02. Notices .................................................... 63
SECTION 12.03. Communication by Holders with Other
Holders ............................................... 63
SECTION 12.04. Certificate and Opinions as to
Conditions Precedent .................................. 64
SECTION 12.05. Statements Required in Certificate
or Opinion ............................................ 64
SECTION 12.06. Rules by Trustee, Paying Agent
and Registrar ......................................... 64
SECTION 12.07. Payment Date ............................................... 65
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5
SECTION 12.08. Governing Law .............................................. 65
SECTION 12.09. No Adverse Interpretation of Other
Agreements ............................................ 65
SECTION 12.10. No Recourse Against Others ................................. 65
SECTION 12.11. Successors ................................................. 65
SECTION 12.12. Duplicate Originals ........................................ 65
SECTION 12.13 Assignment ................................................. 65
SECTION 12.14 Tax Characterization ....................................... 66
SIGNATURES ............................................................ 67
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 August 15, 1995, between
TIME WARNER INC., a Delaware corporation (the
"Corporation"), and Chemical Bank, a New York banking
corporation (the "Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Corporation's 4%
Subordinated Notes due December 23, 1997 (the "Notes"):
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Affiliate" has the same meaning as given to that term in Rule 405
of the Securities Act of 1933, as amended, or any successor rule thereunder.
"AMEX" means the American Stock Exchange.
"Board of Directors" means (i) the board of directors of the
Corporation, (ii) any duly authorized committee of such board, (iii) any
committee of officers of Time Warner or (iv) any officer of Time Warner acting,
in the case of (ii) or (iii), pursuant to authority granted by the board of
directors of Time Warner or any committee of such board.
"Business Day" means any day other than a Saturday or Sunday or any
other day on which banking institutions in New York, New York, are authorized or
required by law to close.
"Capital Stock" for any corporation means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interest in (however designated) stock issued by that
corporation.
"Common Securities" means the securities issued by the Trust
representing undivided beneficial interests in the assets of the Trust, having
the terms set forth in Exhibit C to the Declaration.
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2
"Common Stock" means the class of Common Stock, par value $1.00 per
share, of the Corporation authorized at the date of this Indenture as originally
signed, or any other class of stock resulting from successive changes or
reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value, and in any such case including any
shares thereof authorized after the date of this Indenture.
"Corporation" means the party named as such in this Indenture until
a successor replaces it pursuant to the applicable provisions of this Indenture,
and thereafter means the successor.
"Declaration" means the Amended and Restated Declaration of Trust,
dated as of August 15, 1995, among the trustees of the Trust named therein, the
Corporation, as Sponsor, and the holders from time to time of the Preferred
Securities.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Hasbro" means Hasbro, Inc., a Rhode Island corporation.
"Hasbro Common Stock" means the shares of common stock, par value
$.50 per share, of Hasbro as exist on the date of this Indenture or any other
Capital Stock of Hasbro into which such shares shall be reclassified or changed.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books. All references to Holders of a particular
Principal Amount of the Notes mean Holders of the relevant Principal Amount of
the Notes at the time outstanding.
"Indenture" means this Indenture as amended or supplemented from
time to time.
"Issuer" means any issuer, from time to time, of a security
constituting Exchange Property.
"LYONs" means the Corporation's outstanding Liquid Yield Option
Notes due 2012.
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<PAGE>
3
"Nasdaq" means The Nasdaq Stock Market.
"Notes" means the Notes issued under this Indenture substantially in
the form of Exhibit A hereto as amended or supplemented from time to time, and
such term shall include for all purposes any Trust Securities that upon a
dissolution of the Trust and distribution of the Notes to Holders of the Trust
Securities in accordance with Section 3.03 or otherwise shall be deemed to
represent Notes.
"NYSE" means the New York Stock Exchange, Inc.
"Officer" means the Chairman of the Board or any Co-Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer or any
Co-Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, any
Assistant Controller, the Secretary or any Assistant Secretary of the
Corporation.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board or any Co-Chairman of the Board, the Vice Chairman of the Board,
the Chief Executive Officer or any Co-Chief Executive Officer, the President or
any Vice President, and by the Chief Financial Officer, the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Corporation and delivered to the Trustee.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or counsel to
the Corporation.
"Person" means any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Securities" means the $1.24 Preferred Exchangeable
Redemption Cumulative Securities issued by the Trust representing undivided
beneficial interest in the assets of the Trust and having the terms set forth in
Exhibit B to the Declaration.
"Principal Amount" means, with respect to each Note, $31.00.
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4
"SEC" means the Securities and Exchange Commission.
"Stated Amount" means, with respect to each Trust Security, $31.00.
"Subsidiary" means with respect to any Person, any corporation more
than 50% of the voting stock of which is owned directly or indirectly by such
Person, and any partnership, association, joint venture or other entity in which
such Person owns more than 50% of the equity interests or has the power to elect
a majority of the board of directors or other governing body.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect from time to time.
"Trustee" means the party named as such in this Indenture until a
successor replaces it and thereafter means the successor.
"Trust Officer" means any officer or assistant officer of the
Trustee with direct responsibility for the administration of this Indenture.
"Trust Securities" means the Common Securities and the Preferred
Securities.
"Uniform Commercial Code" means the Uniform Commercial Code prepared
under the joint sponsorship of The American Law Institute and the National
Conference of Commissioners on Uniform State Laws, and references to sections
thereof are deemed to be references to such sections as adopted by the State
named in Section 12.08.
SECTION 1.02. Other Definitions. The following terms have the
meanings given to them in the Declaration (including the Exhibits thereto) as in
effect on the date hereof: (i) Clearing Agency; (ii) Delaware Trustee; (iii)
Dissolution Tax Opinion; (iv) Distribution; (v) Investment Company Event; (vi)
No Recognition Opinion; (vii) Property Trustee; (viii) Preferred Security
Certificate; (ix) Regular Trustees; (x) Security Registrar; (xi) Special Event;
(xii) Tax Event; (xiii) Trust; and (xiv) Global Certificate.
The following terms are defined in the relevant Section of this
Indenture as set forth below.
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5
Defined in
Term Section
---- -------
"Acceleration Price" ....................... 6.02
"Average Quoted Price" ..................... 10.08
"Bankruptcy Law" ........................... 6.01
"Custodian" ................................ 6.01
"Defaulted Interest" ....................... 2.11
"Depositary" ............................... 10.07
"Discharge Date" ........................... 8.01
"Equivalent Notes" ......................... 11.03
"Event of Default" ......................... 6.01
"Ex-Dividend Time" ......................... 10.08
"Exchange Adjustment Event" ................ 10.08
"Exchange Property" ........................ 10.04
"Exchange Rate" ............................ 10.04
"Exchange Right" ........................... 10.01
"Exchange Valuation Price" ................. 10.04
"Extraordinary Cash Dividends" ............. 10.08
"Global Note" .............................. 2.12
"Initial Shares" ........................... 10.04
"Interest Payment Date" .................... 3.03
"Maturity Date" ............................ 2.01
"Maturity Payment Amount" .................. 2.01
"Minimum Denomination" ..................... 2.01
"Ministerial Action" ....................... 3.05
"Non-book-Entry Preferred
"Securities" ............................... 2.12
"Non-Equity Security" ...................... 10.04
"Note Call Price" .......................... 3.01
"Note Redemption Notice" ................... 3.04
"Note Redemption Price" .................... 3.03
"Notice of Default" ........................ 6.01
"Optional Redemption Date" ................. 3.01
"Paying Agent" ............................. 2.03
"Purchase Sale Price" ...................... 10.04
"Quoted Price" ............................. 10.08
"Redemption Date" .......................... 3.03
"Registrar" ................................ 2.03
"Representative" ........................... 11.02
"Senior Indebtedness" ...................... 11.02
"Special Redemption Date" .................. 3.03
"Special Redemption Price" ................. 3.03
<PAGE>
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6
"Tender Offer Consideration" ............... 10.08
"Time of Determination" .................... 10.08
"Trading Day" .............................. 10.04
"Underlying Exchange Property" ............. 10.08
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Corporation.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them.
SECTION 1.04. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
<PAGE>
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7
ARTICLE II
The Notes
SECTION 2.01. Form and General Terms. The Notes and the Trustee's
certificate of authentication shall be substantially in the form of Note
attached hereto as Exhibit A. Except as provided in Section 2.12, the Notes
shall be issued in fully registered form without interest coupons. The Notes may
have notations, legends or endorsements required by law, stock exchange rule or
usage. Each Note shall be dated the date of its authentication, shall bear
interest from and including the date set forth therein and shall be payable on
the dates specified on the face of the above-mentioned form of Note.
The Notes shall be limited to an aggregate Principal Amount for all
Notes equal to $385,344,756, such amount being the sum of (i) the aggregate
Stated Amount of the Preferred Securities and (ii) the proceeds received by the
Trust upon issuance of the Common Securities to the Corporation. The aggregate
Principal Amount of Notes outstanding at any time may not exceed that amount
except as provided in Sections 2.07 and 2.08. The Notes will be issued in
denominations of $31 (the "Minimum Denomination") and integral multiples
thereof. The Notes shall mature on December 23, 1997 (the "Maturity Date").
Subject to the exercise by the Corporation pursuant to Article X hereof of the
Exchange Right, the amount payable upon maturity for each Minimum Denomination
of Notes shall be equal to (a) the lesser of (i) $54.41 and (ii) the Exchange
Valuation Price on the Trading Day immediately preceding December 17, 1997 of
such amount of Exchange Property as relates to each Minimum Denomination of
Notes at such time (such amount the "Maturity Payment Amount"), plus (b) an
amount equal to all accrued and unpaid interest on such Minimum Denomination to
but excluding the Maturity Date. The Corporation shall deliver to the Trustee an
Officers' Certificate setting forth the amount of the Maturity Payment Amount at
least two Business Days prior to the Maturity Date.
SECTION 2.02. Execution and Authentication. Two Officers, one of
whom must be the Secretary or an Assistant 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.
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8
If an Officer whose signature is on a Note no longer holds that
office at the time the Trustee authenticates the Note, the Note shall be valid
nevertheless.
A Note shall not be valid until the Trustee manually signs the
certificate of authentication on the Note. The signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee shall authenticate Notes for original issue in the
aggregate Principal Amount, upon a written order of the Corporation signed by
two Officers or by an Officer and an Assistant Treasurer or an Assistant
Secretary of the Corporation, which written order shall set forth such aggregate
Principal Amount.
SECTION 2.03. Registrar and Paying Agent. The Corporation shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange ("Registrar") and an office or agency where Notes may
be presented for payment or for exchange upon the exercise by the Corporation of
the Exchange Right ("Paying Agent"). The Registrar shall keep a register of the
Notes and of their transfer and exchange. The Corporation may have one or more
co-registrars and one or more additional paying agents. The term "Paying Agent"
includes any additional paying agent.
The Corporation shall enter into an appropriate agency agreement
with any Registrar, Paying Agent or co-registrar not a party to this Indenture.
Each such agreement shall implement the provisions of this Indenture that relate
to such agent. The Corporation shall notify the Trustee of the name and address
of any such agent. If the Corporation fails to maintain a Registrar or Paying
Agent, the Trustee shall act as such.
The Corporation initially appoints the Trustee as Registrar and
Paying Agent.
SECTION 2.04. Paying Agent To Hold Money in Trust. Each Paying Agent
shall hold in trust for the 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
<PAGE>
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9
separate trust fund. The Corporation or the Trustee at any time may require a
Paying Agent to pay all money held by it to the Trustee. Upon doing so, the
Paying Agent shall have no further liability for such money.
SECTION 2.05. Noteholder Lists. The Trustee shall preserve in as
current a form as is reasonably practicable the most recent list available to it
of the names and addresses of Noteholders. If the Trustee is not the Registrar,
the Corporation shall furnish to the Trustee on or before each Interest Payment
Date and at such other times as the Trustee may request in writing a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of Noteholders.
SECTION 2.06. Transfer and Exchange. When a Note is presented to the
Registrar or a co-registrar with a request to register a transfer, the Registrar
shall register the transfer as requested if the requirements of the Trustee
(which shall include the requirements of Section 8-401(l) of the Uniform
Commercial Code) are met. When Notes are presented to the Registrar or a
co-registrar with a request to exchange them for an equal aggregate Principal
Amount of Notes of other authorized denominations, the Registrar shall make the
exchange as requested if the same requirements are met. To permit registration
of transfers and exchanges, the Trustee shall authenticate Notes at the
Registrar's request. The Corporation may require payment of a sum sufficient to
pay all taxes, assessments or other governmental charges and may charge a
reasonable fee for any registration of transfer or exchange but not for any
registration of transfer or exchange pursuant to Section 2.09, Section 3.03,
Section 9.05 or Article X. Neither the Corporation nor the Trustee shall be
required to register the transfer or exchange of Notes selected for redemption
as set forth in a Note Redemption Notice (except, in the case of Notes to be
redeemed in part, the portion thereof not to be redeemed), or for a period of 15
days before a selection of Notes to be redeemed or before a Redemption Date or
an Interest Payment Date.
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
<PAGE>
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10
Corporation, the Trustee, the Paying Agent, the Registrar or any co-registrar
from any loss which any of them may suffer if a Note is replaced. The
Corporation may charge the relevant Holder for its expenses in replacing a Note.
Any such replacement Note shall constitute an additional contractual obligation
of the Corporation in lieu of the Note in replacement of which it was issued.
SECTION 2.08. Outstanding Notes. Notes outstanding at any time are
all Notes authenticated by the Trustee except for those canceled by it and those
described in this Section. Any Note held by the Corporation or an Affiliate of
the Corporation shall cease to be outstanding for all purposes (whether or not
the Corporation shall deliver such Note to the Trustee in accordance with
Section 2.10), except that for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes which a Trust Officer of the Trustee knows are so owned shall be so
disregarded.
If a Note is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Corporation receive proof satisfactory to
them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent holds on any Redemption Date or the Maturity
Date money (or Exchange Property, or both, as applicable, if the Corporation
shall have elected to exercise the Exchange Right) sufficient to satisfy the
Notes payable on such date, then on and after that date such Notes shall cease
to be outstanding and interest on them shall cease to accrue.
If a particular Note is called for redemption and if the Corporation
has satisfied its obligation to pay such Note, the Corporation and the Trustee
need not treat such Note as outstanding in determining whether Holders of the
required aggregate Principal Amount of Notes have concurred in any direction,
waiver or consent.
SECTION 2.09. Temporary Notes. Until definitive Notes are ready for
delivery, the Corporation may prepare and the Trustee shall upon receipt of a
written order as set 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
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11
and the Trustee shall authenticate definitive Notes in exchange for temporary
Notes. Until exchanged for definitive Notes, a holder of temporary Notes shall
have all the rights of a holder of definitive Notes.
SECTION 2.10. Cancellation. The Corporation at any time may deliver
Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Notes surrendered to them for registration of
transfer, payment or exchange in connection with an exercise by the Corporation
of the Exchange Right, or otherwise. The Trustee and no one else shall cancel
and destroy all Notes surrendered for such cancellation, registration of
transfer, payment, or exchange and shall deliver a certificate of such
destruction to the Corporation unless the Corporation directs the Trustee to
deliver canceled Notes to the Corporation. The Corporation may not issue new
Notes to replace Notes it has paid or delivered to the Trustee for cancellation
or that have been exchanged pursuant to Article X.
SECTION 2.11. Defaulted Interest. (a) Any interest on any Note which
is payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") shall forthwith cease to be
payable to the registered holder on the relevant regular record date by virtue
of having been such holder; and such Defaulted Interest shall be paid by the
Corporation, at its election, as provided in clause (i) or clause (ii) below:
(i) The Corporation may make payment of any Defaulted Interest to
the persons in whose names such Notes are registered at the close of business on
a special record date for the payment of such Defaulted Interest, which shall be
fixed in the following manner: the Corporation shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each such
Note and the date of the proposed payment, and at the same time the Corporation
shall deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a special record date for the payment
of such Defaulted Interest which shall be not more than 15 nor less than 10 days
prior to the date
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12
of the proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall promptly notify
the Corporation of such special record date and, in the name and at the expense
of the Corporation, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date thereof to be mailed, first class postage
prepaid, to each Noteholder at his or her address as it appears in the books of
the Registrar, not less than 10 days prior to such special record date. Notice
of the proposed payment of such Defaulted Interest and the special record date
therefor having been mailed as aforesaid, such Defaulted Interest shall be paid
to the persons in whose names such Notes are registered on such special record
date and shall be no longer payable pursuant to the following clause (ii).
(ii) The Corporation may make payment of any Defaulted Interest on
any Notes in any other lawful manner not inconsistent with the requirements of
any securities exchange on which such Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Corporation
to the Trustee of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
(b) The term "regular record date" as used in this Section with
respect to any Interest Payment Date shall mean the fifteenth day of each March,
June, September or December preceding each Interest Payment Date.
(c) Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer or in exchange for
or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 2.12. Global Note. (a) In the event the Corporation causes,
pursuant to Section 3.03 or otherwise, the Notes held by the Property Trustee to
be distributed to holders of the Trust Securities;
(i) if all the Preferred Securities are held in book-entry-only
form in the form of one or more Global Certificates, the Notes
in certificated form shall be presented to the Trustee by the
Property Trustee in exchange for one or more global Notes in
an aggregate
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13
Principal Amount equal to the aggregate Principal Amount
of the outstanding Notes (each, a "Global Note"), to be
registered in the name of the Depositary, or its
nominee, and delivered by the Trustee to the Depositary
in exchange for one or more Global Certificate or
Certificates held by the Depositary for crediting to the
accounts of its participants pursuant to the
instructions of the Regular Trustees. The Corporation
upon any such presentation shall execute a Global Note
in such aggregate Principal Amount and deliver the same
to the Trustee for authentication and delivery in
accordance with this Indenture. Payments on the Notes
issued as a Global Note will be made to the Depositary;
and
(ii) if any Preferred Securities are held in non- book-entry
certificated form, (A) the Notes in certificated form
and (B) the register of holders of the Preferred
Securities shall be presented to the Trustee by the
Property Trustee and each Preferred Security Certificate
which represents Preferred Securities (including
Preferred Securities registered in the name of the
Depositary or its nominee) ("Non-Book-Entry Preferred
Securities") will be deemed to represent beneficial
interests in Notes presented to the Trustee by the
Property Trustee having an aggregate Principal Amount
equal to the aggregate Stated Amount of the
Non-Book-Entry Preferred Securities (and the Trustee
shall register such holders of such Preferred Securities
as the registered holders of such Notes) until such
Preferred Security Certificate is presented to the
Trustee for registration of transfer or exchange at
which time such Preferred Security Certificate will be
canceled and a Note registered in the name of the holder
(or the transferee thereof) of such Preferred Security
Certificate with an aggregate Principal Amount equal to
the aggregate Stated Amount of the Preferred Security
Certificate canceled will be executed by the Corporation
and delivered to the Trustee for authentication and
delivery in accordance with this Indenture.
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14
(b) A Global Note shall be exchangeable for Notes registered in the
names of persons other than the Depositary or its nominee only if (i) the
Depositary notifies the Corporation that it is unwilling or unable to continue
as a depositary for such Global Note and no successor depositary shall have been
appointed, (ii) the Depositary, at any time, ceases to be a clearing agency
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such Depositary and no successor depositary shall have
been appointed, or (iii) the Corporation in its sole discretion determines that
such Global Note shall be so exchangeable. Any Global Note that is exchangeable
pursuant to the preceding sentence shall be exchangeable for Notes registered in
such names as the Depositary shall direct.
ARTICLE III
Redemption; Distribution
SECTION 3.01. Optional Redemption. The Corporation, subject to the
provisions of Section 11.04 hereof, shall have the right to redeem the Notes, in
whole or in part, from time to time, upon not less than 20 nor more than 45
Business Days' written notice to the Holders, at the Note Call Price in effect
on the date of redemption (the "Optional Redemption Date"), plus cash in an
amount equal to all accrued and unpaid interest on each Minimum Denomination of
the Notes so called to but excluding the Optional Redemption Date. The "Note
Call Price" is initially equal to (a) $54.41 per Minimum Denomination plus (b)
an amount initially equal to $2.30 per Minimum Denomination, declining by
$.002712 for each day that shall have elapsed in the period from the date of
issue of the Notes to but excluding the Optional Redemption Date (the number of
days in such period being computed on the basis of a 360-day year of twelve
30-day months) to $.16 on October 23, 1997, and $0 thereafter.
If a partial redemption of the Notes would result in the delisting
of the Preferred Securities from any national securities exchange or other
self-regulatory organization (including Nasdaq) on which the Preferred
Securities are then listed, the Corporation shall not effect such partial
redemption and may only redeem the Notes in whole.
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SECTION 3.02. Selection of Notes To Be Redeemed. If less than all
the Notes are to be redeemed in any optional redemption, the Trustee shall
select the Notes to be redeemed by a method the Trustee deems fair and
appropriate. The Trustee shall make the selection from outstanding Notes not
previously called for redemption. Notes and portions of them it selects shall be
in amounts equal to the Minimum Denomination or a whole multiple of the Minimum
Denomination. Provisions of this Indenture that apply to Notes called for
redemption also apply to portions of Notes called for redemption.
SECTION 3.03. Special Event Redemption or Distribution. (a) (i) If,
at any time, a Special Event shall occur and be continuing, the Corporation
shall elect to either:
(A) direct the Regular Trustees to dissolve the Trust and cause
Notes having an aggregate Principal Amount equal to the aggregate Stated
Amount of, and accrued and unpaid interest equal to accrued and unpaid
Distributions on, and having the same record date for payment as, the
Trust Securities outstanding at such time, to be distributed by the
Regular Trustee to the Holders of the Trust Securities on a Pro Rata Basis
(determined without regard to the proviso in the definition of such term)
in liquidation of such holders' interests in the Trust, within 90 days
following the occurrence of such Special Event, provided, however, that in
the case of the occurrence of a Tax Event, as a condition of any such
dissolution and distribution, the Regular Trustees shall have received an
opinion of nationally recognized independent tax counsel experienced in
such matters (a "No Recognition Opinion"), which opinion may rely on any
then applicable published revenue ruling of the Internal Revenue Service,
to the effect that the holders of the Preferred Securities will not
recognize any gain or loss for United States Federal income tax purposes
as a result of the dissolution of the Trust and distribution of Notes;
(B) to redeem the Notes in accordance with this Indenture or
(C) in the case of a Tax Event, allow the Notes and the Trust
Securities to remain outstanding and indemnify the Trust for all taxes
payable by it as a result of such change in law or interpretation;
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16
provided that, if and as long as at the time there is available to the Trust the
opportunity to eliminate, within 90 days following the occurrence of such
Special Event (the "90-Day Period"), the Special Event by taking some
ministerial action, such as filing a form or making an election, or pursuing
some other similar reasonable measure that has no adverse effect on the Trust,
the Corporation or the holders of the Trust Securities (a "Ministerial Action"),
the Corporation shall not be permitted to redeem the Notes; provided further,
that the Corporation shall have no right to redeem the Notes or direct the
Regular Trustees to dissolve the Trust while the Regular Trustees are pursuing
such Ministerial Action unless the Special Event shall not have been so
eliminated by the 85th day following the occurrence thereof, in which case the
Corporation shall be permitted to direct the Regular Trustees or to provide
notice to the holders of the redemption of the Notes; provided further, that if
dissolution of the Trust and distribution of the Notes to the holders of the
Trust Securities would eliminate the condition causing the Special Event and all
other conditions to such dissolution and distribution have been satisfied, the
Corporation will not be permitted to redeem the Notes at the Special Redemption
Price; and provided further, that the Corporation shall not be permitted to
direct the Regular Trustees to dissolve the Trust and distribute the Notes to
the holders of the Trust Securities upon the occurrence of the condition
described in clause (2) in the definition of "Tax Event" if, after giving effect
to such dissolution and distribution, the Corporation would not be permitted to
deduct a greater percentage of the interest payable on the Notes than it had
been permitted to deduct for United States Federal income tax purposes prior to
the occurrence of such Tax Event.
(ii) In the event the Corporation shall elect to redeem the Notes in
accordance with (and subject to) paragraph (i) above upon the occurrence and
continuation of a Special Event, the Corporation shall be entitled to so redeem
the Notes in whole (but not in part), upon not less than 20 nor more than 45
Business Days' written notice to the Holders, within the 90-Day Period (such
date of redemption a "Special Redemption Date") at the Special Redemption Price
in effect on the date fixed for such redemption, plus cash in an amount equal to
all accrued and unpaid interest on the Notes to but excluding the Special
Redemption Date. The "Special Redemption Price" is an amount per Minimum
Denomination of Notes equal to (1) the lesser of (A) $54.41 and (B) the Exchange
Valuation Price on the Trading Day immediately preceding the Special Redemption
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Date of such amount of Exchange Property as relates to one Preferred Security at
such time, plus (2) an amount initially equal to $2.30, declining by $.002712
for each day following the issue date of the Notes (computed on the basis of a
360-day year of twelve 30-day months) to $.16 on October 23, 1997 and $0
thereafter. References herein to "Redemption Date" shall refer to the Optional
Redemption Date or the Special Redemption Date, as the case may be, and
references to "Note Redemption Price" shall refer to the Note Call Price or the
Special Redemption Price, as applicable.
(b) Upon the distribution of Notes to holders of Preferred
Securities as a result of the occurrence of a Special Event, subject to
applicable law (including, without limitation, United States Federal securities
laws), the Corporation or any of its Affiliates may at any time and from time to
time purchase outstanding Notes by tender, in the open market or by private
agreement.
SECTION 3.04. Notice of Redemption. (a) At least 20 but not more
than 45 Business Days before any Redemption Date, the Corporation shall mail a
notice of redemption (a "Note Redemption Notice") by first-class mail to the
Trustee and each Holder of Notes to be redeemed.
The Note Redemption Notice shall identify the Notes to be redeemed
and shall state:
(1) the Redemption Date;
(2) the total aggregate Principal Amount of Notes to be redeemed
and, if less than all of the total aggregate Principal Amount of Notes
held by any Holder are to be redeemed, the amount of such Notes to be
redeemed from such Holder;
(3) the Note Redemption Price;
(4) the place or places where certificates for such Notes are to be
surrendered for payment of the applicable Note Redemption Price;
(5) that interest on Notes called for redemption will cease to
accrue on such Redemption Date.
At the Corporation's request, the Trustee shall give the Note
Redemption Notice in the Corporation's name and at the Corporation's expense. In
such event the
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Corporation will provide the Trustee with the information required by clauses
(1) through (5).
Each Note Redemption Notice shall be irrevocable, and a Note
Redemption Notice shall be deemed to be given on the day such notice is first
mailed by first-class mail, postage prepaid, to Holders of Notes. Each Note
Redemption Notice shall be addressed to the Holders of Notes at the address of
each such Holder appearing in the books and records of the Registrar. No defect
in the Note Redemption Notice or in the mailing thereof with respect to any
Holder shall affect the validity of the redemption or exchange proceedings with
respect to any other Holder.
(b) Payment of the Note Redemption Price in respect of Notes
selected for redemption, together with any accrued and unpaid interest thereon,
is conditioned upon delivery or book-entry transfer of such Notes (together with
necessary endorsements) to the Trustee at any time (whether prior to, on or
after the relevant Redemption Date) after the Note Redemption Notice is given.
Payment of the Note Redemption Price, together with any accrued and unpaid
interest on Notes selected for redemption, will be made to the Holders thereof
by the delivery of cash (or, if the Exchange Right has been exercised, Exchange
Property) on a date that is the later of (i) the applicable Redemption Date with
respect to such Notes or (ii) the time of delivery or transfer of such Notes.
SECTION 3.05. Effect of Note Redemption Notice. (a) If a Note
Redemption Notice shall have been given as provided in Section 3.04, (i) the
Notes or portions of Notes specified in such Note Redemption Notice shall become
due and payable on the Redemption Date and at the place stated therein at the
applicable Note Redemption Price plus cash in an amount equal to all accrued and
unpaid interest on the Notes to but excluding such Redemption Date, (ii)
interest on the Notes so called for redemption shall cease to accrue from and
after the Redemption Date, (iii) such Notes shall no longer be deemed to be
outstanding from and after the Redemption Date and (iv) all rights of the
Holders thereof (except the right to receive from the Corporation the Note
Redemption Price plus accrued and unpaid interest on the Notes to be redeemed)
shall cease (including any right to receive interest otherwise payable on any
Interest Payment Date that would have occurred after the Redemption Date) from
and after the Redemption Date (unless in all cases the Corporation shall default
in the payment of the Note Redemption Price plus accrued and unpaid interest on
the
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19
Notes to be redeemed). Upon surrender (in accordance with the Note Redemption
Notice) of the certificate or certificates for, or book-entry transfer to the
Trustee in accordance with the rules of the Depositary of, any Notes to be so
redeemed (properly endorsed or assigned for transfer, if the Corporation shall
so require and the Note Redemption Notice shall so state), such Notes shall be
redeemed by the Corporation at the Note Redemption Price set forth in the Note
Redemption Notice together with accrued and unpaid interest to the Redemption
Date. Neither the Corporation nor the Trustee shall be required to register or
cause to be registered the transfer of any Notes which have been so called for
redemption. If any Redemption Date is not a Business Day, then payment of the
Note Redemption Price payable on such Redemption Date, together with accrued and
unpaid interest on the Notes to be redeemed to the Redemption Date, will be made
on the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such Redemption Date.
If payment of the Note Redemption Price in respect of Notes called
for redemption, together with accrued and unpaid interest on the Notes to be
redeemed, is improperly withheld or refused and not paid either by the Trustee
or by the Corporation, interest on such Notes shall continue to accrue from the
original Redemption Date to the date of payment, in which case the actual
payment date will be considered the date fixed for redemption for purposes of
calculating the Note Redemption Price and the amount of any accrued and unpaid
interest. In case fewer than all the Notes represented by any such certificate
are to be redeemed, a new certificate shall be issued representing the
unredeemed Notes, without cost to the Holder thereof. Subject to applicable
escheat laws, any moneys set aside by the Corporation and unclaimed at the end
of one year from the Redemption Date shall revert to the general funds of the
Corporation, after which reversion the Holders of such Notes so called for
redemption shall look only to the general funds of the Corporation for the
payment of the Note Redemption Price and any accrued and unpaid interest on the
Notes to be redeemed without any interest payable by reason of such delay;
provided, however, that the Trustee or the Paying Agent, before being required
to make any such repayment, may at the expense of the Corporation cause to be
published once in a newspaper of general circulation in The
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20
City of New York and mail to each such Holder notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication or mailing, any unclaimed balance of
such money then remaining will be repaid to the Corporation.
ARTICLE IV
Covenants
SECTION 4.01. Payment of Notes. The Corporation shall promptly pay
or cause to be paid the Maturity Payment Amount of, and interest on, the Notes
on the dates and in the manner provided herein and in the Notes. Pursuant
thereto, the Holders of the Notes shall be entitled to receive quarterly
payments of interest on the Principal Amount of the Notes at the rate per annum
indicated therein. The Maturity Payment Amount, any Note Redemption Price and
interest shall be considered paid on the date due if the Paying Agent holds on
that date money sufficient to pay the Maturity Payment Amount, any Note
Redemption Price and any interest then due.
The Corporation shall pay interest on any overdue payment of the
Maturity Payment Amount at the rate borne by the Notes, and it shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
SECTION 4.02. Maintenance of Office or Agency. (a) The Corporation
will maintain an office or agency in each place of payment where the Notes may
be presented or surrendered for payment, where the Notes may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Corporation in respect to the Notes or this Indenture may be served. The
Corporation will give prompt written notice to the Trustee of the location, and
of any change in the location, of such office or agency. If at any time the
Corporation shall fail to maintain such office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the office of the Trustee, and the
Corporation hereby appoints the Trustee its agent to receive all such
presentations, surrenders, notices and demands.
(b) Unless otherwise set forth in, or pursuant to, a resolution of
the Board of Directors (a copy of which,
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21
certified by the Secretary or Assistant Secretary of the Corporation has been
delivered to the Trustee) or Indenture supplemental hereto, the Corporation
hereby designates as the place of payment for each Note, the Borough of
Manhattan, the City and State of New York, and initially appoints the Trustee as
the Corporation's office or agency for each such purpose in such city.
SECTION 4.03. Money for Security Payments To Be Held in Trust. (a)
If the Corporation shall at any time act as its own Paying Agent for the Notes,
it will, on or before each due date of the Maturity Payment Amount, Note
Redemption Price or interest on, any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
Maturity Payment Amount, Note Redemption Price or interest so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of its action or failure to act.
(b) Whenever the Corporation shall have one or more Paying Agents
for the Notes, it will, on or prior to each due date of the Maturity Payment
Amount, Note Redemption Price or interest on, any Note, deposit with a Paying
Agent a sum sufficient to pay the Maturity Payment Amount, Note Redemption Price
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such Maturity Payment Amount, Note Redemption Price or
interest, and (unless such Paying Agent is the Trustee) the Corporation will
promptly notify the Trustee of its action or failure so to act.
(c) The Corporation will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such Paying
Agent shall agree with the Trustee, subject to the provisions of this Section,
that such Paying Agent will:
(1) hold all sums held by it for the payment of the Maturity
Payment Amount, Note Redemption Price or interest on the Notes in
trust for the benefit of the Persons entitled thereto until such
sums shall be paid to such Persons or otherwise disposed of as
herein provided;
(2) give the Trustee notice of any default by the Corporation
(or any other obligor upon the Notes) in the making of any such
payment of Maturity Payment
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22
Amount, Note Redemption Price or interest on the Notes; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the
Trustee all sums so held in trust by such Paying Agent.
SECTION 4.04. SEC Reports. The Corporation shall file with the
Trustee within 15 days after it is required to file the same with the SEC copies
of the annual report and of the information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Corporation is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act. The Corporation also shall
comply with the other provisions of TIA ss. 314(a).
SECTION 4.05. Compliance Certificate. The Corporation shall deliver
to the Trustee, within 120 days after the end of each fiscal year of the
Corporation (which, as of the date hereof, ends on December 31), an Officers'
Certificate of which at least one of the signatories shall be the principal
executive officer, principal financial officer or principal accounting officer
of the Corporation, stating whether or not the signers know of any Default that
occurred during the fiscal year. If they do, the certificate shall describe the
Default and its status. The Officers' Certificate need not comply with Section
12.05.
SECTION 4.06. Listing of Notes. The Corporation shall, if the Notes
are distributed to Holders of the Preferred Securities pursuant to Section 3.03
or otherwise, use its reasonable best efforts to have the Notes listed on the
New York Stock Exchange or on such other national securities exchange (or other
self-regulatory organization, (including Nasdaq)) as the Preferred Securities
were listed immediately prior to such distribution of the Notes.
SECTION 4.07. Exchanges of LYONs and Redemptions. So long as it is
subject to Section 16 of the Exchange Act with respect to Hasbro, the
Corporation shall take such steps as may be necessary in connection with any
exchange of LYONs by the holders thereof or any redemption of Preferred
Securities or Notes so that it is not in a net short position with respect to
its obligations to deliver Hasbro Common Stock (treating the outstanding LYONs
and Preferred Securities (or, if distributed to the holders of the Preferred
Securities, Notes) as derivative securities and
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23
treating the Hasbro Common Stock subject to such securities as subject to only
one put equivalent position) including, without limitation, through the
redemption or purchase of Preferred Securities (or, if distributed to the
holders of the Preferred Securities, Notes), the purchase of LYONs, the
settlement of exchanges or redemptions in cash (rather than Hasbro Common Stock)
and the purchase of additional shares of Hasbro Common Stock.
SECTION 4.08. Expenses. (a) The Corporation shall be responsible for
and shall pay for all debts and obligations (other than with respect to the
Trust Securities) and all costs and expenses of the Trust (including costs and
expenses relating to the organization of the Trust, the issuance of the
Preferred Securities, the fees and expenses (including reasonable counsel fees
and expenses) of the Trustees (including any amounts payable under Article X of
the Declaration) and the costs and expenses relating to the operation of the
Trust, including costs and expenses relating to the operation of the Trust,
including costs and expenses of accountants, attorneys, statistical or
bookkeeping services, expenses for printing and engraving and computing or
accounting equipment, paying agent(s), registrar(s), transfer agent(s),
duplicating, travel and telephone and other telecommunications expenses and
costs and expenses incurred in connection with the disposition of Trust assets).
(b) The Corporation 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.
ARTICLE V
Successor Corporation
SECTION 5.01. When Corporation May Merge, etc. The Corporation shall
not consolidate with or merge into, or transfer the property of the Corporation
as an entirety or substantially as an entirety to, another Person unless (i) if
the resulting, surviving or transferee Person is not the Corporation, such
Person shall be a Person that assumes by supplemental indenture all the
obligations of the Corporation under the Notes and this Indenture and is an
entity organized and existing under the laws of the United States or any
political subdivision thereof,
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(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, and the above conditions are met, all obligations of the
Corporation under this Indenture shall terminate and the Corporation shall be
released from all obligations hereunder.
ARTICLE VI
Defaults and Remedies
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
(1) the Corporation defaults in the payment of interest on any
Note when the same becomes due and payable and such default
continues for a period of 30 days;
(2) the Corporation defaults in the payment of the Maturity
Payment Amount or Note Redemption Price of any Note (together with
accrued and unpaid interest to but excluding, the Maturity Date or
Redemption Date, as the case may be) when the same becomes due and
payable;
(3) the Corporation fails to comply with any of its other
covenants or agreements in the Notes or this Indenture and the
default continues for the period and after the notice specified
below in this Section 6.01;
(4) the Corporation pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against
it in an involuntary case,
(C) consents to the appointment of a Custodian of it or
for any substantial part of its property, or
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25
(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 aggregate
Principal Amount of the Notes then outstanding notify the Corporation and the
Trustee of the Default and the Corporation does not cure the Default within 90
days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default". Subject
to the provisions of Sections 7.01 and 7.02, the Trustee shall not be charged
with knowledge of any Default unless written notice thereof shall have been
given to the Trustee by the Corporation, the Paying Agent, the Holder of a Note
or an agent (duly authorized in writing) of such Holder.
SECTION 6.02. Acceleration. Subject to Section 11.06, if an Event of
Default described in paragraph (1), (2) or (3) of Section 6.01 occurs and is
continuing, the Trustee by notice to the Corporation, or the Holders of at least
25% in aggregate Principal Amount of the Notes then outstanding by notice to the
Corporation and the Trustee, may declare the Notes to be due and payable and,
upon any such declaration, the Notes shall become due and payable immediately in
an amount per Minimum Denomination equal to: (a) the lesser of (i) $54.41 and
(ii) the Exchange Valuation Price on the Trading Day immediately preceding
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such Event of Default of such amount of Exchange Property as relates to each
Minimum Denomination of Notes on such Trading Day; provided, however, if such
Event of Default is in payment of the Note Call Price or the Special Redemption
Price, the amount due and payable shall equal the Note Call Price or the Special
Redemption Price, as the case may be (in either case, the "Acceleration Price"),
plus (b) accrued interest on all the Notes to be due and payable. Upon such a
declaration, the Acceleration Price and such interest shall be due and payable
immediately. If an Event of Default described in paragraph (4) or (5) of Section
6.01 occurs and is continuing, the Acceleration Price of and any accrued
interest on the Notes then outstanding shall become immediately due and payable
(it being understood that, if at the time of such Event of Default an Event of
Default described in paragraph (1), (2) or (3) of Section 6.01 shall be
continuing, the Acceleration Price shall be the amount calculated in respect
thereof in accordance with the definition of such term and if no such Event of
Default shall be continuing, the Acceleration Price shall be calculated without
regard to the proviso in the definition of such term).
At any time after the Notes have been accelerated, and before a
judgment or decree for payment of the money due has been obtained by the Trustee
as hereinafter in this Article provided, the Holders of a majority in aggregate
Principal Amount of the Notes by written notice to the Corporation and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Corporation has paid or deposited with the Trustee a
sum sufficient to pay
(A) all overdue installments of interest on the Notes,
(B) any Maturity Payment Amount or Note Redemption Price
due on the Notes,
(C) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and all other
amounts due the Trustee under this Indenture; and
(2) all Events of Default with respect to such Notes have been
cured or waived as provided in Section 6.04.
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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 Acceleration Price 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 and any such
action or proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, and all other
amounts due to the Trustee under this Indenture, shall be for the ratable
benefit of the Holders of the Notes.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Notes, and it shall not be necessary to make any Holders of the
Notes parties to any such proceedings. A delay or omission by the Trustee or any
Noteholder in exercising any right or remedy accruing upon an Event of Default
shall not impair the right or remedy or constitute a waiver of or acquiescence
in the Event of Default. No remedy is exclusive of any other remedy. All
available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults. Subject to Section 9.02, the
Holders of a majority in aggregate Principal Amount of the Notes then
outstanding by notice to the Trustee may waive an existing Default and its
consequences other than a default in the payment of interest or any Maturity
Payment Amount or Note Redemption Price, which default may not be waived unless
such default has been cured and a sum sufficient to pay all past due amounts of
interest or any Maturity Payment Amount or Note Redemption Price has been
deposited with the Trustee. When a Default is waived, it is cured and stops
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default or impair any consequent right.
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SECTION 6.05. Control of Majority. The Holders of a majority in
aggregate Principal Amount of the Notes then outstanding may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on it. However, the
Trustee may refuse to follow any direction that conflicts with law or this
Indenture or, subject to Section 7.01, that the Trustee determines is unduly
prejudicial to the rights of other Noteholders or would subject the Trustee to
personal liability.
SECTION 6.06. Limitation on Suits. A Noteholder may not pursue any
remedy with respect to this Indenture or the Notes unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate Principal Amount of the
Notes then outstanding make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee security or
indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in aggregate
Principal Amount of the Notes then outstanding do not give the Trustee a
direction inconsistent with the request.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over another
Noteholder.
SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of the Maturity Payment Amount, any Note Redemption Price or, if
applicable, the Acceleration Price (including the payment of all accrued and
unpaid interest), on or after the respective due dates expressed in the Notes,
or to bring suit for the enforcement of any such payment on or after such
respective dates shall not be impaired or affected without the consent of such
Holder.
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SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of interest or the Maturity Payment Amount or any Note Redemption Price
(including the payment of all accrued and unpaid interest) specified in Section
6.01(l) or (2) occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Corporation for the
whole amount of the Maturity Payment Amount, any Note Redemption Price or, if
applicable, the Acceleration Price (including the payment of all accrued and
unpaid interest) and the amounts provided for in Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Noteholders allowed
in any judicial proceedings relative to the Corporation, its creditors or its
property and, unless prohibited by law or applicable regulations, may vote on
behalf of the Holders in any election of a trustee in bankruptcy or other person
performing similar functions.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Noteholder in any such proceedings.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant
to this Article, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to holders of Senior Indebtedness to the extent required by
Article XI;
Third: to Noteholders for amounts due and unpaid on the Notes for
the Maturity Payment Amount, Note Redemption Price or, if applicable, the
Acceleration Price, and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Notes for
such Maturity Payment Amount or Note Redemption Price and interest,
respectively; and
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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 aggregate Principal Amount of the Notes then outstanding.
SECTION 6.12. Restoration of Rights on Abandonment of Proceedings.
In case the Trustee shall have proceeded to enforce any right under this
Indenture and such proceedings shall have been discontinued or abandoned for any
reason, or shall have been determined adversely to the Trustee, then and in
every such case the Corporation and the Trustee shall be restored respectively
to their former positions and rights hereunder, and all rights, remedies and
powers of the Corporation, the Trustee and the Holders shall continue as though
no such proceedings had been taken.
ARTICLE VII
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise its rights and powers and
use the same degree of care and skill in their exercise as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no others; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, in the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to the Trustee,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with the direction of
Noteholders received by it pursuant to this Indenture.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree with the Corporation. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
(f) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity or security reasonably satisfactory to it
against any loss, liability or expense.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for
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believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
SECTION 7.02. Rights of Trustee. (a) Subject to Section 7.01, the
Trustee may rely on any document believed by it to be genuine and to have been
signed or presented by the proper Person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on and
in accordance with the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed by it in good faith and
with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct, negligence or bad faith.
SECTION 7.03. Individual Rights of Trustee, etc. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Corporation or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar or
co-registrar may do the same with like rights. However, the Trustee must comply
with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee makes no
representation as to the validity or adequacy of this Indenture or the Notes, it
shall not be accountable for the Corporation's use of the proceeds from the
Notes and it shall not be responsible for any statement herein or in the Notes
other than its certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to a Trust Officer, the Trustee shall mail to each
Noteholder notice of the Default within 90 days after it occurs. Except in the
case of a default in payment on any Note, the Trustee may withhold the notice if
and so long as a committee of its
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Trust Officers in good faith determines that withholding the notice is in the
interests of Noteholders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after
each May 15 beginning with the May 15 following the date of this Indenture, the
Trustee shall mail to each Noteholder to the extent required by the TIA a brief
report dated as of May 15 that complies with TIA ss. 313(a) or any successor
provision thereto. The Trustee also shall comply to the extent required by the
TIA with TIA ss. 313(b)(2) or any successor provision thereto.
A copy of each report at the time of its mailing to Noteholders
shall be filed with the SEC and each stock exchange or other self-regulatory
organization on which the Notes are listed. The Corporation agrees to notify the
Trustee whenever the Notes become listed on any stock exchange or other
self-regulatory organization and if any partial redemption of the Note would
result in a delisting of the Notes (or the Preferred Securities) on any such
stock exchange or self-regulatory organization.
SECTION 7.07. Compensation and Indemnity. The Corporation shall pay
to the Trustee from time to time reasonable compensation for its services. The
Corporation shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred by it. Such expenses shall include the
reasonable compensation and expenses of the Trustee's agents and counsel. The
Corporation shall indemnify the Trustee against any loss or liability incurred
by it arising out of or in connection with the acceptance or administration of
this trust and its duties hereunder. The Trustee shall notify the Corporation
promptly of any claim for which it may seek indemnity. The Corporation need not
reimburse any expense or indemnify against any loss or liability incurred by the
Trustee through wilful misconduct, negligence or bad faith.
To secure the Corporation's payment obligations in this Section
7.07, the Trustee shall have a senior claim to which the Notes are hereby made
subordinate on all money or property held or collected by the Trustee, except
such money or property held in trust to pay the Maturity Payment Amount, Note
Redemption Price or, if applicable, the Acceleration Price of and interest on
particular Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(4) or (5) occurs, the expenses and the
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compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Notwithstanding any other provision in this Indenture, amounts
payable under this Section 7.07 are not subject to the subordination provisions
of Article XI.
The Corporation's obligations under this Section 7.07 and any lien
arising hereunder shall survive the resignation or removal of the Trustee, the
discharge of the Corporation's obligations hereunder and the termination of this
Indenture.
SECTION 7.08. Replacement of Trustee. The Trustee may resign by so
notifying the Corporation. The Holders of a majority in aggregate Principal
Amount of the Notes then outstanding may remove the Trustee by so notifying the
removed Trustee and may appoint a successor Trustee with the Corporation's
consent. The Corporation shall remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, then, unless the Noteholders shall appoint a
successor Trustee as provided above, the Corporation shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Corporation. Immediately after
that, upon payment to the retiring Trustee of all amounts due it under this
Indenture, the retiring Trustee shall transfer all property held by it as
Trustee to the successor Trustee, the resignation or removal of the retiring
Trustee shall then 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.
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35
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Corporation or
the Holders of a majority in aggregate Principal Amount of the Notes then
outstanding may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
SECTION 7.09. Successor Trustee by Merger, etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation, the
resulting, surviving or transferee corporation without any further act shall be
the successor Trustee.
SECTION 7.10. Eligibility; Disqualification. To the extent required
by the TIA, this Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1) or any successor provision thereto. The
Trustee shall have a combined capital and surplus of at least $5,000,000 as set
forth in its most recent published annual report of condition. To the extent
required by the TIA, the Trustee shall comply with 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 TIAss. 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;
(4) to assign the rights and obligations of the Corporation pursuant
to Section 12.13; or
(5) 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 Trustee is furnished with an Officer's Certificate or an
Opinion of Counsel to the effect that 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 not less than 66-2/3% in aggregate
Principal Amount of the Notes then outstanding. The Holders of a majority in
aggregate Principal Amount of the Notes then outstanding may waive any past
default or compliance by the Corporation with any provision of this Indenture or
the Notes without notice to any Noteholder except a default in payment of the
Maturity Payment Amount or the Note Redemption Price of or interest on any of
the Notes or as provided below. The Trustee may set a record date for
determining which Holders are entitled to consent to any such amendment,
supplement or waiver. The consent of Holders of a majority in aggregate
Principal Amount of the Notes then outstanding as of such record date shall be
sufficient to effect any such amendment, supplement or
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waiver. However, without the consent of each Noteholder affected, an amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of interest on
any Note;
(3) alter the method of calculation of, or reduce, the Maturity
Payment Amount or extend the fixed maturity of any Note;
(4) reduce the premium payable, or alter the method of calculation
of the Note Redemption Price, upon any redemption of any Note;
(5) make any Note payable in money or property other than that
stated in the Note;
(6) make any change in Article XI that adversely affects the rights
of any Noteholder; or
(7) make any change in Section 6.04 or 6.07 or this Section 9.02.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
to or supplement of this Indenture or the Notes shall be set forth in a
supplemental indenture which complies with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents. A consent to an
amendment, supplement or waiver by a Holder of a Note shall bind the Holder and
every subsequent Holder of that Note or portion of the Note that evidences the
same debt as the consenting Holder's Note, even if notation of the consent is
not made on the Note. However, any such Holder or subsequent Holder may revoke
the consent as to such Holder's Note or portion of the Note. The Trustee must
receive the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
After an amendment, supplement or waiver becomes effective, it shall
bind every Noteholder unless it makes a change described in clause (2), (3),
(4), (5) or (6) of Section 9.02. In that case the amendment, supplement or
waiver shall bind each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a
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security that evidences the same debt as the consenting Holder's Note.
SECTION 9.05. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder of the Note to deliver it to the Trustee. The Trustee may place an
appropriate notation on the Note about the changed terms and return it to the
Holder. Alternatively, if the Corporation or the Trustee so determines, the
Corporation in exchange for the Note shall issue and the Trustee shall
authenticate a new Note that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, etc. The Trustee shall
sign any amendment, supplement or waiver authorized pursuant to this Article if
the amendment, supplement or waiver does not adversely affect the rights,
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. In the event that, pursuant to
Section 3.03 hereof or otherwise, the Notes held by the Property Trustee are
distributed to Holders of the Preferred Securities, the Corporation shall have
the right (the "Exchange Right"), exercisable upon notice to such Holders of the
Notes as provided below, to require such Holders to exchange their Notes for
Exchange Property and, at the option of the Corporation, cash.
SECTION 10.02. Exchange Rights Upon Maturity. (a) Subject to Section
10.01, upon maturity of the Notes, the Corporation may exercise the Exchange
Right by giving notice of such exercise to the Trustee no later than 11:59 p.m.,
New York time, on the second Business Day following December 17, 1997.
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(b) If the Corporation shall have exercised the Exchange Right in
respect of the Maturity Date, on the Maturity Date, each Minimum Denomination of
Notes shall be exchanged for (i) Exchange Property in respect of the portion of
such Notes to be exchanged for Exchange Property based on the Exchange Rate in
effect on the Trading Day immediately preceding December 17, 1997, (ii) cash in
respect of the portion, if any, of such Notes that are not to be exchanged for
Exchange Property, calculated by subtracting from the Maturity Payment Amount
the value of the Exchange Property to be delivered (based on the Exchange
Valuation Price of such Exchange Property as of the Trading Day immediately
preceding December 17, 1997), and (iii) cash in an amount equal to all accrued
and unpaid interest on such Notes to but excluding the Maturity Date; provided
that if the Exchange Valuation Price, as of the Trading Day immediately
preceding December 17, 1997, of the Exchange Property that relates to the
Minimum Denomination of Notes is greater than $54.41, the Corporation shall
deliver in exchange for each Minimum Denomination of Notes in respect of which
it exercised the Exchange Right (1) Exchange Property (valued on the basis of
its Exchange Valuation Price as of such Trading Day) and (2) at the option of
the Corporation, cash, having an aggregate value equal to $54.41 per Minimum
Denomination and (b) cash in an amount equal to all accrued and unpaid interest
on such Notes, to but excluding the Maturity Date.
SECTION 10.03. Optional Redemption and Special Redemption. (a)
Subject to Section 10.01, the Corporation may exercise the Exchange Right by
giving notice of such exercise to the Trustee no later than 11:59 p.m., New York
time, on the Business Day immediately preceding any Optional Redemption Date or
Special Redemption Date, in respect of the Notes to be redeemed on any Optional
Redemption Date or Special Redemption Date, as the case may be.
(b) If the Corporation shall have exercised the Exchange Right in
respect of any Redemption Date, each Minimum Denomination of Notes shall be
exchanged for (i)(A) Exchange Property (valued on the basis of its Exchange
Valuation Price as of the Trading Day immediately preceding the applicable
Redemption Date) and (B) at the option of the Corporation, cash, having an
aggregate value equal to the applicable Note Redemption Price in effect for such
Minimum Denomination of Notes on such Redemption Date, and (ii) cash in an
amount equal to all accrued and unpaid interest on such Notes to but excluding
the applicable Redemption Date.
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(c) In accordance with Section 10.02 and the foregoing provisions of
Section 10.03, in the event that the Corporation shall exercise the Exchange
Right and elect to deliver Exchange Property with respect to only a portion of
each Note, Holders of the Notes to be redeemed shall be entitled to receive from
the Corporation for each Note held by such Holder, the same types, amounts and
relative proportions of Exchange Property and cash as every other Holder of the
Notes to be redeemed.
SECTION 10.04. Definitions. (a) The "Exchange Property" per Minimum
Denomination on any date shall consist of (i) as of August 9, 1995, one share of
Hasbro Common Stock (in the aggregate, the "Initial Shares"), (ii) any cash or
other property (other than cash dividends and other cash distributions, if any,
paid by the Issuer that do not constitute Extraordinary Cash Dividends and other
than interest, if any, paid in respect thereof) issued or distributed on or
after August 9, 1995, in respect of the Initial Shares or other Exchange
Property, (iii) any cash or other property issued or distributed on or after
August 9, 1995, upon the exchange or conversion of such shares of Hasbro Common
Stock or other Exchange Property, including upon any reorganization,
consolidation or merger or any sale or transfer or lease of all or substantially
all the assets of the Issuer of such Exchange Property and (iv) any cash or
other property paid by an offeror in connection with a tender or exchange offer
for Exchange Property of a particular type as set forth below; provided that
Exchange Property shall not include any property distributed in respect of
Exchange Property for which an antidilution adjustment has been made pursuant to
the Declaration.
In the case of a tender or exchange offer for all Exchange Property
of a particular type, the Exchange Property shall be deemed to include all cash
or other property paid by the offeror in the tender or exchange offer (in an
amount determined on the basis of the rate of exchange in such tender or
exchange offer), whether or not the Corporation tenders or exchanges such
Exchange Property. In the event of a partial tender or exchange offer, with
respect to Exchange Property of a particular type, Exchange Property shall be
deemed to include cash or other property paid by the offeror in the tender or
exchange offer in an amount determined as if the offeror had purchased or
exchanged Exchange Property from the Corporation in the proportion in which all
property of such type was purchased or exchanged from the holders thereof;
provided that if the Corporation tenders all its Exchange Property of such type,
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the amount of cash or other property received that will constitute Exchange
Property will be determined on the basis of the amount of such cash or other
property actually received by the Corporation. Except as provided above, in the
event of a tender or exchange offer with respect to the Exchange Property in
which an offeree may elect to receive cash or other property, Exchange Property
shall be deemed to include the kind and amount of cash and other property
received by offerees who elect to receive cash.
(b) The "Exchange Rate" means initially one share of Hasbro Common
Stock per Minimum Denomination, subject to certain antidilution adjustments as
set forth in Section 10.08. The Exchange Rate for any other Exchange Property
will be determined on the basis of the portion of Exchange Property in respect
of which such Exchange Property is issued, distributed or exchanged.
(c) The "Exchange Valuation Price" of each item of property
comprising the Exchange Property on, or as of, any date means the average of the
Purchase Sale Prices (as defined below) of the applicable Exchange Property for
the five Trading Day period ending on and including such date, appropriately
adjusted to take into account the occurrence, during such period, of any
Exchange Adjustment Event (as defined in Section 10.08(a)) with respect to such
Exchange Property. The "Purchase Sale Price" on any date means the closing per
share sale price for the applicable Exchange Property (or, if no closing sale
price is reported, the average of the bid and ask prices or, if more than one in
either case, the average of the average bid and average ask prices) on such date
as reported in the composite transactions for the principal United States
securities exchange on which such Exchange Property is traded or, if such
Exchange Property is not listed on a United States national or regional
securities exchange, as reported by NASDAQ, or, if such Exchange Property is not
reported by NASDAQ, the high per share bid price for such Exchange Property in
the over-the-counter market as reported by the National Quotation Bureau or
similar organization, or, if such bid price is not available, the per unit
market value of such Exchange Property on such date as determined by a
nationally recognized investment banking firm retained for such purpose by the
Corporation.
(d) The term "Trading Day" means a day on which the AMEX (or any
successor thereto) or, to the extent that neither the Hasbro Common Stock nor
any other Exchange Property is listed on the AMEX, such other national
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securities exchanges on which the Exchange Property is listed or, if none, the
NYSE, is open for the transaction of business.
(e) "Non-Equity Security" means any security or property which is
not (i) common stock; (ii) a security convertible or exchangeable into common
stock or participating without limitation in earnings and dividends in parity
with common stock; (iii) a warrant or option to purchase common stock; or (iv)
listed or admitted to trading on a United States national or regional securities
exchange or reported by the NASDAQ National Market System.
SECTION 10.05. Notice of Exercise. (a) Upon any election by the
Corporation to exercise the Exchange Right, the Corporation shall provide
written notice to the Trustee as set forth in Section 10.02 or 10.03 of (i) the
Corporation's election to exercise the Exchange Right, (ii) a description of the
type and amount of Exchange Property to be delivered in respect of each Minimum
Denomination, (iii) if applicable, the respective portions of Exchange Property
and cash to be delivered and (iv) in connection with an exercise pursuant to
Section 10.03, the applicable Redemption Date.
(b) The Corporation shall cause notice of such exercise of the
Exchange Right to be published by means of the Dow Jones Business Newswires
Service promptly after providing notice of such exercise to the Trustee.
SECTION 10.06. Delivery of Exchange Property; Effect on Holders.
Delivery of the Exchange Property to the Holders of any Notes in connection with
the maturity or redemption thereof will be conditioned upon delivery or
book-entry transfer of such Notes (together with necessary endorsements) to the
Trustee at any time (whether prior to, on or after the applicable Redemption
Date) after notice of the exercise of the Exchange Right is given to the
Trustee. In such event, such Exchange Property with respect to such Notes shall
be delivered to each Holder of Notes to be redeemed no later than the later of
(a) the applicable Redemption Date or (b) the time of delivery or transfer of
such Notes. If, following any exercise of the Exchange Right, the Trustee holds,
(i) Exchange Property in respect of the portion of the Notes that are to be
exchanged for Exchange Property, (ii) cash in respect of the portion, if any, of
the Notes not to be exchanged for Exchange Property, and (iii) cash in an amount
equal to all accrued and unpaid interest on all such Notes to be redeemed to the
applicable
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Redemption Date, then at the close of business on such Redemption Date, whether
or not such Notes are delivered to the Trustee, (A) the Corporation will become
the owner and record Holder of such Notes and (B) the Holders of such Notes
shall have no further rights with respect to the Notes other than the right to
receive the Exchange Property, together with cash as described above, upon
delivery of the Notes.
SECTION 10.07. Fractional Shares. (a) No fractional shares or other
units of Exchange Property will be issued upon the exercise by the Corporation
of the Exchange Right. In lieu of any fractional share or other unit of Exchange
Property otherwise issuable in respect of all Notes of any Holder, including any
Clearing Agency, that are redeemed or exchanged on any Redemption Date, or upon
maturity, the Corporation shall make a cash payment in respect of such
fractional interest in an amount equal to the same fraction of the Exchange
Valuation Price of the Exchange Property deliverable upon such redemption or
maturity, determined as of the Trading Day immediately preceding such Redemption
Date or the Maturity Date, as the case may be.
(b) To the extent that the Notes are exchanged for Exchange Property
and all such Exchange Property cannot be distributed by the Depository Trust
Company or such other Person who may be acting in the capacity of depositary
(the "Depositary") to its participants that are beneficial holders of the Notes
without creating fractional interests in the shares or units making up such
Exchange Property, the Depositary may, with the Corporation's consent, adopt
such method as it deems equitable and practicable for the purpose of effecting
such distribution, including the sale (at public or private sale) of such
Exchange Property representing in the aggregate such fractional interests at
such place or places and upon such terms as it may deem proper, and the net
proceeds of any such sale shall be distributed or made available for
distribution to such record Holders that would otherwise have received such
fractional interests. The amount distributed in the foregoing cases will be
reduced by any amount required to be withheld by the Depositary on account of
withholding taxes or otherwise required pursuant to law, regulation or court
process.
SECTION 10.08. Adjustment of Exchange Rate. The Exchange Rate shall
be subject to adjustment and the Exchange Property shall be subject to change as
follows:
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(a) The Exchange Rate shall be adjusted (and, if applicable, the
Exchange Property shall be changed) upon the (i) distribution of a dividend on
Exchange Property in the same type of Exchange Property, (ii) combination of
Exchange Property into a smaller number of shares or other units, (iii)
subdivision of outstanding shares or other units of Exchange Property, (iv)
conversion or reclassification of Exchange Property by issuance or exchange of
other securities or (v) a consolidation, merger or binding share exchange or a
transfer of all or substantially all of the assets of the Issuer of such
Exchange Property (each of the foregoing an "Exchange Adjustment Event"). In
such an event, the Exchange Rate in effect immediately before such action shall
be adjusted (and if applicable the Exchange Property shall be changed) to
reflect the amount of cash or the kind and amount of property that a holder of
Exchange Property would have owned or been entitled to receive upon or by reason
of such event if the Notes had been exchanged for such Exchange Property
immediately before such event. Such adjustment shall become effective
retroactively immediately after the record date, in the case of a dividend or
distribution and shall become effective retroactively immediately after the
effective date in the case of a subdivision, combination, conversion,
reclassification, consolidation, merger, share exchange or transfer specified in
this Section 10.08(a). For the purposes of this Section 10.08(a), each Holder
shall be deemed to have failed to exercise any right to elect the kind or amount
of Exchange Property receivable upon the payment of any such dividend,
subdivision, combination, conversion, reclassification, consolidation, merger,
share exchange or transfer specified in this Section 10.08(a), provided that if
the kind or amount of Exchange Property receivable upon such dividend,
subdivision, combination, conversion, reclassification, consolidation, merger,
share exchange or transfer specified in this Section 10.08(a) is not the same
for each nonelecting share or other unit, then the kind and amount of property
receivable upon such dividend, subdivision, combination, conversion,
reclassification, consolidation, merger, share exchange or transfer specified in
this Section 10.08(a) for each nonelecting share shall be deemed to be the kind
and amount so receivable per share or other unit by a plurality of the
nonelecting shares or other units.
(b) Upon a distribution of cash or other property (including rights,
warrants or other securities) on Exchange Property of a particular type
(excluding (i) ordinary periodic cash dividends and distributions, if any, paid
from
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45
time to time by an Issuer that do not constitute Extraordinary Cash Dividends,
(ii) interest (whether in cash, securities or other property), if any, paid in
respect thereof and (iii) dividends payable in Exchange Property for which
adjustment is made in Section 10.08(a), if any), the Exchange Rate shall be
adjusted, subject to the provisions of paragraph (C) of this Section 10.08(b),
in accordance with the following formula:
R' = R x (M/(M-F))
where:
R' = the adjusted Exchange Rate.
R = the then current Exchange Rate.
M = the Average Quoted Price, minus, in the case of a distribution of
Capital Stock on Exchange Property for which (i) the record date
shall occur on or before the record date for the distribution to
which this Section 10.08(b) applies and (ii) the Ex- Dividend Time
(as defined below) shall occur on or after the date of the Time of
Determination (as defined below) for the distribution to which this
Section 10.08(b) applies, the fair market value (on the record date
for the distribution to which this Section 10.08(b) applies) of such
Capital Stock distributed in respect of Exchange Property.
F = the fair market value (on the record date for the distribution to
which this Section 10.08(b) applies) of cash or other property
(including rights, warrants or other securities) to be distributed
in respect of each share or unit of Exchange Property of a
particular type in the distribution to which this Section 10.08(b)
is being applied (including, in the case of cash dividends or other
cash distributions giving rise to an adjustment, all such cash
distributed concurrently).
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46
The Board of Directors of the Corporation shall determine fair
market values for the purposes of this Section 10.08(b).
The adjustment shall become effective immediately after the record
date for the determination of those shareholders entitled to receive the
distribution to which this Section 10.08(b) applies.
For purposes of this Section 10.08(b), the term "Extraordinary Cash
Dividend" shall mean any cash dividend with respect to Exchange Property the
amount of which, together with the aggregate amount of such cash dividends on
the Exchange Property to be aggregated with such cash dividend in accordance
with the provisions of this paragraph, equals or exceeds the threshold
percentages set forth in paragraph (A) or (B) below:
(A) If, upon the date prior to the Ex-Dividend Time with respect to
a cash dividend on Exchange Property, the aggregate amount of such cash
dividend together with the amounts of all cash dividends on Exchange
Property with Ex-Dividend Times occurring in the 85 consecutive day period
ending on the date prior to the Ex-Dividend Time with respect to the cash
dividend to which this provision is being applied equals or exceeds on a
per share basis 12.5% of the average of the Quoted Prices during the
period beginning on the date after the first such Ex-Dividend Time in such
period and ending on the date prior to the Ex-Dividend Time with respect
to the cash dividend to which this provision is being applied (except that
if no other cash dividend has had an Ex-Dividend Time occurring in such
period, the period for calculating the average of the Quoted Prices shall
be the period commencing 85 days prior to the date prior to the Ex-
Dividend Time with respect to the cash dividend to which this provision is
being applied), such cash dividend together with each other cash dividend
with an Ex-Dividend time occurring in such 85 day period shall be deemed
to be an Extraordinary Cash Dividend and for purposes of applying the
formula set forth above in this Section 10.08(b), the value of "F" shall
be equal to (w) the aggregate amount of such cash dividend together with
the amounts of the other cash dividends with Ex-Dividend Times occurring
in such period minus (x) the aggregate amount of such other cash dividends
with Ex-Dividend Times occurring in such period for
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47
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).
In making the determinations required by paragraphs (A) and (B)
above, the amount of cash dividends paid on a per share basis and the
average of the Quoted Prices, in each case during the period specified in
paragraphs (A) and (B) above, as applicable, shall be appropriately
adjusted to reflect the occurrence during such period of any event
described in Section 10.08(a).
(C) In the event that, with respect to any distribution to which
this Section 10.08(b) would otherwise apply, "F" is equal to or greater
than "M", then the adjustment provided by this Section 10.08(b)
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48
shall not be made and the property received upon the distribution in
respect of Exchange Property shall constitute Exchange Property.
"Quoted Price" means, for any given day, the last reported per share
sale price (or, if no sale price is reported, the average of the bid and ask
prices or, if more than one in either case, the average of the average bid and
average ask prices) on such day of Exchange Property in the composite
transactions for the principal United States national or regional securities
exchange on which such shares are traded, or, if such Exchange Property is not
listed on a United States national or regional securities exchange, as reported
by NASDAQ, or, if such shares are not reported by NASDAQ, the high per share bid
price for such share in the over-the-counter market on such date as reported by
the National Quotation Bureau or similar organization satisfactory to the Paying
Agent. If such bid price is not available, the Quoted Price shall not be
determinable.
"Average Quoted Price" means the average of the Quoted Prices of
Exchange Property for the shortest of:
(i) 30 consecutive Trading Days ending on the last full trading day
prior to the Time of Determination with respect to the distribution in
respect of which the Average Quoted Price is being calculated;
(ii) the period (x) commencing on the date next succeeding the first
public announcement of the distribution in respect of which the Average
Quoted Price is being calculated and (y) proceeding through the last full
trading day prior to the Time of Determination with respect to the
distribution in respect of which the Average Quoted Price is being
calculated (excluding days within such period, if any, which are not
trading days); and
(iii) the period, if any, (x) commencing on the date next succeeding
the Ex-Dividend Time with respect to the next preceding distribution for
which an adjustment is required by the provisions of Section 10.08(b) and
(y) proceeding through the last full trading day prior to the Time of
Determination with respect to the distribution in respect of which the
Average Quoted Price is being calculated (excluding days within such
period, if any, which are not trading days).
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49
In the event that the Ex-Dividend Time (or in the case of a
subdivision, combination or reclassification, the effective date with respect
thereto) with respect to a dividend, subdivision, combination or
reclassification to which Section 10.08(a) applies occurs during the period
applicable for calculating "Average Quoted Price" pursuant to the definition in
the preceding sentence, "Average Quoted Price" shall be calculated for such
period in a manner determined by the Board of Directors of the Corporation to
reflect the impact of such dividend, subdivision, combination or
reclassification on the Quoted Price of such Exchange Property during such
period.
Notwithstanding the foregoing, if a Quoted Price shall not be
determinable pursuant to the definition thereof, then the Average Quoted Price
shall mean the per share market value of the Exchange Property as of the last
full trading day prior to the Time of Determination as determined by a
nationally recognized investment banking firm retained by the Corporation for
such purpose.
"Time of Determination" means the time and date of (i) the
determination of shareholders entitled to receive cash or other property
(including rights, warrants or other securities) on Exchange Property of a
particular type in each case to which this Section 10.08(b) applies and (ii) the
time ("Ex-Dividend Time") immediately prior to the commencement of "ex-dividend"
trading for such property or distribution on the principal United States
national or regional exchange or market on which the Exchange Property is then
listed or quoted.
Notwithstanding the foregoing, the Corporation shall be entitled, by
notice to the Trustee not later than the close of business on the fifth Business
Day following the date of any distribution referred to in this Section 10.08(b)
(or if the Corporation is not aware of such distribution, as soon as practicable
after becoming so aware), to elect not to have the antidilution adjustments of
this Section 10.08(b) apply, in which case the property received upon the
distribution in respect of Exchange Property shall constitute Exchange Property;
provided that if rights, warrants, options or similar securities are distributed
on Exchange Property and such rights, warrants, options or similar securities
expire before the Maturity Date, then the Corporation shall adjust the Exchange
Rate under this Section 10.08(b).
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50
(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:
E' = E x (A/(0+(P/M)))
where:
E' = the adjusted Exchange Rate
E = the then current Exchange Rate
O = the number of shares or units of such security which
includes Exchange Property outstanding immediately prior to
the issuance of such additional
shares or units.
P = the aggregate consideration received
for the issuance of such additional shares or units.
M = the Average Quoted Price per share or unit on the date of
issuance of such additional shares or units.
A = the number of shares or units of such class of such
security which includes Exchange Property outstanding
immediately after the issuance of such additional shares or
units.
Any Holder of Notes in respect of which the Exchange Right shall be
exercised after the date of such issuance shall be entitled to receive Exchange
Property at the Exchange Rate as so adjusted pursuant to this Section 10.08(c).
The adjustment shall be made successively 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
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51
conversion, exchange or exercise of other securities convertible into or
exchangeable or exercisable for Exchange Property, (ii) securities issued to any
Issuer's employees under bona fide employee benefit plans approved by an
Issuer's board of directors (but only to the extent that the aggregate number of
shares or units excluded hereby and issued after the date of this Indenture
shall not exceed 10% of such securities outstanding at the time of the adoption
of each such plan, exclusive of antidilution adjustments thereunder), (iii)
securities issued upon the exercise of rights or warrants issued pro rata to all
of the holders of such securities, (iv) securities issued in a bona fide public
offering pursuant to a firm commitment underwriting, or (v) securities issued in
connection with a bona fide acquisition to any Person or to the shareholders of
any Person in exchange for the stock or assets of such Person, which Person is
not controlling, controlled by, or under common control with the Corporation or
any Affiliate of the Corporation. For the purposes of this Section 10.08(c), in
determining whether securities issued to an Issuer's employees under bona fide
employee benefit plans approved by such Issuer's board of directors were issued
for a consideration (per share or unit) that is less than the Average Quoted
Price (per share or unit) of such securities, the Average Quoted Price of such
securities on the date such securities are awarded or granted to the Issuer's
employees under such plans.
(d) If any Issuer controlled by the Corporation or its Affiliates,
at any time any Notes are then outstanding, issues any securities convertible
into or exchangeable or exercisable for shares or units of any Exchange Property
(the "Underlying Exchange Property") for a total consideration per share or unit
issuable upon conversion, exchange or exercise of such convertible, exchangeable
or exercisable securities less than the current Average Quoted Price per share
or unit of the Underlying Exchange Property on the date of issuance of such
convertible, exchangeable or exercisable securities, the Exchange Rate shall be
adjusted in accordance with the following formula:
E' = E x (O+D)/(O+(P/M))
where:
E' = the adjusted Exchange Rate.
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52
E = the then current Exchange Rate.
O = the number of shares or units of the Underlying
Exchange Property outstanding immediately prior to
the issuance of such convertible, exchangeable or
exercisable
securities.
P = the aggregate consideration received in respect of
such convertible, exchangeable or exercisable
securities (including consideration receivable upon
such conversion, exchange or exercise, if any).
M = the current Average Quoted Price per share or unit
of the Underlying Exchange Property on the date of
issuance of such convertible, exchangeable or
exercisable securities.
D = the maximum number of shares or units of the
Underlying Exchange Property issuable upon
conversion, exchange or exercise of such convertible,
exchangeable or exercisable securities at the initial
conversion or exchange rate or exercise price.
Any Holder exchanging any Notes after the date of such issuance
shall be entitled to receive Exchange Property at the Exchange Rate as so
adjusted pursuant to this Section 10.08(d), but subject to the provisions for
readjustment set forth in this Section 10.08(d). The adjustment shall be made
successively whenever any such issuance is made, and shall become effective
immediately after such issuance. If all of the Exchange Property deliverable
upon conversion, exchange or exercise of such convertible, exchangeable or
exercisable securities have not been issued when such securities are no longer
outstanding, 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
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53
an Issuer's board of directors (but only to the extent that the aggregate number
of shares excluded hereby and issued after the date of this Indenture shall not
be convertible into or exchangeable or exercisable for more than 10%, at the
time of adoption of each such plan, of the outstanding shares or other units of
such Exchange Property, exclusive of antidilution adjustments thereunder), (ii)
securities issued upon the exercise of rights or warrants issued pro rata to all
of the holders of shares or units of a class of securities, (iii) securities
issued in a bona fide public offering pursuant to a firm commitment underwriting
or (iv) securities issued in connection with a bona fide acquisition to any
Person or to the shareholders of any Person in exchange for the stock or assets
of such Person, which Person is not controlling, controlled by or under common
control with the Corporation or any Affiliate of the Corporation. For purposes
of this Section 10.08(d), in determining whether securities convertible into or
exchangeable or exercisable for Underlying Exchange Property that are issued to
an Issuer's employees under bona fide employee benefit plans approved by such
Issuer's board of directors were issued for a total consideration (per share or
unit) initially issuable upon conversion, exchange or exercise of such
convertible, exchangeable or exercisable securities that is less than the
Average Quoted Price (per share or unit) of the Underlying Exchange Property,
the Average Quoted Price shall be deemed to be equal to the Quoted Price of such
Underlying Exchange Property on the date such convertible, exchangeable or
exercisable securities are awarded or granted to the Issuer's employees under
such plans.
(e) Notwithstanding the provisions of paragraphs (a), (b), (c) and
(d) of this Section 10.08, no adjustment in the Exchange Rate shall be required
unless such adjustment would require an increase or decrease in the then current
Exchange Rate of more than 1%; provided, however, that any adjustments which by
reason of this Section 10.08(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(f) All calculations under this Section 10.08 shall be made to the
nearest .0001 of a share, the nearest whole dollar, or the nearest integral
unit, as applicable.
(g) The Corporation shall, within five Business Days following the
occurrence of an event that permits or requires an adjustment to the Exchange
Rate or a change to
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the Exchange Property pursuant to this Section 10.08 (or if the Corporation is
not aware of such occurrence, as soon as practicable after becoming so aware),
provide written notice to the Trustee of (i) the occurrence of such event, (ii)
if applicable, whether the Corporation has elected to cause such adjustment to
occur, (iii) in the case where the Exchange Rate has been adjusted, the Exchange
Valuation Price of each item of property related to such adjustment and a
statement in reasonable detail setting forth the method by which the Exchange
Valuation Price and the adjustment to the Exchange Rate were determined and (iv)
in the case where the Exchange Property has been changed, a statement in
reasonable detail identifying each item of property comprising the Exchange
Property and setting forth the Exchange Rate per Preferred Security for each
such item of Exchange Property.
(h) Upon a distribution of cash or other property (including rights,
warrants or other securities) on Exchange Property of a particular type where
the Corporation has exercised its right set forth in the last paragraph of
Section 10.08(b) to have the antidilution adjustments of Section 10.08(b) not
apply, or in the event of a tender or exchange offer which, pursuant to the
definition of "Exchange Property" results in the creation of new or additional
Exchange Property (the "Tender Offer Consideration"), then, from and after the
record date for determining the holders of Exchange Property entitled to receive
the distribution, a Holder of Notes in respect of which the Exchange Right shall
have been exercised shall upon such exchange be entitled to receive, in addition
to the Exchange Property into which the Notes are exchangeable, the kind and
amount of securities, cash or other assets comprising the distribution that such
Holder would have received if such Holder had exchanged the Notes immediately
prior to the record date for determining the Holders of Exchange Property
entitled to receive the distribution or the Tender Offer Consideration described
in the definition of Exchange Property, as the case may be.
ARTICLE XI
Subordination
SECTION 11.01. Agreement To Subordinate. The Corporation agrees, and
each Noteholder by accepting a Note agrees, that the indebtedness evidenced by
the Notes and the payment of the Maturity Payment Amount, any Note Redemption
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Price or,if applicable, the Acceleration Price and interest on each and all of
the Notes is hereby expressly subordinated in right of payment, to the extent
and in the manner provided in this Article XI, to the prior payment in full in
cash or cash equivalents of all Senior Indebtedness, and that the subordination
is for the benefit of the holders of Senior Indebtedness.
SECTION 11.02. Certain Definitions. "Representative" means any
Person whom the Corporation has, by written notice to the Trustee, identified as
the indenture trustee or other trustee, agent or representative for an issue of
Senior Indebtedness. Any such notice shall identify the name and address for
notices of each Representative. The Trustee shall notify the Holders of any
Representatives of the Senior Indebtedness promptly upon receiving notice of any
such Representatives.
"Senior Indebtedness" means all indebtedness or obligations, whether
outstanding at the date of execution of this Indenture or thereafter incurred,
assumed, guaranteed or otherwise created, unless the terms of the instrument or
instruments by which the Corporation incurred, assumed, guaranteed or otherwise
created any such indebtedness or obligation expressly provide that such
indebtedness or obligation is subordinate to all other indebtedness of the
Corporation or that such indebtedness or obligation is not superior in right of
payment to the Notes with respect to any of the following (including, without
limitation, interest accruing on or after a bankruptcy or other similar event,
whether or not an allowed claim therein): (i) any indebtedness incurred by the
Corporation or assumed or guaranteed, directly or indirectly, by the Corporation
(a) for money borrowed, including the Corporation's outstanding 8-3/4%
Convertible Subordinated Debentures due 2015, (b) in connection with the
acquisition of any business, property or other assets (other than trade payables
incurred in the ordinary course of business) or (c) for advances or progress
payments in connection with the construction or acquisition of any building,
motion picture, television production or other entertainment of any kind; (ii)
any obligation of the Corporation (or of a Subsidiary which is guaranteed by the
Corporation) as lessee under a lease of real or personal property; (iii) any
obligation of the Corporation to purchase property at a future date in
connection with a financing by the Corporation or a Subsidiary; (iv) letters of
credit; (v) currency swaps and interest rate hedges; and (vi) any deferral,
renewal, extension or refunding of any of the foregoing.
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SECTION 11.03. Liquidation, Dissolution, Bankruptcy. Upon any
payment or distribution of all or substantially all the assets of the
Corporation, whether voluntary or involuntary, or upon any reorganization,
readjustment, arrangement or similar proceeding relating to the Corporation or
its property, whether or not the Corporation is a party thereto, and whether in
bankruptcy, insolvency, receivership or similar proceedings, or upon any
assignment by the Corporation for the benefit of creditors, or upon any other
marshalling of the assets and liabilities of the Corporation:
(1) all Senior Indebtedness shall first be paid in full in cash or
cash equivalents, or provision made for such payment by deposit thereof in
trust with a bank or banks (either theretofore acting as trustees under
indentures pursuant to which Senior Indebtedness shall have been issued,
or duly appointed paying agents for the purpose), before any payment or
distribution whether in cash, property or securities (other than
securities of the Corporation as reorganized or readjusted, or securities
of the Corporation or any other corporation provided for by a plan of
reorganization or readjustment, the payment of which is subordinate, at
least to the extent provided in this Article XI with respect to the Notes,
to the payment of all indebtedness of the nature of Senior Indebtedness,
so long as the rights of the holders of the Senior Indebtedness are not
altered adversely by such reorganization or readjustment ("Equivalent
Notes")), is made on account of the principal of or interest on the
indebtedness evidenced by the Notes;
(2) any payment or distribution of any kind or character in respect
of the Maturity Payment Amount, any Note Redemption Price or, if
applicable, the Acceleration Price of or interest on the Notes, whether in
cash, property or securities (other than Equivalent Notes), to which the
Holders of the Notes would be entitled except for the provisions of this
Article XI shall be paid or delivered by the Corporation or the
liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating
trustee or other trustee or agent, directly and ratably to the holders of
Senior Indebtedness or their Representatives (subject to any subordination
of any class of Senior Indebtedness, by the provisions thereof, to any
other class or classes of Senior Indebtedness) ratably
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according to the aggregate amounts remaining unpaid on account of the
principal of, and the premium, if any, and interest on, the Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid, after giving
effect to any concurrent payment or distribution, or provision therefor,
to the holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing, any payment or
distribution of any kind or character in respect of the Maturity Payment
Amount, any Note Redemption Price or, if applicable, the Acceleration
Price of or interest on the Notes, whether in cash, property or securities
(other than Equivalent Notes) shall be received by the Trustee or the
Holders of the Notes before all Senior Indebtedness is paid in full, or
provision made as aforesaid for its payment, such payment or distribution
shall be held in trust for the ratable benefit of and shall be ratably
paid over or delivered to the holders of Senior Indebtedness remaining
unpaid or unprovided for or their Representatives, as provided in the
foregoing subparagraph (b), for application to the payment of all
principal of, and premium, if any, and interest on, such Senior
Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness or
provisions being made as aforesaid for its payment, the Holders of the Notes
shall be subrogated to the rights of the holders of Senior Indebtedness to
receive payments or distributions of cash, property or securities of the
Corporation payable or distributable to the holders of the Senior Indebtedness,
until the Maturity Payment Amount, any Note Redemption Price or, if applicable,
the Acceleration Price of and interest on the Notes shall be paid in full. No
payment or distribution to the holders of the Senior Indebtedness of any cash,
property or securities to which the Holders of the Notes would be entitled
except for the provisions of this Article XI, and no payment over or delivery
pursuant to the provisions of this Article XI to the holders of the Senior
Indebtedness or their Representatives by the Trustee or the Holders of the
Notes, shall, as between the Corporation, its creditors other than the holders
of Senior Indebtedness, and the Holders of the
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Notes, be deemed to be a payment by the Corporation to or on account of the
Senior Indebtedness, and no payments or distributions to the Trustee or the
Holders of the Notes of cash, property or securities payable or distributable to
the holders of the Senior Indebtedness, to which the Trustee or the Holders of
the Notes shall become entitled pursuant to the provisions of the preceding
sentence, shall, as between the Corporation, its creditors other than the
holders of Senior Indebtedness, and the Holders of the Notes, be deemed to be a
payment by the Corporation to the Holders of or on account of the Notes. Upon
any distribution of assets or securities of the Corporation referred to in this
Article XI, the Trustee, subject to the provision of Article VII, and the
Holders of the Notes shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending or a certificate of the
liquidating trustee or agent or other Person making any payment or distribution
to the Trustee or to the Holders of the Notes for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of the
Senior Indebtedness and other indebtedness of the Corporation, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article XI.
SECTION 11.04. Default on Senior Indebtedness. Subject to the
provisions of Section 11.05 hereof, in the event and during the continuation of
any default in the payment of principal of, or premium, if any, or interest on
or other monetary obligation with respect to, any Senior Indebtedness beyond any
applicable period of grace, or in the event that any event of default with
respect to any Senior Indebtedness shall have occurred and be continuing, then,
unless and until such event of default or default shall have been cured or
waived or shall have ceased to exist, no payment of Maturity Payment Amount, any
Note Redemption Price or, if applicable, the Acceleration Price or interest
shall be made by the Corporation with respect to the Notes. Nothing contained in
this Article XI or elsewhere in this Indenture, or in any of the Notes, shall,
however, (a) prevent the Corporation from setting aside in trust as provided in
Section 2.04 or depositing with the Trustee or any paying agent, at any time,
except during the pendency of any of the proceedings or upon the happening of
any of the events referred to in the first paragraph of Section 11.03, or during
the continuation of any such default or event of default (not cured or waived),
moneys
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for the payment of the Maturity Payment Amount, any Note Redemption Price or, if
applicable, the Acceleration Price of or interest on the Notes, or (b) prevent
the application by the Trustee or any paying agent of any moneys deposited with
it hereunder by the Corporation to the payment of or on account of the Maturity
Payment Amount, any Note Redemption Price or, if applicable, the Acceleration
Price of or interest on the Notes, if, at the time of such deposit, the Trustee
or such paying agent, as the case may be, did not have written notice of any
event prohibiting the making of such deposit by the Corporation.
The Corporation shall give prompt written notice to the Trustee of
any facts which would prohibit the making of any payment of moneys to or by the
Trustee, including any dissolution, winding up, liquidation or reorganization of
the Corporation within the meaning of this Article XI. Anything in this Article
XI or elsewhere in this Indenture contained to the contrary notwithstanding, the
Trustee shall not be charged with knowledge of the existence of any Senior
Indebtedness or of any default or event of default with respect to any Senior
Indebtedness or of any other facts which would prohibit the making of any
payment of moneys to or by the Trustee, unless and until the Trustee shall have
received notice in writing to that effect signed by an officer of the
Corporation or by a holder of Senior Indebtedness who shall have been certified
by the Corporation or otherwise established to the reasonable satisfaction of
the Trustee to be such holder, or by a Representative of Senior Indebtedness.
SECTION 11.05. Disputes with Holders of Certain Senior Indebtedness.
Any failure by the Corporation to make any payment on or perform any other
obligation under Senior Indebtedness, other than any indebtedness incurred by
the Corporation or assumed or guaranteed, directly or indirectly, by the
Corporation for money borrowed (or any deferral, renewal, extension or refunding
thereof) or any indebtedness or obligation in which the provisions of this
Section 11.05 shall have been waived by the Corporation in the instrument or
instruments by which the Corporation incurred, assumed, guaranteed or otherwise
created such indebtedness or obligation, shall not be deemed a default or event
of default under Section 11.04 hereof for so long as (i) the Corporation shall
be disputing its obligation to make such payment or perform such obligation and
(ii) either (A) such dispute shall not have resulted in a judgment against the
Corporation or the applicable Subsidiary that shall have remained undischarged
or unbonded and have
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60
remained in force for more than the applicable appeal period or (B) in the event
of such a judgment, the Corporation or the applicable Subsidiary shall in good
faith be prosecuting an appeal or other proceeding for review and upon which a
stay of execution shall have been obtained pending such appeal or review.
SECTION 11.06. Acceleration of Notes. If an Event of Default, other
than an Event of Default under paragraph (4) or (5) of Section 6.01, shall have
occurred and be continuing, the Trustee or the Holder of the Notes electing to
accelerate the Notes pursuant to Section 6.02 shall give the Representatives of
the Senior Indebtedness five days' prior written notice before accelerating the
Notes, which notice shall state that it is a "Notice of Intent to Accelerate";
provided, however, that the Trustee or such Holders may so accelerate the Notes
immediately without such notice if at such time payment of any Senior
Indebtedness shall have been accelerated. If payment of the Notes is accelerated
because of an Event of Default, the Corporation shall promptly notify holders of
Senior Indebtedness (or their Representatives) of the acceleration.
SECTION 11.07. When Distribution Must Be Paid Over. If a
distribution is made to Noteholders that because of this Article XI should not
have been made to them, the Noteholders who receive the distribution shall hold
it in trust for holders of Senior Indebtedness and pay it over to them as their
interests may appear.
SECTION 11.08. Relative Rights. This Article XI defines the relative
rights of Noteholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(1) impair, as between the Corporation and Noteholders the
obligation of the Corporation, which is absolute and unconditional, to pay
the Maturity Payment Amount, any Note Redemption Price or, if applicable,
the Acceleration Price of and interest on the Notes in accordance with
their terms;
(2) affect the relative rights of Noteholders and creditors of the
Corporation other than holders of Senior Indebtedness; or
(3) subject to Section 11.06, prevent the Trustee or any Noteholder
from exercising its available remedies upon a Default, subject to the
rights of
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61
holders of Senior Indebtedness to receive distributions otherwise payable
to Noteholders.
If the Corporation fails because of this Article XI to pay the
Maturity Payment Amount or any Note Redemption Price of or interest on a Note on
the due date, the failure is still a Default.
SECTION 11.09. Subordination May Not Be Impaired by Corporation. No
right of any holder of Senior Indebtedness to enforce the subordination of the
indebtedness evidenced by the Notes shall be impaired by any act or failure to
act by the Corporation or by its failure to comply with this Indenture.
SECTION 11.10. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative.
SECTION 11.11. Rights of Trustee and Paying Agent. The Trustee or
Paying Agent may continue to make payments on the Notes until it receives notice
satisfactory to it that payments may not be made under this Article. The
Corporation, the Registrar or co-registrar, the Paying Agent, a Representative
or a holder of Senior Indebtedness may give the notice; provided, however, that
if an issue of Senior Indebtedness has a Representative, only the Representative
may give the notice on behalf of the holders of Senior Indebtedness.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Registrar and co-registrar, the Paying Agent may do the same with like rights.
SECTION 11.12. Notice to Trustee. The Corporation shall give prompt
written notice to a Trust Officer at the address of the Trustee determined
pursuant to Section 12.02 of any fact known to the Corporation which would
prohibit the making of any payment to or by the Trustee in respect of the Notes.
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
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62
written notice thereof from the Corporation or a holder of Senior Indebtedness
or from any Representative 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 by the close of business on the Business Day immediately 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 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 the close of business on such immediately prior Business Day.
SECTION 11.13. Trustee Not a Fiduciary. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holder if it shall mistakenly pay over or distribute
to Noteholders or the Corporation or any other Person money or assets to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
XI or otherwise.
SECTION 11.14. Effectuation of Subordination by Trustee. Each Holder
of the Notes, by his acceptance thereof, authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
SECTION 11.15. Article Applicable to Paying Agents. In case at any
time any Paying Agent other than the Trustee and the Corporation shall have been
appointed by the Corporation and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context shall require
otherwise) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
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63
ARTICLE XII
Miscellaneous
SECTION 12.01. Trust Indenture Act Controls. If any provision of
this Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 12.02. Notices. Except as otherwise provided for herein, any
notice or communication shall be sufficiently given if in writing and delivered
in person or three business days after mailed by first-class mail addressed as
follows:
(i) if to the Corporation:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention of General Counsel
(ii) if to the Trustee:
Chemical Bank
450 West 33rd Street (15th Floor)
New York, New York 10001
Attention of Corporate Trust Administration
The Corporation or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed
to the Noteholder at the Noteholder's address as it appears on the registration
books of the Registrar with a copy to the Trustee and shall be sufficiently
given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or any
defect in it shall not affect its sufficiency with respect to other Noteholders.
If a notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.
SECTION 12.03. Communication by Holders with Other Holders.
Noteholders may communicate pursuant to TIA ss. 312(b) or any successor
provision thereto with other
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64
Noteholders with respect to their rights under this Indenture or the Notes. The
Corporation, the Trustee, the Registrar and anyone else shall have the
protection of TIA ss. 312(c) or any successor provision thereto.
SECTION 12.04. Certificate and Opinions as to Conditions Precedent.
Upon any request or application by the Corporation to the Trustee to take any
action under this Indenture, the Corporation shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion. Unless
otherwise provided herein, each certificate or opinion with respect to
compliance with a covenant or condition provided for in this Indenture shall
include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
SECTION 12.06. 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
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65
or the Paying Agent may make reasonable rules for its functions.
SECTION 12.07. Payment Date. Unless otherwise specified herein, if a
payment date is not a Business Day at a place of payment, payment shall be made
at that place on the next succeeding Business Day; and no interest shall accrue
for the intervening period, except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the applicable payment date.
SECTION 12.08. Governing Law. The laws of the State of New York
shall govern this Indenture and the Notes.
SECTION 12.09. 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 12.10. 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 12.11. Successors. All agreements of the Corporation in this
Indenture and the Notes shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 12.12. Duplicate Originals. The parties may sign any number
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 12.13. Assignment. The Corporation will have the right at
all times to assign any of its rights or obligations under this Indenture and
the Notes to a direct or indirect wholly owned subsidiary of the Corporation,
provided that, in the event of any such assignment, the Corporation will remain
jointly and severally liable for all such obligations. Subject to the foregoing,
the Indenture will be binding upon and inure to the benefit of the parties
thereto and their respective successors and assigns. This
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66
Indenture may not otherwise be assigned by the parties hereto.
SECTION 12.14. Tax Characterization. The Corporation, the Trustee
and each Holder of a Note (by acceptance thereof) agrees to treat the Notes as
debt instruments for United States Federal, state and local income and franchise
tax purposes and agrees not to take any contrary position before any taxing
authority or on any tax return.
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67
TIME WARNER INC.,
by
-------------------------
Name: Thomas W. McEnerney
Title: Vice President
[Seal]
Attest:
- ----------------------------
Title: Assistant
Secretary
CHEMICAL BANK,
by
-------------------------
Name: Richard Lorenzen
Title: Senior Trust
Officer
[Seal]
Attest:
- ----------------------------
Name: David G. Safer
Title: Trust Officer
<PAGE>
<PAGE>
EXHIBIT A
[FORM OF FACE OF NOTE]
No.
TIME WARNER INC.
4% Subordinated Note due December 23, 1997
Time Warner Inc., a Delaware corporation, or any successor under the
Indenture referred to on the reverse hereof promises to pay to [ ], or its
registered assigns, in respect of each Minimum Denomination of this Note an
amount equal to the lesser of (a) $54.41 and (b) the Exchange Valuation Price on
the Trading Day immediately preceding December 17, 1997, on December 23, 1997.
See Section 7, "Subordination", on the other side of this Note. This Note has a
Principal Amount of [ ] ($ ).
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
--------------------------
Senior Vice President
and Chief Financial Officer
[Seal] by
--------------------------
Assistant Secretary
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2
CHEMICAL BANK, as Trustee,
certifies that this is one
of the Notes referred
to in the Indenture.
by
--------------------------
Authorized Officer
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3
[FORM OF REVERSE SIDE OF NOTE]
TIME WARNER INC.
4% 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 Principal Amount of
this Note, at the rate per annum shown above (or $1.24 per annum per Minimum
Denomination). 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 August 15, 1995. Interest will be computed on the basis of a
360-day year of twelve 30-day months. Interest payable for any period shorter
than a full quarterly interest period will be computed on the basis of a 360-day
year of twelve 30-day months on the basis of the actual number of days elapsed
in such 30-day month. In the event, however, that the Notes shall not continue
to remain in book-entry only form, the Corporation shall have the right to
select the applicable record dates, which shall be more than one Business Day
prior to the relevant interest payment date.
2. Method of Payment. The Corporation will pay interest on the Notes
(except Defaulted Interest) to the Persons who are registered holders of Notes
at the close of business on March 15, June 15, September 15 or December 15 next
preceding the Interest Payment Date. In the event that any date on which
interest is payable is not a Business Day (as defined in the Indenture (as
defined below)), then payment of such interest will be made on the next
succeeding Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
Holders must surrender Notes to a Paying Agent to collect payments of Maturity
Payment Amounts. The Corporation will pay Maturity Payment Amounts and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Corporation may pay Maturity
Amount Payments and interest by check payable in such money. It may mail an
interest check to a Holder's registered address.
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4
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 August 15, 1995 (the "Indenture"), between the Corporation and the
Trustee. The terms of the Notes include those stated herein and in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. ss.ss. 77aaa- 77bbbb) (the "Trust Indenture Act") as in effect
from time to time. The Notes are subject to all such terms, and Noteholders are
referred to the Indenture and the Trust Indenture Act for a statement of those
terms. Capitalized terms used but not defined in this Note have the meanings
ascribed to them in the Indenture.
5. Redemption. The Corporation may, at its sole option, redeem at
any time or from time to time all or any part of the outstanding Notes at the
Note Call Price together in each case with an amount equal to accrued and unpaid
interest to the Optional Redemption Date.
Upon the occurrence of a Tax Event or an Investment Company Event,
the Corporation will have the right to elect to, under certain circumstances,
(a) dissolve the Trust and cause the Notes to be distributed to the Holders of
the Preferred Securities, (b) redeem all the Notes at the Special Redemption
Price plus accrued and unpaid interest thereon or (c) in the case of a Tax
Event, allow the Notes to remain outstanding and indemnify the Trust for any
taxes payable by it as a result of such Tax Event.
If a Note Redemption Notice for any such optional redemption or
special event redemption shall have been given as provided in Section 3.03 of
the Indenture, interest on the Notes called for redemption shall cease to
accrue, such Notes shall no longer be deemed to be outstanding, and all rights
of the Holders thereof (except the right to receive from the Corporation the
Note Redemption Price plus interest to the Redemption Date without further
interest) shall cease (including any right to receive interest otherwise payable
on any Interest Payment Date that would have occurred after the Redemption Date)
from and after the Redemption Date (unless
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5
the Corporation shall default in the payment of the Note Redemption Price). Upon
surrender (in accordance with the Note Redemption Notice) of the certificate or
certificates for any Notes to be so redeemed (properly endorsed or assigned for
transfer, if the Corporation shall so require and the Note Redemption Notice
shall so state), such Notes shall be redeemed by the Corporation at the
applicable Note Redemption Price plus interest to the Redemption Date. In case
fewer than all the Notes represented by any such certificates are to be redeemed
a new certificate shall be issued representing the unredeemed Notes without cost
to the Holder thereof. Subject to applicable escheat laws, any moneys set aside
by the Corporation and unclaimed at the end of one year from the Redemption Date
shall revert to the general funds of the Corporation, after which reversion the
Holders of such Notes so called for redemption shall look only to the general
funds of the Corporation for the payment of the Note Redemption Price without
interest.
6. Exchange Right. In the event the Corporation causes, pursuant to
Section 3.03 of the Indenture or otherwise, the Notes held by the Property
Trustee to be distributed to Holders of the Preferred Securities the Corporation
shall have the right in respect of the maturity or any redemption of the Notes,
exercisable upon notice to such Holders of the Notes in accordance with the
Indenture, to require such Holders to exchange their Notes for Exchange Property
(and, at the option of the Corporation, cash) plus cash in an amount equal to
all accrued and unpaid interest. Initially, the Exchange Rate for each Minimum
Denomination of Notes is one share of Hasbro Common Stock, subject to certain
antidilution adjustments as set forth in the Indenture.
7. Subordination. The Notes are subordinated to Senior Indebtedness
(as defined in Section 11.02 of the Indenture). To the extent provided in the
Indenture, Senior Indebtedness must be paid before the Notes may be paid. The
Corporation agrees, and each Noteholder by accepting a Note agrees, to the
subordination and authorizes the Trustee to give it effect.
8. Denominations; Transfer; Exchange. The Notes are in registered
form without coupons in denominations equal to the Minimum Denomination and
whole multiples of the Minimum Denomination. A Holder may register the transfer
of 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
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<PAGE>
6
to pay any taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Notes 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 register the transfer of or
exchange any Notes for a period of 15 days before a selection of Notes to be
redeemed or before an interest payment.
9. Persons Deemed Owners. The registered Holder of this Note may be
treated as the owner of it for all purposes.
10. Unclaimed Money. If money for the payment of the Maturity
Payment Amount or any Note Redemption Price or interest remains unclaimed for
one year, the Trustee or Paying Agent will pay the money back to the Corporation
at its request; provided, however, that the Trustee or such Paying Agent, before
being required to make any such repayment, may at the expense of the Corporation
cause to be published once in a newspaper of general circulation in The City of
New York and will mail to each such Holder notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such publication or mailing, any unclaimed balance of
such money then remaining will be repaid to the Corporation. After payment to
the Corporation, Noteholders entitled to the money must look to the Corporation
for payment as general creditors unless an applicable abandoned property law
designates another Person.
11. Amendment, Supplement, Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the written
consent of the Holders of a majority in aggregate Principal Amount of the Notes
then outstanding, and any past default or noncompliance with any provision may
be waived with the written consent of the Holders of a majority in aggregate
Principal Amount of the Notes then outstanding. Without the consent of any
Noteholder, the Corporation may amend or supplement the Indenture or the Notes
to cure any ambiguity, omission, defect or inconsistency, or to comply with
Article V of the Indenture, or to provide for uncertificated Notes, or to make
any change that does not adversely affect the rights of any Noteholder. Without
the consent of any Noteholder, the Trustee may waive compliance with any
provisions of the
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7
Indenture or the Notes if the waiver does not adversely affect the rights of any
Noteholder.
12. Successor Corporation. When a successor corporation assumes all
the obligations of its predecessor under the Notes and the Indenture, the
predecessor corporation will be released from those obligations.
13. Defaults and Remedies. Each of the following is an Event of
Default: (a) default for 30 days in payment of any interest on the Notes; (b)
default in payment of the Maturity Payment Amount or Note Redemption Price of
the Notes or any accrued and unpaid interest with respect thereto; (c) failure
by the Corporation for 90 days after notice to it by the Trustee or the Holders
of at least 25% in aggregate Principal Amount of the Notes then outstanding to
comply with any of its other agreements or covenants in the Indenture or the
Notes; and (d) certain events of bankruptcy or insolvency. If an Event of
Default described in (a), (b) or (c) above occurs and is continuing, the Trustee
or the Holders of at least 25% in aggregate Principal Amount of the Notes then
outstanding by notice to the Corporation and the Trustee, may declare the Notes
to be due and payable and, upon any such declaration, the Notes shall become due
and payable immediately in an amount per Minimum Denomination equal to: (i) the
lesser of (A) $54.41 and (B) the Exchange Valuation Price on the Trading Day
immediately preceding such Event of Default of such amount of Exchange Property
as relates to each Minimum Denomination of Notes on such Trading Day; provided,
however, if such Event of Default is in payment of the Note Call Price or the
Special Redemption Price, the amount due and payable shall equal the Note Call
Price or the Special Redemption Price, as the case may be (in either case, the
"Acceleration Price") plus (ii) accrued interest on all the Notes to be due and
payable immediately. Upon such a declaration, the Acceleration Price and such
interest shall be due and payable immediately. If an Event of Default described
in paragraph (d) above occurs and is continuing, the Acceleration Price of and
any accrued interest on the Notes then outstanding shall become immediately due
and payable (it being understood that, if at the time of such Event of Default
an Event of Default described in paragraph (a), (b) or (c) above shall be
continuing, the Acceleration Price shall be the amount calculated in respect
thereof in accordance with the definition of such term and if no such Event of
Default shall be continuing, the Acceleration Price shall be calculated without
regard to the proviso in the definition of such
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<PAGE>
8
term). Upon payment of such amounts, all of the Corporation's obligations
hereunder shall terminate. The Trustee may refuse to enforce the Indenture or
the Notes unless it receives indemnity satisfactory to it. Subject to certain
limitations, Holders of a majority in aggregate Principal Amount of the Notes
then outstanding may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Noteholders notice of any continuing default
(except a default in payment of Maturity Payment Amount or Note Redemption Price
or interest) if it determines that withholding notice is in their interest.
14. Trustee Dealings with the Corporation. Chemical Bank, a New York
banking corporation, the Trustee under the Indenture, in its individual or any
other capacity, may become the owner or pledgee of Notes and may otherwise deal
with and collect obligations owed to it by the Corporation or its affiliates and
may otherwise deal with the Corporation or its affiliates with the same rights
it would have if it were not Trustee.
15. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Corporation shall not have any liability for any
obligations of the Corporation under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation. By
accepting a Note, each Noteholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Notes.
16. Authentication. This Note shall not be valid until the Trustee
signs the certification of authentication on the other side of this Note.
17. Abbreviations. Customary abbreviations may be used in the name
of a Noteholder or an assignee, such as: TEN COM ( = tenants in common), TEN ENT
( = tenants by the entireties), JT TEN ( = joint tenants with right of
survivorship and not as tenants in common), CUST ( = Custodian), and U G M A ( =
Uniform Gifts to Minors Act).
The Corporation will furnish to any Noteholder upon written request
and without charge a copy of the Indenture. Requests may be made to: Time Warner
Inc., 75 Rockefeller Plaza, New York, N.Y. 10019, Attention of Corporate
Secretary.
<PAGE>
<PAGE>
This GUARANTEE AGREEMENT dated as of August 15, 1995,
executed and delivered by TIME WARNER INC., a Delaware
corporation ("Time Warner" or the "Guarantor"), and THE FIRST
NATIONAL BANK OF CHICAGO, as the initial Guarantee Trustee (as
defined herein for the benefit of the Holders (as defined
herein) from time to time of the Preferred Securities (as
defined herein) of Time Warner Financing Trust, a Delaware
statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of August 15, 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 $373,784,391 aggregate stated amount of its $1.24
Preferred Exchangeable Redemption Cumulative Securities (the "Preferred
Securities") representing undivided beneficial interests in the assets of the
Trust, having the terms set forth in Exhibit B to the Declaration;
WHEREAS the Preferred Securities will be issued by the Trust upon
deposit of the Guarantor's Subordinated Notes (as defined herein) with the Trust
as trust assets; and
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires to irrevocably and unconditionally agree, to
the extent set forth herein, to pay to the Holders of the Preferred Securities
the Guarantee Payments (as defined herein) and to make certain other payments on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for
the benefit of the Holders from time to time of the Preferred Securities.
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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.
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"Call Price" means the amount payable upon early redemption of the
Preferred Securities from time to time in accordance with Paragraph 4(b) of the
terms of the Preferred Securities set forth in Exhibit B to the Declaration.
"Capital Stock" for any corporation means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interest in (however designated) stock issued by that
corporation.
"Commission" means the Securities and Exchange Commission.
"Common Securities" means the securities representing undivided
beneficial interests in the assets of the Trust, having the terms set forth in
Exhibit C to the Declaration.
"Covered Person" means any Holder of Preferred Securities.
"Distributions" means the periodic distributions and other payments
payable to Holders of Preferred Securities in accordance with the terms of the
Preferred Securities.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement.
"Exchange Property" shall have the meaning assigned to such term in
Section 10.04(a).
"Exchange Rate" shall have the meaning assigned to such term in
Section 10.04(b).
"Exchange Valuation Price" shall have the meaning assigned to such
term in Section 10.04(c).
"Extraordinary Cash Dividends" has the meaning assigned to such term
in Section 10.08(b).
"Guarantee Payments" shall mean the following payments or
distributions, without duplication, with respect to the Preferred Securities, to
the extent not paid or made by the Trust: (i)(A) any accrued and unpaid
Distributions that are required to be paid on the Preferred Securities, (B)
subject to the exercise by Time Warner of the Time
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4
Warner Exchange Right, the Mandatory Redemption Price, the Call Price and the
Special Redemption Price, including in each of cases (A) and (B) all accrued and
unpaid Distributions to but excluding the date of redemption (each a "Redemption
Payment Amount"), with respect to the Preferred Securities subject to mandatory
redemption or called for redemption by the Trust, but if and only to the extent
that in each case Time Warner has made a payment to the Property Trustee of
interest or principal (whether at maturity or upon the earlier redemption) on
the Subordinated Notes and (ii) upon a voluntary or involuntary dissolution,
winding up or termination of the Trust (other than in connection with the
distribution of the Subordinated Notes to Holders or the redemption of all the
Preferred Securities upon the maturity or redemption of the Subordinated Notes
as provided in the Declaration), the lesser of (x) the Liquidation Distribution,
to the extent the Trust has funds available therefor, and (y) the amount of
assets of the Trust remaining available for distribution to Holders upon such
liquidation, dissolution, winding-up or termination.
"Guarantee Trustee" means The First National Bank of Chicago until a
Successor Guarantee Trustee has been appointed and accepted such appointment
pursuant to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.
"Hasbro" means Hasbro, Inc., a Rhode Island corporation.
"Hasbro Common Stock" means the common stock, par value $.50 per
share, of Hasbro as it exists on the date of this Guarantee Agreement or any
other shares of Capital Stock of Hasbro into which the Hasbro Common Stock shall
be reclassified or changed.
"Holder" shall mean any holder, as registered on the books and
records of the Trust, of any Preferred Securities; provided, however, that, in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any entity directly or indirectly controlling
or controlled by or under direct or indirect common control with the Guarantor.
"Indemnified Person" means the Guarantee Trustee, any Affiliate of
the Guarantee Trustee, and any officers,
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5
directors, shareholders, members, partners, employees, representatives or agents
of the Guarantee Trustee.
"Indenture" means the Indenture dated as of August 15, 1995 between
the Guarantor and Chemical Bank, as trustee, pursuant to which the Subordinated
Notes are to be issued.
"Issuer" means any issuer, from time to time, of a security
constituting Exchange Property.
"Majority in Stated Amount of the Preferred Securities" means,
except as otherwise required by the Trust Indenture Act, Holder(s) of
outstanding Preferred Securities voting together as a single class, who are the
record owners of Preferred Securities whose Stated Amount represents more than
50% of the Stated Amount of all outstanding Preferred Securities.
"Mandatory Redemption Date" means December 23, 1997.
"Mandatory Redemption Price" means the amount payable upon mandatory
redemption of the Preferred Securities on December 23, 1997, in accordance with
Paragraph 4(a) of the terms of the Preferred Securities.
"Nasdaq" means the Nasdaq Stock Market.
"Optional Redemption Date" has the meaning set forth in Paragraph
4(b) of the terms of the Preferred Securities.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association or
government or any agency or political subdivision thereof or any other entity of
whatever nature.
"Property Trustee" means the Person acting as Property Trustee under
the Declaration.
"Redemption Payment Amount" means, as applicable, the Mandatory
Redemption Price, the Call Price or the Special Redemption Price.
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6
"Redemption Payment Date" means, as applicable, the Mandatory
Redemption Date, any Optional Redemption Date or any Special Redemption Date.
"Resignation Request" has the meaning assigned to such term in
Section 4.02(d).
"Responsible Officer" means, with respect to the Guarantee Trustee,
the chairman of the Board of Directors, the President, any Vice President, any
Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer,
any Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any
other Officer of the Guarantee Trustee customarily performing functions similar
to those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Special Redemption Date" has the meaning set forth in Paragraph
4(d)(ii) of the terms of the Preferred Securities.
"Special Redemption Price" means the amount payable upon special
redemption of the Preferred Securities in accordance with Paragraph 4(d)(ii) of
the terms of the Preferred Securities.
"Stated Amount" means, with respect to each Preferred Security,
$31.00.
"Subordinated Notes" means the series of Subordinated Notes issued
by the Guarantor under the Indenture to the Property Trustee and entitled the
"4% Subordinated Notes due December 23, 1997".
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as a Guarantee Trustee under Section 4.01.
"Time Warner Exchange Right" shall have the meaning assigned to such
term in Section 10.01.
"Trading Day" shall have the meaning assigned to such term in
Section 10.04(d).
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"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application. (a) This Guarantee
Agreement is subject to the provisions of the Trust Indenture Act that are
required to be part of this Guarantee Agreement and shall, to the extent
applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by ss.ss. 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(c) The application of the Trust Indenture Act to this Guarantee
Agreement shall not affect the nature of the Preferred Securities as equity
securities representing undivided beneficial interests in the assets of the
Trust.
SECTION 2.02. Lists of Holders of Preferred Securities. (a) The
Guarantor shall provide the Guarantee Trustee with such information as is
required under ss. 312(a) of the Trust Indenture Act at the times and in the
manner provided in ss. 312(a).
(b) The Guarantee Trustee shall comply with its obligations under
ss.ss. 310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Guarantee Trustee. Within 60 days after
May 15 of each year, the Guarantee Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by ss. 313 of the 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
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8
Trust Indenture Act and the compliance certificates required by ss. 314(a)(4)
and (c) of the Trust Indenture Act, any such certificates to be provided in the
form, in the manner and at the times required by ss. 314(a)(4) and (c) of the
Trust Indenture Act, provided that any certificate to be provided pursuant to
ss. 314(a)(4) of the Trust Indenture Act shall be provided within 120 days of
the end of each fiscal year of the Trust.
SECTION 2.05. Evidence of Compliance with Conditions Precedent. The
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Guarantee Agreement
which relate to any of the matters set forth in ss. 314(c) of the Trust
Indenture Act. Any certificate or opinion required to be given pursuant to ss.
314(c) shall comply with ss. 314(e) of the Trust Indenture Act.
SECTION 2.06. Events of Default; Waiver. (a) Subject to Section
2.06(b), Holders of Preferred Securities may by vote of at least a Majority in
Stated Amount of the Preferred Securities, (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee,
or exercising any trust or power conferred upon the Guarantee Trustee or (ii) on
behalf of the Holders of all Preferred Securities waive any past Event of
Default and its consequences. Upon such waiver, any such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Guarantee Agreement, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereon.
(b) The right of any Holder of Preferred Securities to receive
payment of the Guarantee Payments in accordance with this Guarantee Agreement,
or to institute suit for the enforcement of any such payment, shall not be
impaired without the consent of each such Holder.
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
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9
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
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
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10
cured before the giving of such notice; provided, that the Guarantee Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee or a trust committee of directors and/or
Responsible Officers of the Guarantee Trustee in good faith determine that the
withholding of such notice is in the interests of the Holders of the Preferred
Securities. The Guarantee Trustee shall not be deemed to have knowledge of any
default except any default as to which the Guarantee Trustee shall have received
written notice or a Responsible Officer charged with the administration of this
Guarantee Agreement shall have obtained written notice.
(e) The Guarantee Trustee shall continue to serve until, a Successor
Guarantee Trustee has been appointed and that appointment is in accordance with
Article IV.
SECTION 3.02. Certain Rights and Duties of the Guarantee Trustee.
(a) The Guarantee Trustee, before the occurrence of an Event of Default and
after the curing or waiver of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee Agreement, and no implied covenants shall be read into this
Guarantee Agreement against the Guarantee Trustee. In case an Event of Default
has occurred (that has not been cured or waived pursuant to Section 2.06(a)),
the Guarantee Trustee shall exercise such of the rights and powers vested in it
by this Guarantee Agreement, and use the same degree of care and skill in their
exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action, its
own negligent failure to act or its own wilful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee Agreement,
and the Guarantee Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this
Guarantee Agreement, and
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11
no implied covenants or obligations shall be read into this Guarantee
Agreement against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and
conforming to the requirements of this Guarantee Agreement; but in the
case of any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Guarantee
Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of Preferred Securities as provided herein
relating to the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee, or exercising any trust or
power conferred upon the Guarantee Trustee under this Guarantee Agreement;
and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if it shall have reasonable
ground for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Guarantee Agreement or
adequate indemnity against such risk or liability is not reasonably
assured to it.
(c) Subject to the provisions of Sections 3.02(a) and (b):
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12
(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 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
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13
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
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
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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, 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
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15
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:
(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
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16
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 that (i) this Guarantee Agreement will
be deposited with the Guarantee Trustee to be held for the benefit of the
Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) Holders representing not less than a
Majority in Stated Amount of the Preferred Securities have the right to direct
the time, method and place of conducting any proceeding for any remedy available
in respect of this Guarantee Agreement including the giving of directions to the
Guarantee Trustee, or exercising any trust or other power conferred upon the
Guarantee Trustee under this Guarantee Agreement; provided,
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17
however, that, except for directing the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee, the Guarantee
Trustee shall not take any of the foregoing actions at the direction of the
Holders unless the Guarantee Trustee shall have received, at the expense of Time
Warner, an opinion of nationally recognized independent tax counsel experienced
in such matters to the effect that such action will not result in the Trust
being treated as an association taxable as a corporation or a partnership for
United States Federal income tax purposes and that, following such action, each
holder of Trust Securities will be treated for United States Federal income tax
purposes as owning an undivided beneficial interest in the Subordinated Notes;
and (iv) if the Guarantee Trustee fails to enforce this Guarantee Agreement for
any reason, any Holder of Preferred Securities may, at its own expense, after a
period of 30 days has elapsed from such Holder's written request to the
Guarantee Trustee to enforce this Guarantee Agreement, institute a legal
proceeding directly against the Guarantor to enforce its rights under this
Guarantee Agreement, without first instituting a legal proceeding against the
Trust, the Guarantee Trustee, or any other Person.
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
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18
liable as principal and as debtor hereunder to make Guarantee Payments pursuant
to the terms of this Guarantee Agreement notwithstanding the occurrence of any
event referred to in subsections (a) through (g), inclusive, of Section 5.03
hereof.
ARTICLE VI
Limitation of Transactions; Subordination
SECTION 6.01. Limitation of Transactions. So long as any Preferred
Securities remain outstanding, if there shall have occurred any Event of Default
or an event of default under the Declaration, the Guarantor shall not declare or
pay any dividend on, or make any distribution with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock; provided, however, that the foregoing restriction shall not apply
to any stock dividends paid by the Guarantor where the dividend stock is the
same stock as that on which the dividend is being paid.
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
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19
thereon), (b) as to any Preferred Securities upon payment by the Trust of the
Redemption Payment Amount with respect thereto (together with any accrued and
unpaid Distributions thereon), (iii) as to all Preferred Securities upon
distribution of the Subordinated Debt Securities held by the Trust to the
holders of the Preferred Securities or (iv) as to all Preferred Securities upon
full payment of the amounts payable in accordance with the Declaration upon
liquidation of the Trust. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must restore payment of any sums paid with respect
to the Preferred Securities or this Guarantee Agreement.
ARTICLE VIII
Limitation of Liability; Indemnification
SECTION 8.01. Exculpation. (a) No Indemnified Person shall be
liable, responsible or accountable in damages or otherwise to the Guarantor or
any Covered Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Indemnified Person in good faith and in
a manner such Indemnified Person reasonably believed to be within the scope of
the authority conferred on such Indemnified Person by this Guarantee Agreement
or by law, except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's gross negligence
(or, in the case of the Guarantee Trustee, except as otherwise set forth in
Section 3.02 hereof) or wilful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders of Preferred Securities
might properly be paid.
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20
SECTION 8.02. Indemnification. (a) To the fullest extent permitted
by applicable law, the Guarantor shall indemnify and hold harmless each
Indemnified Person from and against any loss, damage or claim incurred by such
Indemnified Person by reason of any act or omission performed or omitted by such
Indemnified Person in good faith and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Guarantee Agreement, except that no Indemnified
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Indemnified Person by reason of gross negligence (or, in
the case of the Guarantee Trustee, except as otherwise set forth in Section 3.02
hereof) or wilful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal fees) incurred by an Indemnified Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Guarantor prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Guarantor of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 8.02(a).
ARTICLE IX
Miscellaneous
SECTION 9.01. Successors and Assigns. All guarantees and agreements
contained in this Guarantee Agreement shall bind the successors, assigns,
receivers, trustees and representatives of the Guarantor, including any
successors permitted under Article Five of the Indenture, and shall inure to the
benefit of the Holders of the Preferred Securities then outstanding. Except in
connection with a consolidation, merger or sale involving the Guarantor that is
permitted under Article Five of the Indenture, the Guarantor shall not assign
its obligations hereunder.
SECTION 9.02. Amendments. Except with respect to any changes which
do not adversely affect the rights of Holders (in which case no consent of
Holders will be required), this Guarantee Agreement may be amended only with the
prior approval of the Holders of not less than 66-2/3%
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21
in Stated Amount of the Preferred Securities and in either case only if the
Guarantee Trustee shall have obtained either a ruling from the Internal Revenue
Service or a written unqualified opinion of nationally recognized independent
tax counsel experienced in such matters to the effect that such action will not
result in the Trust being treated as an association taxable as a corporation or
a partnership for United States Federal income tax purposes and that, following
such action, each holder of Common Securities and Preferred Securities will be
treated as owning an undivided beneficial interest in the Subordinated Notes.
The provisions of Section 12.2 of the Declaration concerning meetings of Holders
shall apply to the giving of such approval.
SECTION 9.03. Notices. Any notice, request or other communication
required or permitted to be given hereunder shall be in writing, duly signed by
the party giving such notice, and delivered, telecopied or mailed by first class
mail as follows:
(a) if given to the Guarantor, to the address set forth below or
such other address as the Guarantor may give notice of to the Holders:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Facsimile No.: (212) 956-7281
Attention: General Counsel
(b) if given to the Guarantee Trustee, to the address set forth
below or such other address as the Guarantee Trustee may give notice of to the
Holders:
Corporate Trust Securities Division
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Facsimile No.: (312) 407-1708
Attention: Trust #19-203169
(c) if given to any Holder of Preferred Securities, at the address
set forth on the books and records of the Trust; and
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22
(d) if given to the Property Trustee for the purposes of issuing any
notice, demand or direction under Article Ten of this Guaranty, to the address
set forth below:
Corporate Trust Securities Division
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Facsimile No.: (312) 407-1708
Attention: Trust #19-203169
All notices hereunder shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or three Business Days
after mailed by first class mail, postage prepaid except that if a notice or
other document is refused delivery or cannot be delivered because of a changed
address of which no notice was given, such notice or other document shall be
deemed to have been delivered on the date of such refusal or inability to
deliver.
SECTION 9.04. Benefit. This Guarantee Agreement is solely for the
benefit of the Holders and subject to Section 3.01(a) is not separately
transferable from the Preferred securities.
SECTION 9.05. Governing Law. THIS GUARANTEE AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
ARTICLE X
Time Warner Exchange Right
SECTION 10.01. Exchange Right. Time Warner shall have the right (the
"Time Warner Exchange Right"), exercisable upon notice to the Holders of the
Preferred Securities as provided below, to require such Holders to exchange
their Preferred Securities for shares of Hasbro Common Stock or other Exchange
Property and, at the option of Time Warner, cash.
SECTION 10.02. Mandatory Redemption of Preferred Securities. (a)
Time Warner may exercise the Time Warner Exchange Right by giving notice of such
exercise to the
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23
Property Trustee no later than 11:59 p.m., New York time, on the second Business
Day following December 17, 1997, in respect of the Preferred Securities to be
redeemed on the Mandatory Redemption Date.
(b) If Time Warner shall have exercised the Time Warner Exchange
Right in respect of the Mandatory Redemption Date, on the Mandatory Redemption
Date each Preferred Security shall be exchanged for (i) Exchange Property in
respect of the portion of such Preferred Security to be exchanged for Exchange
Property based on the Exchange Rate in effect on the Trading Day immediately
preceding December 17, 1997, (ii) cash in respect of the portion, if any, of
such Preferred Security that is not to be exchanged for Exchange Property,
calculated by subtracting from the Mandatory Redemption Price the value of the
Exchange Property to be delivered (based on the Exchange Valuation Price of such
Exchange Property as of the Trading Day immediately preceding December 17,
1997), and (iii) cash in an amount equal to all accrued and unpaid Distributions
on such Preferred Security to and including the Mandatory Redemption Date;
provided that if the Exchange Valuation Price as of the Trading Day immediately
preceding December 17, 1997, of the Exchange Property that relates to one
Preferred Security is greater than $54.41, Time Warner shall deliver in exchange
for each Preferred Security in respect of which it exercised the Time Warner
Exchange Right (1) Exchange Property (valued on the basis of its Exchange
Valuation Price as of such Trading Day) and (2) at the option of Time Warner,
cash, having an aggregate value equal to $54.41 per Preferred Security and (b)
cash in an amount equal to all accrued and unpaid distributions on such
Preferred Security, to and including the Mandatory Redemption Date.
SECTION 10.03. Early Redemption and Special Redemption of Preferred
Securities. (a) Time Warner may exercise the Time Warner Exchange Right by
giving notice of such exercise to the Property Trustee no later than 11:59 p.m.
New York, time, on the Business Day immediately preceding any Optional
Redemption Date or Special Redemption Date, in respect of the Preferred
Securities to be redeemed on any Optional Redemption Date or Special Redemption
Date, as the case may be.
(b) If Time Warner shall have exercised the Time Warner Exchange
Right in respect of any Optional Redemption Date or Special Redemption Date, on
such Optional Redemption
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24
Date or Special Redemption Date, as the case may be, each Preferred Security to
be redeemed on such date shall be exchanged for (i)(A) Exchange Property (valued
on the basis of its Exchange Valuation Price as of the Trading Day immediately
preceding the applicable Optional Redemption Date or Special Redemption Date)
and (B) at the option of Time Warner, cash, having an aggregate value equal to
the Call Price or the Special Redemption Price in effect for each Preferred
Security on such Optional Redemption Date or Special Redemption Date, as the
case may be, and (ii) cash in an amount equal to all accrued and unpaid
distributions on such Preferred Security to and including the applicable
Optional Redemption Date or Special Redemption Date, as the case may be.
(c) In accordance with Section 10.02 and the foregoing provisions of
Section 10.03, in the event that Time Warner shall exercise the Time Warner
Exchange Right and elects to deliver Exchange Property with respect to only a
portion of each Preferred Security, each Holder of Preferred Securities to be
redeemed shall be entitled to receive from Time Warner for each Preferred
Security held by such Holder, the same types, amounts and relative proportions
of Exchange Property and cash as every other Holder of Preferred Securities to
be redeemed.
SECTION 10.04. Definitions. (a) The "Exchange Property" per each
Preferred Security on any date shall consist of (i) as of August 9, 1995, one
share of Hasbro Common Stock (in the aggregate, the "Initial Shares"), (ii) any
cash or other property (other than cash dividends and other cash distributions,
if any, paid by the Trust that do not constitute Extraordinary Cash Dividends
and other than interest, if any, paid in respect thereof) issued or distributed
on or after August 9, 1995, in respect of the Initial Shares or other Exchange
Property, (iii) any cash or other property issued or distributed on or after
August 9, 1995, upon the exchange or conversion of such Initial Shares or other
Exchange Property, including upon any reorganization, consolidation or merger or
any sale or transfer or lease of all or substantially all the assets of the
Issuer of such Exchange Property and (iv) any cash or other property paid by an
offeror in connection with a tender or exchange offer for Exchange Property of a
particular type as set forth below; provided that Exchange Property shall not
include any property distributed in respect of Exchange Property for which an
antidilution adjustment has been made pursuant to the Declaration.
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25
In the case of a tender or exchange offer for all Exchange Property
of a particular type, the Exchange Property shall be deemed to include all cash
or other property paid by the offeror in the tender or exchange offer (in an
amount determined on the basis of the rate of exchange in such tender or
exchange offer), whether or not Time Warner tenders or exchanges such Exchange
Property. In the event of a partial tender or exchange offer with respect to
Exchange Property of a particular type, Exchange Property shall be deemed to
include cash or other property paid by the offeror in the tender or exchange
offer in an amount determined as if the offeror had purchased or exchanged
Exchange Property from Time Warner in the proportion in which all property of
such type was purchased or exchanged from the holders thereof; provided that if
Time Warner tenders all its Exchange Property of such type, the amount of cash
or other property received that will constitute Exchange Property will be
determined on the basis of the amount of such cash or other property actually
received by Time Warner. Except as provided above, in the event of a tender or
exchange offer with respect to the Exchange Property in which an offeree may
elect to receive cash or other property, Exchange Property shall be deemed to
include the kind and amount of cash and other property received by offerees who
elect to receive cash.
(b) The "Exchange Rate" means initially one share of Hasbro Common
Stock per Preferred Security, subject to certain antidilution adjustments as set
forth in Section 10.08. The Exchange Rate for any other Exchange Property will
be determined on the basis of the portion of Exchange Property in respect of
which such Exchange Property is issued, distributed or exchanged.
(c) The "Exchange Valuation Price" of each item of property
comprising the Exchange Property on, or as of, any date means the average of the
Purchase Sale Prices (as defined below) of the applicable Exchange Property for
the five Trading Day period ending on and including such date, appropriately
adjusted to take into account the occurrence, during such period, of any
Exchange Adjustment Events (as defined in Section 10.08(a)) with respect to such
Exchange Property. The "Purchase Sale Price" on any date means the closing per
share sale price for the applicable Exchange Property (or, if no closing sale
price is reported, the average of the bid and ask prices or, if more than one in
either case, the average of the average bid and average ask prices) on such date
as reported in the composite
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26
transactions for the principal United States securities exchange on which such
Exchange Property is traded or, if such Exchange Property is not listed on a
United States national or regional securities exchange, as reported by Nasdaq,
or, if such Exchange Property is not reported by Nasdaq, the high per share bid
price for such Exchange Property in the over-the-counter market as reported by
the National Quotation Bureau or similar organization, or, if such bid price is
not available, the per unit market value of such Exchange Property on such date
as determined by a nationally recognized investment banking firm retained for
such purpose by Time Warner.
(d) The term "Trading Day" means a day on which the AMEX (or any
successor thereto) or, to the extent that neither the Hasbro Common Stock nor
any other Exchange Property is listed on the AMEX, such other national
securities exchange on which the Exchange Property is listed or, if none, the
NYSE is open for the transaction of business.
(e) "Non-Equity Security" means any security or property which is
not (i) common stock; (ii) a security convertible or exchangeable into common
stock or participating without limitation in earnings and dividends in parity
with common stock; (iii) a warrant or option to purchase common stock; or (iv)
listed or admitted to trading on a United States national or regional securities
exchange or reported by the Nasdaq.
SECTION 10.05. Notice of Exercise. (a) Upon any election by Time
Warner to exercise the Time Warner Exchange Right, Time Warner shall provide
written notice to the Property Trustee as set forth in Section 10.02 or 10.03 of
(i) Time Warner's election to exercise the Time Warner Exchange Right in
accordance with Section 10.06, (ii) a description of the type and amount of
Exchange Property to be delivered in respect of each Preferred Security to be
redeemed, (iii) if applicable, the respective portions of Exchange Property and
cash to be delivered and (iv) the Exchange Rate in effect on the Trading Day
immediately preceding December 17, 1997, or in connection with an exercise
pursuant to Section 10.03, the applicable Redemption Payment Date.
(b) Time Warner shall cause notice of such exercise of the Time
Warner Exchange Right to be published by means of the Dow Jones Business
Newswires Service
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27
promptly after providing notice of such exercise to the Property Trustee.
SECTION 10.06. Delivery of Exchange Property; Effect on Holders. (a)
Delivery of the Exchange Property to the Holders of any Preferred Securities to
be redeemed will be conditioned upon delivery or book-entry transfer of such
Preferred Securities (together with necessary endorsements) to the Property
Trustee at any time (whether prior to, on or after the applicable Redemption
Payment Date) after notice of the exercise of the Time Warner Exchange Right is
given to the Property Trustee. In such event, such Exchange Property with
respect to such Preferred Securities shall be delivered to each Holder of
Preferred Securities to be redeemed no later than the later of (i) the
applicable Redemption Payment Date or (ii) the time of delivery or transfer of
such Preferred Securities. If, following any exercise of the Time Warner
Exchange Right, the Property Trustee holds, in accordance with the terms of the
Declaration, (A) Exchange Property in respect of the portion of the Preferred
Securities to be exchanged for Exchange Property, (B) cash in respect of the
portion, if any, of the Preferred Securities that are not to be exchanged for
Exchange Property, and (C) cash in an amount equal to all accrued and unpaid
distributions on all such Preferred Securities to be redeemed to the applicable
Redemption Payment Date, then at the close of business on such Redemption
Payment Date, whether or not such Preferred Securities are delivered to the
Property Trustee, (1) Time Warner will become the owner and record Holder of
such Preferred Securities and (2) the Holder of such Preferred Securities shall
have no further rights with respect to the Preferred Securities other than the
right to receive the Exchange Property, together with cash as described above,
upon delivery of the Preferred Securities.
SECTION 10.07. Fractional Shares. (a) No fractional shares or other
units of Exchange Property will be issued upon the exercise by Time Warner of
the Time Warner Exchange Right. In lieu of any fractional share or other unit of
Exchange Property otherwise issuable in respect of all Preferred Securities of
any Holder, including any Clearing Agency, that are redeemed or exchanged on any
Redemption Payment Date, Time Warner shall make a cash payment in respect of
such fractional interest in an amount equal to the same fraction of the Exchange
Valuation Price of the Exchange Property deliverable upon such redemption,
determined as of the Trading Day immediately preceding such
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Redemption Payment Date (or, in the case of a mandatory redemption, December 17,
1997).
(b) To the extent that the Preferred Securities are exchanged for
Exchange Property and all such Exchange Property cannot be distributed by The
Depository Trust Company, or such other person who may be acting in the capacity
of depositary or Exchange Agent (the "Depositary") to its participants that are
beneficial holders of the Preferred Securities without creating fractional
interests in the shares or units making up such Exchange Property, the
Depositary may, with the Trust's and Time Warner's consent, adopt such method as
it deems equitable and practicable for the purpose of effecting such
distribution, including the sale (at public or private sale) of such Exchange
Property representing in the aggregate such fractional interests at such place
or places and upon such terms as it may deem proper, and the net proceeds of any
such sale shall be distributed or made available for distribution to such record
holders that would otherwise have received such fractional interests. The amount
distributed in the foregoing cases will be reduced by any amount required to be
withheld by the Depositary on account of withholding taxes or otherwise required
pursuant to law, regulation or court process.
SECTION 10.08. Adjustment of Exchange Rate. The Exchange Rate shall
be subject to adjustment and the Exchange Property shall be subject to change as
follows:
(a) The Exchange Rate shall be adjusted (and, if applicable, the
Exchange Property shall be changed) upon the (i) distribution of a dividend on
Exchange Property in the same type of Exchange Property, (ii) combination of
Exchange Property into a smaller number of shares or other units, (iii)
subdivision of outstanding shares or other units of Exchange Property, (iv)
conversion or reclassification of Exchange Property by issuance or exchange of
other securities or (v) a consolidation, merger or binding share exchange or a
transfer of all or substantially all of the Issuer's assets (each of the
foregoing an "Exchange Adjustment Event"). In such an event, the Exchange Rate
in effect immediately before such action shall be adjusted (and if applicable
the Exchange Property shall be changed) to reflect the amount of cash or the
kind and amount of property that a Holder of Exchange Property would have owned
or been entitled to receive upon or by reason of such event if the Preferred
Securities had been exchanged for such
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Exchange Property immediately before such event. Such adjustment shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution and shall become effective retroactively immediately
after the effective date in the case of a subdivision, combination, conversion,
reclassification, consolidation, merger, share exchange or transfer specified in
this Section 10.08(a). For the purposes of this Section 10.08(a), each Holder
shall be deemed to have failed to exercise any right to elect the kind or amount
of Exchange Property receivable upon the payment of any such dividend,
subdivision, combination, conversion, reclassification, consolidation, merger,
share exchange or transfer specified in this Section 10.08(a), provided that if
the kind or amount of Exchange Property receivable upon such dividend,
subdivision, combination, conversion, reclassification, consolidation, merger,
share exchange or transfer specified in this Section 10.08(a) is not the same
for each nonelecting share or other unit, then the kind and amount of property
receivable upon such dividend, subdivision, combination, conversion,
reclassification, consolidation, merger or share exchange or transfer specified
in this Section 10.08(a) for each nonelecting share shall be deemed to be the
kind and amount so receivable per share or other unit by a plurality of the
nonelecting shares or other units.
(b) Upon a distribution of cash or other property (including rights,
warrants or other securities) on Exchange Property of a particular type
(excluding (i) ordinary periodic cash dividends and distributions, if any, paid
from time to time by an Issuer that do not constitute Extraordinary Cash
Dividends, (ii) interest (whether in cash, securities or other property), if
any, paid in respect thereof and (iii) dividends payable in Exchange Property
for which adjustment is made in Section 10.08(a), if any, the Exchange Rate
shall be adjusted, subject to the provisions of paragraph (C) of this Section
10.08(b), in accordance with the following formula:
R' = R x M/(M-F)
where:
R' = the adjusted Exchange Rate.
R = the current Exchange Rate.
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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
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:
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31
(A) If, upon the date prior to the Ex-Dividend Time with
respect to a cash dividend on Exchange Property, the aggregate
amount of such cash dividend together with the amounts of all cash
dividends on Exchange Property with Ex-Dividend Times occurring in
the 85 consecutive day period ending on the date prior to the
Ex-Dividend Time with respect to the cash dividend to which this
provision is being applied equals or exceeds on a per share basis
12.5% of the average of the Quoted Prices during the period
beginning on the date after the first such Ex-Dividend Time in such
period and ending on the date prior to the Ex-Dividend Time with
respect to the cash dividend to which this provision is being
applied (except that if no other cash dividend has had an
Ex-Dividend Time occurring in such period, the period for
calculating the average of the Quoted Prices shall be the period
commencing 85 days prior to the date prior to the Ex-Dividend Time
with respect to the cash dividend to which this provision is being
applied), such cash dividend together with each other cash dividend
with an Ex-Dividend time occurring in such 85 day period shall be
deemed to be an Extraordinary Cash Dividend and for purposes of
applying the formula set forth above in this Section 10.08(b), the
value of "F" shall be equal to (w) the aggregate amount of such cash
dividend together with the amounts of the other cash dividends with
Ex-Dividend Times occurring in such period minus (x) the aggregate
amount of such other cash dividends with Ex-Dividend Times occurring
in such period for 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
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32
period beginning on the date after the first such Ex-Dividend Time
in such period and ending on the date prior to the Ex-Dividend Time
with respect to the cash dividend to which this provision is being
applied (except that if no other cash dividend has had an
Ex-Dividend Time occurring in such period, the period for
calculating the average of the Quoted Prices shall be the period
commencing 365 days prior to the date prior to the Ex-Dividend Time
with respect to the cash dividend to which this provision is being
applied), such cash dividend together with each other cash dividend
with an Ex-dividend Time occurring in such 365 day period shall be
deemed to be an Extraordinary Cash Dividend and for purposes of
applying the formula set forth above in this Section 10.08(b), the
value of "F" shall be equal to (y) the aggregate amount of such cash
dividend together with the amounts of the other cash dividends with
Ex-Dividend Times occurring in such period minus (z) the aggregate
amount of such other cash dividends with Ex-Dividend Times occurring
in such period for which a prior adjustment in the Exchange Rate was
previously made under this Section 10.08(b).
In making the determinations required by paragraphs (A) and
(B) above, the amount of cash dividends paid on a per share basis
and the average of the Quoted Prices, in each case during the period
specified in paragraphs (A) and (B) above, as applicable, shall be
appropriately adjusted to reflect the occurrence during such period
of any event described in Section 10.08(a).
(C) In the event that, with respect to any distribution to
which this Section 10.08(b) would otherwise apply, "F" is equal to
or greater than "M", 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
<PAGE>
<PAGE>
33
of the average bid and average ask prices) on such day of Exchange
Property in the composite transactions for the principal United States
national or regional securities exchange on which such shares are traded,
or, if such Exchange Property is not listed on a United States national or
regional securities exchange, as reported by Nasdaq, or, if such shares
are not reported by Nasdaq, the high per share bid price for such share in
the over-the-counter market on such date as reported by the National
Quotation Bureau or similar organization satisfactory to the Paying Agent.
If such bid price is not available, the Quoted Price shall not be
determinable.
"Average Quoted Price" means the average of the Quoted Prices
of Exchange Property for the shortest of:
(i) 30 consecutive Trading Days ending on the last full
trading day prior to the Time of Determination with respect to the
distribution in respect of which the Average Quoted Price is being
calculated;
(ii) the period (x) commencing on the date next succeeding the
first public announcement of the distribution in respect of which
the Average Quoted Price is being calculated and (y) proceeding
through the last full trading day prior to the Time of Determination
with respect to the distribution in respect of which the Average
Quoted Price is being calculated (excluding days within such period,
if any, which are not trading days); and
(iii) the period, if any, (x) commencing on the date next
succeeding the Ex-Dividend Time with respect to the next preceding
distribution for which an adjustment is required by the provisions
of Section 10.08(b) and (y) proceeding through the last full trading
day prior to the Time of Determination with respect to the
distribution in respect of which the Average Quoted 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,
<PAGE>
<PAGE>
34
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.
"Time of Determination" means the time and date of the earlier of
(i) the determination of shareholders entitled to receive cash or other
property (including rights, warrants or other securities) on Exchange
Property of a particular type in each case to which this Section 10.08(b)
applies and (ii) the time ("Ex-Dividend Time") immediately prior to the
commencement of "ex-dividend" trading for such property or distribution on
the principal United States national or regional exchange or market on
which the Exchange Property is then listed or quoted.
Notwithstanding the foregoing, Time Warner shall be entitled, by
notice to the Property Trustee not later than the close of business on the
fifth Business Day following the date of any distribution referred to in
this Section 10.08(b) (or if Time Warner is not aware of such
distribution, as soon as practicable after becoming so aware), to elect
not to have the antidilution adjustments of this Section 10.08(b) apply,
in which case the property received upon the distribution in respect of
Exchange Property shall constitute Exchange Property; provided that if
rights, warrants, options or similar securities are distributed on
Exchange Property and such rights, warrants, options or similar securities
expire before December 30, 1997,
<PAGE>
<PAGE>
35
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:
E' = E x A/(O+(P/M))
where:
E' = the adjusted Exchange Rate
E = the then current Exchange Rate
O = the number of shares or units of such
security which includes Exchange
Property outstanding immediately prior
to the issuance of such additional
shares or units.
P = the aggregate consideration received
for the issuance of such additional
shares or units.
M = the Average Quoted Price per share or
unit on the date of issuance of such
additional shares or units.
A = the number of shares or units of such
class of such security which includes
Exchange Property outstanding
immediately after the issuance of such
additional shares or units.
Any Holder of 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.
<PAGE>
<PAGE>
36
This Section 10.08(c) does not apply to (i) the exchange of
Preferred Securities or the issuance of any security upon the conversion,
exchange or exercise of other securities convertible into or exchangeable or
exercisable for Exchange Property, (ii) securities issued to any Issuer's
employees under bona fide employee benefit plans approved by an Issuer's board
of directors (but only to the extent that the aggregate number of shares or
units excluded hereby and issued after the date of this Guarantee Agreement
shall not exceed 10% of such securities outstanding at the time of the adoption
of each such plan, exclusive of antidilution adjustments thereunder), (iii)
securities issued upon the exercise of rights or warrants issued pro rata to all
of the holders of such securities, (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
<PAGE>
<PAGE>
37
Exchange Rate shall be adjusted in accordance with the following formula:
E' = E x (O+D)/(O+(P/M))
where:
E' = the adjusted Exchange Rate.
E = the then current Exchange Rate.
O = the number of shares or units of the
Underlying Exchange Property outstanding
immediately prior to the issuance of such
convertible, exchangeable or exercisable
securities.
P = the aggregate consideration received in respect of
such convertible, exchangeable or exercisable
securities (including consideration receivable upon
such conversion, exchange or exercise, if any).
M = the current Average Quoted Price per share or unit
of the Underlying Exchange Property on the date of
issuance of such convertible, exchangeable or
exercisable securities.
D = the maximum number of shares or units of the
Underlying Exchange Property issuable upon
conversion, exchange or exercise of such convertible,
exchangeable or exercisable securities at the initial
conversion or exchange rate or exercise price.
Any Holder exchanging any 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
<PAGE>
<PAGE>
38
longer outstanding, then the Exchange Rate shall promptly be readjusted to the
Exchange Rate which would then be in effect had the adjustment upon the issuance
of such convertible, exchangeable or exercisable securities been made on the
basis of the actual number of shares or units of such Exchange Property issued
upon conversion, exchange or exercise of such securities.
This Section 10.08(d) does not apply to (i) securities convertible
into or exchangeable or exercisable for Exchange Property issued to any Issuer's
employees under bona fide employee benefit plans approved by an Issuer's board
of directors (but only to the extent that the aggregate number of shares
excluded hereby and issued after the date of this Indenture shall not be
convertible into or exchangeable or exercisable for more than 10%, at the time
of adoption of each such plan, of the outstanding shares or other units of such
Exchange Property, exclusive of antidilution adjustments thereunder), (ii)
securities 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
<PAGE>
<PAGE>
39
then current Exchange Rate of more than 1%; provided, however, that any
adjustments which by reason of this Section 10.08(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
(f) All calculations under this Section 10.08 shall be made to the
nearest .0001 of a share, the nearest whole dollar of Stated Amount of the
Preferred Securities or the nearest integral unit, as applicable.
(g) Time Warner shall, within five Business Days following the
occurrence of an event that permits or requires an adjustment to the Exchange
Rate or a change to the Exchange Property pursuant to this Section 10.08 (or if
Time Warner is not aware of such occurrence, as soon as practicable after
becoming so aware), provide written notice to the Property Trustee of (i) the
occurrence of such event, (ii) if applicable, whether Time Warner has elected 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
<PAGE>
<PAGE>
40
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.
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
TIME WARNER INC.,
By
---------------------------
Name: Thomas W. McEnerney
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Guarantee Trustee,
By
-------------------------------
Name: Melissa G. Weisman
Title: Assistant Vice President
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
AMENDED AND RESTATED DECLARATION OF TRUST
between
TIME WARNER INC.,
THE TRUSTEES
and
HOLDERS
Dated as of December 5, 1995
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions
-----------
SECTION 1.01. Terms Generally............................. 2
SECTION 1.02. Definitions................................. 2
ARTICLE II
Trust Indenture Act
-------------------
SECTION 2.01. Trust Indenture Act; Application........................ 9
SECTION 2.02. Lists of Holders of Preferred Securities................ 10
SECTION 2.03. Reports by the Property Trustee......................... 10
SECTION 2.04. Periodic Reports to Property Trustee.................... 10
SECTION 2.05. Evidence of Compliance with Conditions Precedent........ 10
SECTION 2.06. Events of Default; Waiver............................... 11
SECTION 2.07. Disclosure of Information............................... 13
ARTICLE III
Organization
------------
SECTION 3.01. Name.................................................... 13
SECTION 3.02. Office.................................................. 13
SECTION 3.03. Purpose................................................. 14
SECTION 3.04. Authority............................................... 14
SECTION 3.05. Title to Property of the Trust.......................... 14
SECTION 3.06. Powers and Duties of the Regular Trustees............... 14
SECTION 3.07. Prohibition of Actions by Trust and Trustees............ 17
SECTION 3.08. Powers and Duties of the Property Trustee............... 19
SECTION 3.09. Delaware Trustee........................................ 22
SECTION 3.10. Certain Rights and Duties of the Property Trustee....... 22
SECTION 3.11. Registration Statement and Related Matters.............. 25
<PAGE>
<PAGE>
SECTION 3.12. Filing of Amendments to Certificate of Trust............ 27
SECTION 3.13. Execution of Documents by Regular Trustees.............. 27
SECTION 3.14. Trustees Not Responsible for Recitals or Issuance of
Trust Securities...................................... 27
SECTION 3.15. Duration of Trust....................................... 27
ARTICLE IV
Sponsor
-------
SECTION 4.01. Purchase of Common Securities by Sponsor................ 28
SECTION 4.02. Expenses................................................ 28
ARTICLE V
Trustees
--------
SECTION 5.01. Number of Trustees; Qualifications...................... 29
SECTION 5.02. Appointment, Removal and Resignation of Trustees........ 32
SECTION 5.03. Vacancies Among Trustees................................ 34
SECTION 5.04. Effect of Vacancies..................................... 34
SECTION 5.05. Meetings................................................ 34
SECTION 5.06. Delegation of Power..................................... 35
ARTICLE VI
Payments
--------
SECTION 6.01. Payments................................................. 35
ARTICLE VII
Issuance of Trust Securities
----------------------------
SECTION 7.01. General Provisions Regarding Trust Securities........... 36
<PAGE>
<PAGE>
ARTICLE VIII
Termination of Trust
--------------------
SECTION 8.01. Termination of Trust.................................... 37
ARTICLE IX
Transfer of Interests
---------------------
SECTION 9.01. Transfer of Trust Securities............................ 38
SECTION 9.02. Transfer of Certificates................................ 39
SECTION 9.03. Deemed Security Holders................................. 39
SECTION 9.04. Book-Entry Interests.................................... 40
SECTION 9.05. Notices to Holders of Certificates...................... 40
SECTION 9.06. Appointment of Successor Clearing Agency................ 40
SECTION 9.07. Definitive Preferred Securities Certificates............ 41
SECTION 9.08. Mutilated, Destroyed, Lost or Stolen Certificates....... 41
ARTICLE X
Limitation of Liability; Indemnification
----------------------------------------
SECTION 10.01. Liability............................................... 42
SECTION 10.02. Exculpation............................................. 42
SECTiON 10.03. Indemnification......................................... 43
SECTION 10.04. Outside Businesses...................................... 43
ARTICLE XI
Accounting
----------
SECTION 11.01. Fiscal Year............................................. 44
SECTION 11.02. Certain Accounting Matters.............................. 44
SECTION 11.03. Banking................................................. 45
SECTION 11.04. Withholding............................................. 45
<PAGE>
<PAGE>
ARTICLE XII
Amendments and Meetings
-----------------------
SECTION 12.01. Amendments.............................................. 46
SECTION 12.02. Meetings of the Holders of Trust Securities; Action
by Written Consent.................................... 47
ARTICLE XIII
Representations and Warranties of Property Trustee
--------------------------------------------------
and Delaware Trustee
--------------------
SECTION 13.01. Representations and Warranties of Property Trustee and
Delaware Trustee...................................... 49
ARTICLE XIV
Miscellaneous
-------------
SECTION 14.01. Notices................................................. 51
SECTION 14.02. Undertaking for Costs................................... 53
SECTION 14.03. Governing Law........................................... 53
SECTION 14.04. Headings................................................ 53
SECTION 14.05. Partial Enforceability.................................. 53
SECTION 14.06. Counterparts............................................ 54
SECTION 14.07. Intention of the Parties................................ 54
SECTION 14.08. Successors and Assigns.................................. 54
Exhibits
- --------
Exhibit A Certificate of Trust of Time Warner Capital I
Exhibit B Terms of Preferred Security
Exhibit C Terms of Common Securities
<PAGE>
<PAGE>
AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration"),
dated as of December 5, 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 August 2, 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
August 2, 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 Debentures (as defined herein) of Time
Warner issued under the Indenture (as defined herein) and to engage pursuant to
the terms hereof in only those other activities necessary or incidental thereto;
and
WHEREAS, as of the date hereof, no interests in the Trust have been issued;
and
WHEREAS all of the Trustees and the Sponsor, by this Declaration, amend and
restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act, that the Original
Declaration
<PAGE>
<PAGE>
2
be amended and restated in its entirety as provided herein and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to or purchased by the Trust will
be held in trust for the benefit of the holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE I
Definitions
SECTION 1.01. Terms Generally. (a) The definitions in Section 1.02 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require any pronoun shall include the corresponding
masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
All references herein to Articles, Sections, Exhibits and Annexes shall be
deemed references to Articles and Sections of, and Exhibits and Annexes to, this
Declaration unless the context shall otherwise require. Except as otherwise
expressly provided herein, any reference in this Declaration to any other
document shall mean such document as amended, restated, supplemented or
otherwise modified from time to time.
(b) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in Section 1.02.
(c) A term defined anywhere in this Declaration has the same meaning
throughout.
SECTION 1.02. Definitions. As used in this Declaration, the following terms
have the meanings specified below:
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Trust Indenture Act or any successor rule thereunder.
"Appointment Event" means an event defined in the terms of the Preferred
Securities set forth in Exhibit B which entitles the Holders of a Majority in
aggregate
<PAGE>
<PAGE>
3
liquidation amount of the Preferred Securities to appoint a
Special Regular Trustee.
"Book Entry Interest" means a beneficial interest in a Certificate
registered in the name of a Clearing Agency or a nominee thereof, ownership and
transfers of which shall be maintained and made through book entries by such
Clearing Agency as described in Section 9.04.
"Business Day" means any day other than a Saturday, Sunday or any other day
on which banking institutions in New York, New York, are permitted or required
by any applicable law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. C. ss.ss. 3801 et seq., as it may be amended from time to time.
"Certificate" means a Common Security Certificate or a Preferred Security
Certificate.
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as depositary for the
Preferred Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time the Clearing Agency
effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means December 5, 1995.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time or any successor legislation. A reference to a specific section ((Sec.)) of
the Code refers not only to such specific section but also to any corresponding
provision of any federal tax statute enacted after the date of this Declaration,
as such specific section or corresponding provision is in effect on the date of
application of the provisions of this Declaration containing such reference.
<PAGE>
<PAGE>
4
"Commission" means the Securities and Exchange Commission.
"Common Security" has the meaning specified in Section 7.01(b).
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security substantially in the form of
Annex I to Exhibit C.
"Covered Person" means (i) any officer, director, shareholder, partner,
member, representative, employee or agent of the Trust or its Affiliates, (ii)
any officer, director, shareholder, employee, representative or agent of Time
Warner or its Affiliates and (iii) the Holders from time to time of the Trust
Securities.
"Delaware Trustee" has the meaning set forth in Section 5.01(a)(C).
"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 Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time or any successor legislation.
"Fiscal Year" has the meaning specified in Section 11.01.
"Global Certificate", when used with respect to any Preferred Security,
means a Preferred Security executed by the Trust and delivered to the Clearing
Agency or pursuant to the Clearing Agency's instruction, all in accordance with
this Declaration, which shall be registered in the name of the Clearing Agency
or its nominee and which shall represent all of the outstanding Preferred
Securities.
"Guarantee" means the Guarantee Agreement dated as of December 5, 1995, of
Time Warner in respect of the Preferred Securities.
<PAGE>
<PAGE>
5
"Holder" means a Person in whose name a Certificate representing a Trust
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act.
"Indemnified Person" means any Trustee, any Affiliate of any Trustee, any
officer, director, shareholder, member, partner, employee, representative or
agent of any Trustee, or any employee or agent of the Trust or its Affiliates.
"Indenture" means the Indenture dated as of December 5, 1995, between Time
Warner and the Indenture Trustee and any indenture supplemental thereto pursuant
to which the Subordinated Debentures are to be issued.
"Indenture Event of Default" means any event or condition defined as an
"Event of Default" with respect to the Subordinated Debentures under Section
5.01 of the Indenture that has occurred and is continuing.
"Indenture Trustee" means Chemical Bank as trustee under the Indenture
until a successor is appointed thereunder and thereafter means such successor
trustee.
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time or any successor legislation.
"Legal Action" has the meaning specified in Section 3.06(e).
"Liquidation Distribution" has the meaning set forth in Exhibits B and C
hereto establishing the terms of the Trust Securities.
"Majority in aggregate 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 Section 5 of Exhibit B hereto, Holder(s) of
outstanding Trust Securities voting together as a single class or, as the
context may require, Holder(s) of outstanding Preferred Securities or Common
Securities voting separately as a class, who are the record owners of an
aggregate liquidation amount representing more than 50% of
<PAGE>
<PAGE>
6
the aggregate liquidation amount of all outstanding Trust Securities of such
class.
"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).
"Payment Amount" has the meaning set forth in Section 6.01.
"Payments" has the meaning set forth in Section 6.01.
"PERCS" means the $1.24 Preferred Exchangeable Redemption Cumulative
Securities issued by Time Warner Financing Trust.
"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 Account" has the meaning specified in Section 3.08(c)(i).
<PAGE>
<PAGE>
7
"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.
"Quorum" means a majority of the Regular Trustees or, if there are only two
Regular Trustees, both such Regular Trustees.
"Redemption Price" has the meaning set forth in the terms of the Trust
Securities as set forth in Exhibits B and C hereto.
"Regular Trustee" means any Trustee other than the Property Trustee and the
Delaware Trustee.
"Related Party" means any direct or indirect wholly owned subsidiary of
Time Warner or any other Person which owns, directly or indirectly, 100% of the
outstanding voting securities of Time Warner.
"Resignation Request" has the meaning specified in Section 5.02(d).
"Responsible Officer" means, with respect to the Property Trustee, the
chairman of the board of directors, any vice chairman, the president, any
executive vice president, any senior vice president, any vice-president, any
assistant vice president, the secretary, any assistant secretary, the treasurer,
any assistant treasurer, any trust officer or assistant trust officer or any
other officer of the Property Trustee customarily performing functions similar
to those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any
successor rule thereunder.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor legislation.
"Special Event" has the meaning set forth in the terms of the Trust
Securities as set forth in Exhibits B and C hereto.
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"Special Redemption Date" has the meaning set forth in the terms of the
Trust Securities as set forth in Exhibits B and C hereto.
"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 aggregate 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 its capacity as sponsor of the Trust.
"Subordinated Debentures" means the series of Subordinated Debentures
issued by Time Warner under the Indenture to the Property Trustee and entitled
the 8-7/8% Subordinated Debentures due December 31, 2025.
"Successor Delaware Trustee" has the meaning specified in Section
5.02(b)(ii).
"Successor Property Trustee" means a successor Trustee possessing the
qualifications to act as Property Trustee set forth in Section 5.01(c).
"10% in aggregate 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 an
aggregate liquidation amount representing 10% or more of the aggregate
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).
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"Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trust Securities" means the Common Securities and the Preferred
Securities.
"Underwriting Agreement" means the underwriting agreement dated November
30, 1995, among Time Warner, the Trust and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. as
co-representatives of the several underwriters named therein, with respect to,
among other things, the Preferred Securities.
ARTICLE II
Trust Indenture Act
SECTION 2.01. Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust Indenture
Act that are required to be part of this Declaration and shall, to the extent
applicable, be governed by such provisions;
(b) if and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by ss.ss. 310 to 317, inclusive,
of the Trust Indenture Act, such imposed duties shall control;
(c) the Property Trustee shall be the only Trustee which is a trustee for
the purposes of the Trust Indenture Act; and
(d) the application of the Trust Indenture Act to this Declaration shall
not affect the nature of the Trust Securities as equity securities representing
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undivided beneficial interests in the assets of the Trust.
SECTION 2.02. Lists of Holders of Preferred Securities. (a) Each of the
Sponsor and the Regular Trustees on behalf of the Trust shall provide the
Property Trustee with such information as is required under ss. 312(a) of the
Trust Indenture Act at the times and in the manner provided in ss. 312(a).
(b) The Property Trustee shall comply with its obligations under ss.ss.
310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Property Trustee. Within 60 days after May 15
of each year, the Property Trustee shall provide to the Holders of the Trust
Securities such reports as are required by ss. 313 of the Trust Indenture Act,
if any, in the form, in the manner and at the times provided by ss. 313 of the
Trust Indenture Act. The Property Trustee shall also comply with the
requirements of ss. 313(d) of the Trust Indenture Act.
SECTION 2.04. Periodic Reports to Property Trustee. Each of the Sponsor and
the Regular Trustees on behalf of the Trust shall provide to the Property
Trustee, the Commission and the Holders of the Trust Securities, as applicable,
such documents, reports and information as required by ss. 314(a)(l)-(3), if
any, of the Trust Indenture Act and the compliance certificates required by ss.
314(a)(4) and (c) of the Trust Indenture Act, any such certificates to be
provided in the form, in the manner and at the times required by ss. 314(a)(4)
and (c) of the Trust Indenture Act; provided that any certificate to be provided
pursuant to ss. 314(a)(4) of the Trust Indenture Act shall be provided within
120 days of the end of each Fiscal Year.
SECTION 2.05. Evidence of Compliance with Conditions Precedent. Each of the
Sponsor and the Regular Trustees on behalf of the Trust shall provide to the
Property Trustee such evidence of compliance with any conditions precedent, if
any, provided for in this Declaration which relate to any of the matters set
forth in ss. 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given pursuant to ss. 314(c) shall comply with ss. 314(e) of the
Trust Indenture Act.
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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 aggregate
liquidation amount of the Preferred Securities (i) in accordance with the terms
of the Preferred Securities as set forth in Exhibit B hereto, direct the time,
method, and place of conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred upon the Property
Trustee hereunder or (ii) on behalf of the Holders of all Preferred Securities
waive any past Event of Default in respect of the Preferred Securities and its
consequences, provided that if the Event of Default arises out of an Indenture
Event of Default:
(A) which is not waivable under the Indenture, the Event of Default
under this Declaration shall also be not waivable; or
(B) which requires the consent or vote of (1) holders of Subordinated
Debentures representing a specified percentage greater than a majority in
principal amount of the Subordinated Debentures, or (2) each holder of
Subordinated Debentures, the Event of Default under this Declaration may
only be waived by, in the case of clause (1) above, the vote of Holders of
Preferred Securities representing such specified percentage of the
aggregate 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 aggregate liquidation amount of the Common Securities,
(i) in accordance with the terms of the Common Securities as set forth in
Exhibit C hereto, direct the time, method, and place of conducting any
proceeding for any remedy available to the Property Trustee, or exercising any
trust or power conferred upon the Property Trustee hereunder or (ii) on behalf
of the Holders of all of the Common Securities, waive any past Event of Default
with respect to the Common
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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 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
Debentures representing a specified percentage greater than a majority in
principal amount of the Subordinated Debentures or (2) each holder of
Subordinated Debentures, 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
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13
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.
(c) The right of any Holder of Trust Securities to receive Payments on the
Trust Securities in accordance with this Declaration and the terms of the Trust
Securities set forth in Exhibits B and C on or after the respective payment
dates therefor, or to institute suit for the enforcement of any such payment on
or after such payment dates, shall not be impaired without the consent of each
such Holder.
(d) As provided in the terms of the Trust Securities set forth in Exhibits
B and C hereto, a waiver of an Indenture Event of Default by the Property
Trustee at the written direction of the Holders of the Preferred Securities
constitutes a waiver of the corresponding Event of Default under this
Declaration in respect of the Trust Securities.
SECTION 2.07. Disclosure of Information. The disclosure of information as
to the names and addresses of the Holders of the Trust Securities in accordance
with ss. 312 of the Trust Indenture Act, regardless of the source from which
such information was derived, shall not be deemed to be a violation of any
existing law, or any law hereafter enacted which does not specifically refer to
ss. 312 of the Trust Indenture Act, nor shall the Property Trustee be held
accountable by reason of mailing any material pursuant to a request made under
ss. 312(b) of the Trust Indenture Act.
ARTICLE III
Organization
SECTION 3.01. Name. The Trust is named "Time Warner Capital I" 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
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14
days written notice to the Holders, the Regular Trustees may change the location
of the Trust's principal office.
SECTION 3.03. Purpose. The exclusive purposes and functions of the Trust
are: (a) to issue and sell Trust Securities and use the proceeds from such sale
to acquire the Subordinated Debentures and (b) except as otherwise limited
herein, to engage in only those other activities necessary or incidental
thereto. The Trust shall not borrow money, issue debt or reinvest proceeds
derived from investments, pledge any of its assets or at any time otherwise
undertake (or permit to be undertaken) any activity that would result in or
cause the Trust to be treated as an association taxable as a corporation or
partnership for United States Federal income tax purposes or as anything other
than a grantor trust for United States Federal income tax purposes.
SECTION 3.04. Authority. Subject to the limitations provided in this
Declaration and to the specific duties of the Property Trustee, the Regular
Trustees shall have exclusive and complete authority to carry out the purposes
of the Trust. An action taken by the Regular Trustees in accordance with their
powers shall constitute the act of and serve to bind the Trust and an action
taken by the Property Trustee in accordance with its powers shall constitute the
act of and serve to bind the Trust. In dealing with the Trustees acting on
behalf of the Trust, no Person shall be required to inquire into the authority
of the Trustees to bind the Trust. Persons dealing with the Trust are entitled
to rely conclusively on the power and authority of the Trustees as set forth in
this Declaration.
SECTION 3.05. Title to Property of the Trust. Except as provided in Section
3.08 with respect to the Subordinated Debentures and the Property Account or
unless otherwise provided in this Declaration, legal title to all assets of the
Trust shall be vested in the Trust. The Holders of Trust Securities shall not
have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
SECTION 3.06. Powers and Duties of the Regular Trustees. The Regular
Trustees shall have the exclusive
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15
power, authority and duty to cause the Trust, and shall cause the Trust, to
engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common
Securities, in each case in accordance with this Declaration; provided,
however, that the Trust may issue no more than one series of Preferred
Securities and no more than one series of Common Securities; and provided
further, there shall be no interests in the Trust other than the Trust
Securities and the issuance of Trust Securities shall be limited to a
one-time, simultaneous issuance of both Preferred Securities and Common
Securities;
(b) to acquire the Subordinated Debentures 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 Debentures to be vested in, and the Subordinated Debentures to
be held of record in the name of, the Property Trustee for the benefit of
the Holders of the Preferred Securities and the Common Securities;
(c) to give the Sponsor and the Property Trustee prompt written notice
of the occurrence of any Special Event and to take any Ministerial Actions
in connection therewith; provided, that the Regular Trustees shall consult
with the Sponsor and the Property Trustee before taking or refraining to
take any Ministerial Action in relation to a Special Event;
(d) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including for the
purposes of ss. 316(c) of the Trust Indenture Act and with respect to
Payments, voting rights, redemptions, and exchanges, and to issue relevant
notices to Holders of the Preferred Securities and Common Securities as to
such actions and applicable record dates;
(e) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.08(e), the Property Trustee
has the exclusive power to bring such Legal Action;
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(f) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors,
and consultants and pay reasonable compensation for such services;
(g) to cause the Trust to comply with the Trust's obligations under
the Trust Indenture Act;
(h) to give the certificate to the Property Trustee required by ss.
314(a)(4) of the Trust Indenture Act, which certificate may be executed by
any Regular Trustee;
(i) to incur expenses which are necessary or incidental to carrying
out any of the purposes of the Trust;
(j) to act as, or appoint another Person to act as, registrar and
transfer agent for the Trust Securities, the Regular Trustees hereby
initially appointing the Property Trustee for such purposes;
(k) to take all actions and perform such duties as may be required of
the Regular Trustees pursuant to the terms of the Trust Securities set
forth in Exhibits B and C hereto;
(l) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the activities set forth in this section 3.06;
(m) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of
the State of Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Holders of
the Trust Securities or to enable the Trust to effect the purposes for
which the Trust has been created;
(n) to take any action, not inconsistent with this Declaration or with
applicable law, which the Regular Trustees determine in their discretion to
be reasonable and necessary or desirable in carrying out the
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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;
(o) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to
the Trust to be duly prepared and filed by the Regular Trustees, on behalf
of the Trust; and
(p) subject to the requirements of ss.317(b) of the Trust Indenture
Act, to appoint one or more Paying Agents in addition to the Property
Trustee.
The Regular Trustees must exercise the powers set forth in this Section
3.06 in a manner which is consistent with the purposes and functions of the
Trust set out in Section 3.03 and the Regular Trustees shall not take any action
which is inconsistent with the purposes and functions of the Trust set forth in
Section 3.03; and
Subject to this Section 3.06, the Regular Trustees shall have none of the
powers nor any of the authority of the Property Trustee set forth in Section
3.08.
SECTION 3.07. Prohibition of Actions by Trust and Trustees. The Trust shall
not, and the Trustees (including the Property Trustee) shall cause the Trust not
to, engage in any activity other than as required or authorized by this
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Declaration. In particular, the Trust shall not and the Trustees (including the
Property Trustee) shall cause the Trust not to:
(a) invest any proceeds received by the Trust from holding the
Subordinated Debentures 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
Debentures;
(e) possess any power or otherwise act in such a way as to vary the
Trust assets or the terms of the Trust Securities in any way whatsoever;
(f) issue any securities or other evidences of beneficial ownership
of, or beneficial interests in, the Trust other than the Trust Securities;
(g) incur any indebtedness for borrowed money;
(h) except as contemplated by Section 2.06, (i) direct the time,
method and place of exercising any trust or power conferred upon the
Indenture Trustee with respect to the Subordinated Debentures, (ii) waive
any past default that is waivable under Section 5.13 of the Indenture,
(iii) exercise any right to rescind or annul any declaration that the
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, where such consent shall be required, unless the Property
Trustee shall have received an unqualified opinion of nationally recognized
independent tax counsel experienced in such matters to the effect that such
action will not result in the Trust being treated as an association taxable
as a corporation or partnership for United States Federal income tax
purposes and that, following such action, each Holder of Trust Securities
will be treated for United States Federal income tax purposes as owning an
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undivided beneficial interest in the Subordinated Debentures; or
(i) consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets to,
any corporation or other body.
SECTION 3.08. Powers and Duties of the Property Trustee. (a) The legal
title to the Subordinated Debentures shall be owned by and held of record in the
name of the Property Trustee in trust for the benefit of the Trust and the
Holders of the Trust Securities. The right, title and interest of the Property
Trustee to the Subordinated Debentures 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 Debentures to the Regular Trustees or, if the Property
Trustee does not also act as the Delaware Trustee, the Delaware Trustee.
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing bank
account (the "Property Account") in the name of and under the exclusive
control of the Property Trustee on behalf of the Trust and the Holders of
the Trust Securities and on the receipt of payments of funds made in
respect of the Subordinated Debentures held by the Property Trustee,
deposit such funds into the Property Account and, without any further acts
of the Property Trustee or the Regular Trustees, promptly make payments to
the Holders of the Preferred Securities and Common Securities from the
Property Account in accordance with Section 6.01. Funds in the Property
Account shall be held uninvested, and without liability for interest
thereon, until disbursed in accordance with this Declaration. The Property
Account shall be an account which is maintained with a banking institution
whose long term unsecured indebtedness is rated by a "nationally recognized
statistical rating organization", as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act, at least equal to (but in no event
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less than "A" or the equivalent) the rating assigned to the Preferred
Securities by a nationally recognized statistical rating organization;
(ii) engage in such ministerial activities as shall be necessary or
appropriate to effect promptly the redemption of the Preferred Securities
and the Common Securities to the extent the Subordinated Debentures 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 Debentures 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 Debentures under the Indenture
and, if an Event of Default occurs and is continuing, the Property Trustee,
subject to Section 2.06, shall for the benefit of the Holders of the Trust
Securities, enforce its rights as holder of the Subordinated Debentures
under the Indenture, subject to the rights of the Holders of the Trust
Securities pursuant to the terms of the Trust Securities, this Declaration,
the Business Trust Act and the Trust Indenture Act.
(d) The Property Trustee shall take all actions and perform such duties as
may be specifically required of the Property Trustee pursuant to the terms of
the Trust Securities set forth in Exhibits B and C hereto.
(e) Subject to Section 2.06, the Property Trustee shall take any Legal
Action which arises out of or in connection with an Event of Default or the
Property Trustee's duties and obligations under this Declaration, the Business
Trust Act or the Trust Indenture Act.
(f) All moneys deposited in the Property Account, and all Subordinated
Debentures held by the Property Trustee for the benefit of the Trust and the
Holders of the Trust Securities, will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of, or
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for the benefit of, the Property Trustee or its agents or their creditors.
(g) The Property Trustee shall, within 90 days after the occurrence of a
default with respect to the Trust Securities, transmit by mail, first class
postage prepaid, to the Holders of the Trust Securities, as their names and
addresses appear upon the register, notice of all defaults with respect to the
Trust Securities known to the Property Trustee, unless such defaults shall have
been cured before the giving of such notice (the term "defaults" for the
purposes of this Section 3.08(g) being hereby defined to be an Indenture Event
of Default, not including any periods of grace provided for in the Indenture and
irrespective of the giving of any notice provided therein); provided, that,
except in the case of default in the payment of the principal amount or any
redemption price or interest on any of the Subordinated Debentures, 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 or any redemption
price or interest on the Subordinated Debentures or (ii) any default as to which
the Property Trustee shall have received written notice or a Responsible Officer
charged with the administration of this Declaration shall have obtained written
notice.
(h) The Property Trustee shall continue to serve as Property Trustee unless
either:
(i) the Trust has been completely liquidated and the proceeds thereof
distributed to the Holders of Trust Securities pursuant to the terms of the
Trust Securities; or
(ii) a Successor Property Trustee has been appointed and accepted that
appointment in accordance with Article V.
(i) The Property Trustee shall act as paying agent in respect of the Trust
Securities and may authorize one or more Persons (each, a "Paying Agent") to
make Payments on behalf of the Trust with respect to the Trust Securities.
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Any such Paying Agent shall comply with ss. 317(b) of the Trust Indenture Act.
Any Paying Agent may be removed by the Property Trustee, after consultation with
the Regular Trustees, at any time and a successor Paying Agent or additional
Paying Agents may be appointed at any time by the Property Trustee.
(j) Subject to this Section 3.08, the Property Trustee shall have none of
the powers or the authority of the Regular Trustees set forth in Section 3.06.
The Property Trustee shall exercise the powers, duties and rights set forth in
this Section 3.08 and Section 3.10 in a manner that is consistent with the
purposes and functions of the Trust set out in Section 3.03 and the Property
Trustee shall not take any action which is inconsistent with the purposes and
functions of the Trust set forth in Section 3.03.
SECTION 3.09. Delaware Trustee. Notwithstanding any other provision of this
Declaration other than Section 5.01(a)(C), the Delaware Trustee shall not be
entitled to exercise any powers, nor shall the Delaware Trustee have any of the
duties and responsibilities of the Regular Trustees and the Property Trustee
described in this Declaration. Except as set forth in Section 5.01(a)(C), the
Delaware Trustee shall be a Trustee for the sole and limited purpose of
fulfilling the requirements of ss. 3807 of the Business Trust Act.
SECTION 3.10. Certain Rights and Duties of the Property Trustee. (a) The
Property Trustee, before the occurrence of an Event of Default and after the
curing or waiving 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
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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 Events of Default that may have occurred:
(A) the duties and obligations of the Property Trustee shall be
determined solely by the express provisions of this Declaration, and
the Property Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this
Declaration, and no implied covenants or obligations shall be 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
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(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or adequate
indemnity against such risk or liability is not reasonably assured to it.
(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;
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(iv) the Property Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Declaration at the request or
direction of any Holders, unless such Holders shall have offered to the
Property Trustee reasonable security and indemnity against the costs,
expenses (including attorneys' fees and expenses) and liabilities that
might be incurred by it in complying with such request or direction;
provided that nothing contained in this clause (iv) shall relieve the
Property Trustee of the obligation, upon the occurrence 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 their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of his or her own affairs; and
(v) any action taken by the Property Trustee or its agents hereunder
shall bind the Trust and the Holders of the Trust Securities and the
signature of the Property Trustee or its agents alone shall be sufficient
and effective to perform any such action; and no third party shall be
required to inquire as to the authority of the Property Trustee to so act,
or as to its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by the Property
Trustee's or its agent's taking such action.
SECTION 3.11. Registration Statement and Related Matters. In accordance
with the Original Declaration, Time Warner and the Trustees have authorized and
directed, and hereby confirm the authorization of, Time Warner, as the sponsor
of the Trust, (a) to file with the Commission and execute, in each case on
behalf of the Trust, (i) the Registration Statement on Form S-3 (File Nos.
33-61523, 33- 61523-01, 33-61523-02 and 33-61523-03)(the "1933 Act Registration
Statement") including any pre-effective or post-effective amendments to such
Registration Statement, relating to the registration under the Securities Act of
the Preferred Securities of the Trust and (ii) a Registration Statement on Form
8-A or other appropriate form (the "1934 Act Registration Statement") (including
all pre-effective and post-effective amendments thereto) relating to the
registration of the Preferred Securities of the Trust under Section 12(b) of the
Exchange Act; (b) to file with the New
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York Stock Exchange or any other national securities exchange and execute on
behalf of the Trust a listing application and all other applications,
statements, certificates, agreements and other instruments as shall be necessary
or desirable to cause the Preferred Securities to be listed on the New York
Stock Exchange or such other national securities exchange; (c) to file and
execute on behalf of the Trust such applications, reports, surety bonds,
irrevocable consents, appointments of attorney for service of process and other
papers and documents as shall be necessary or desirable to register the
Preferred Securities under the securities or "Blue Sky" laws of such
jurisdictions as Time Warner on behalf of the Trust may deem necessary or
desirable and (d) to execute on behalf of the Trust the Underwriting Agreement,
substantially in the form included as Exhibit 1 to the 1933 Act Registration
Statement with such changes thereto as may be approved by the authorized officer
of the Sponsor executing the same, such approval to be evidenced by such
officer's execution thereof. In the event that any filing referred to in clauses
(a)-(c) above is required by the rules and regulations of the Commission, the
New York Stock Exchange or state securities or blue sky laws, to be executed on
behalf of the Trust by the Trustees, the Regular Trustees, in their capacities
as Trustees of the Trust, are hereby authorized and directed to join in any such
filing and to execute on behalf of the Trust any and all of the foregoing, it
being understood that the Property Trustee and the Delaware Trustee, in their
capacities as Trustees of the Trust, shall not be required to join in any such
filing or execute on behalf of the Trust any such document unless required by
the rules and regulations of the Commission, the New York Stock Exchange or
state securities or blue sky laws. In connection with all of the foregoing, Time
Warner and each Trustee, solely in its capacity as Trustee of the Trust, have
constituted and appointed, and hereby confirm the appointment of, Gerald M.
Levin, Richard D. Parsons, Richard J. Bressler, Peter R. Haje and Philip R.
Lochner, and each of them, as his, her or its, as the case may be, true and
lawful attorneys-in-fact, and agents, with full power of substitution and
resubstitution, for Time Warner or such Trustee or in Time Warner's or such
Trustee's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to the 1933 Act Registration
Statement and the 1934 Act Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Commission, and to execute and file with
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the New York Stock Exchange or any other national securities exchange a listing
application and all other applications and documents as shall be necessary or
desirable in connection therewith, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as Time Warner or such Trustee might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his or her substitute or substitutes, shall do or cause
to be done by virtue hereof.
SECTION 3.12. Filing of Amendments to Certificate of Trust. The Certificate
of Trust is attached hereto as Exhibit A. On or after the date of execution of
this Declaration, the Trustees shall cause the filing with the Secretary of
State of the State of Delaware of such amendments to the Certificate of Trust as
the Trustees shall deem necessary or desirable.
SECTION 3.13. Execution of Documents by Regular Trustees. Unless otherwise
determined by the Regular Trustees and except as otherwise required by the
Business Trust Act with respect to the Certificate of Trust or otherwise, a
majority of, or if there are only two, both of, the Regular Trustees are
authorized to execute and deliver on behalf of the Trust any documents which the
Regular Trustees have the power and authority to execute or deliver pursuant to
this Declaration; provided that any listing application prepared by the Sponsor
referred to in Section 3.11(b) may be executed by any Regular Trustee.
SECTION 3.14. Trustees Not Responsible for Recitals or Issuance of Trust
Securities. The recitals contained in this Declaration and the Trust Securities
shall be taken as the statements of the Sponsor and the Trustees do not assume
any responsibility for their correctness. The Trustees make no representations
as to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration or the Trust Securities.
SECTION 3.15. Duration of Trust. The Trust, absent termination pursuant to
the provisions of Article VIII hereof, shall have existence for 55 years from
the Closing Date.
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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 approximately equal to 3% of the
capital of the Trust after giving effect to such purchase.
SECTION 4.02. Expenses. (a) The Sponsor, in its capacity as Sponsor and not
as a Holder, shall be responsible for and shall pay for all debts and
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust (including costs and expenses relating to the organization
of the Trust, the issuance of the Preferred Securities, the fees and expenses
(including reasonable counsel fees and expenses) of the Trustees (including any
amounts payable under Article X) and the costs and expenses relating to the
operation of the Trust, including costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying agent(s), registrar(s), transfer
agent(s), duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the disposition of
Trust assets).
(b) The Sponsor, in its capacity as Sponsor and not as a Holder, will pay
any and all taxes 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 and the Property
Trustee 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 or the Property Trustee 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.
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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 aggregate 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 case the number of Trustees shall be at least four;
(B) unless a Special Regular Trustee has been appointed (which
appointment shall not impair the right of the Holders of Common Securities
to increase or decrease the number of, or to appoint, remove or replace,
Trustees (other than the Special Regular Trustee) as provided above), at
least a majority of the Trustees shall at all times be officers, directors
or employees of Time Warner;
(C) if required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be either a natural person who is a resident of the State
of Delaware or, if not a natural person, an entity that has its principal
place of business in the State of Delaware and otherwise is permitted to
act as a Delaware Trustee hereunder under the laws of the State of
Delaware, except that if the Property Trustee has its principal place of
business in the State of Delaware and otherwise is permitted to act as a
Delaware 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;
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(D) there shall at all times be a Property Trustee; 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 aggregate 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 as set forth in Exhibit B hereto.
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:
John A. LaBarca
Philip R. Lochner, Jr.
Thomas W. McEnerney
c/o Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
(c) There shall at all times be one Trustee that
shall act as Property Trustee. In order to act as Property
Trustee hereunder, such Trustee shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least $50,000,000, and subject to
supervision or examination by Federal, 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
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and surplus as set forth in its most recent report of condition so
published.
If at any time the Property Trustee shall cease to satisfy any of the
requirements of clauses (i) and (ii) above, the Property Trustee shall
immediately resign in the manner and with the effect set out in Section 5.02(d).
If the Property Trustee has or shall acquire any "conflicting interest" within
the meaning of ss. 310(b) of the Trust Indenture Act, the Property Trustee and
the Holders of the Common Securities (as if such Holders were the obligor
referred to in ss. 310(b) of the Trust Indenture Act) shall in all respects
comply with the provisions of ss. 310(b) of the Trust Indenture Act. The
Guarantee shall be deemed to be specifically described in this Declaration for
the purposes of clause (i) of the first proviso contained in ss. 310(b) of the
Trust Indenture Act.
The initial Trustee that shall serve as the Property Trustee is The First
National Bank of Chicago whose address is as set forth in Section 14.01(b).
(d) The initial Trustee that shall serve as the Delaware Trustee is First
Chicago Delaware Inc. 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.
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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 aggregate 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 shall not be an Affiliate of the Sponsor, by vote of
the Holders of a Majority in aggregate 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 aggregate
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 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)(C) (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware
Trustee and delivered to the Regular Trustees, the Sponsor and the Delaware
Trustee being removed.
(c) A Trustee appointed to office shall hold office until such
Trustee's successor shall have been
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appointed or until such Trustee's death, removal or resignation, provided that a
Special Regular Trustee shall only hold office while an Appointment Event is
continuing and shall cease to hold office immediately after the Appointment
Event pursuant to which the Special Regular Trustee was appointed and all other
Appointment Events cease to be continuing.
(d) Any Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument (a "Resignation Request") in writing
signed by the Trustee and delivered to the Sponsor and the Trust, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the Property
Trustee shall be effective until a Successor Property Trustee possessing
the qualifications to a ct as Property Trustee under Section 5.01(c) has
been appointed and has accepted such appointment by instrument executed by
such Successor Property Trustee and delivered to the Trust, the Sponsor and
the resigning Property Trustee;
(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee; and
(iii) no such resignation of a Special Regular Trustee shall be
effective until the 60th day following delivery of the Resignation Request
to the Sponsor and the Trust or such later date specified in the
Resignation Request during which period the Holders of the Preferred
Securities shall have the right to 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, as the case may be,
may petition any court of competent jurisdiction for appointment of a Successor
Property Trustee
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or Successor Delaware Trustee. Such court may thereupon after such notice, if
any, as it may deem proper and prescribe, appoint a Successor Property Trustee
or Successor Delaware Trustee, as the case may be.
SECTION 5.03. Vacancies Among Trustees. If a Trustee ceases to hold office
for any reason and the number of Trustees is not reduced pursuant to Section
5.01 or if the number of Trustees is increased pursuant to Section 5.01, a
vacancy shall occur. A resolution certifying the existence of such vacancy by a
majority of the Regular Trustees shall be conclusive evidence of the existence
of such vacancy. The vacancy shall be filled with a Trustee appointed in
accordance with the requirements of this Article V.
SECTION 5.04. Effect of Vacancies. The death, resignation, retirement,
removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to
perform the duties of a Trustee, or any one of them, shall not operate to annul
the Trust. Whenever a vacancy in the number of Regular Trustees shall occur
until such vacancy is filled as provided in this Article V, the Regular Trustees
in office, regardless of their number, shall have all the powers granted to the
Regular Trustees and shall discharge all the duties imposed upon the Regular
Trustees by this Declaration.
SECTION 5.05. Meetings. Meetings of the Regular Trustees shall be held from
time to time upon the call of any Trustee. Regular meetings of the Regular
Trustees may be held at a time and place fixed by resolution of the Regular
Trustees. Notice of any in-person meeting of the Regular Trustees shall be
hand-delivered or otherwise delivered in writing (including by facsimile) not
less than 24 hours before such meeting. Notice of any telephonic meeting of the
Regular Trustees or any committee thereof shall be hand-delivered or otherwise
delivered in writing (including by facsimile) not less than 24 hours before such
meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice
of such meeting except where a Regular Trustee attends a meeting for the express
purpose of objecting to the transaction of any activity on the ground that the
meeting has not been lawfully called or convened. Unless provided otherwise in
this Declaration, any action of the Regular
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Trustees may be taken at a meeting by vote of a majority of the Regular Trustees
present (whether in person or by telephone) and eligible to vote with respect to
such matter, provided that a Quorum is present, or without a meeting by the
unanimous written consent of the Regular Trustees.
SECTION 5.06. Delegation of Power. (a) Any Regular Trustee may, by power of
attorney consistent with applicable law, delegate to any other natural person
over the age of 21 his or her power for the purpose of executing any documents
contemplated in Section 3.11, including any registration statement or amendment
thereto or other document or schedule filed with the Commission, or making any
other governmental filing.
(b) The Regular Trustees shall have power to delegate from time to time to
such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
ARTICLE VI
Payments
SECTION 6.01. Payments. Holders shall receive periodic distributions,
redemption payments and liquidation distributions in accordance with the terms
of the Trust Securities ("Payments"). Payments 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 or principal on the Subordinated
Debentures 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.
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ARTICLE VII
Issuance of Trust Securities
SECTION 7.01. General Provisions Regarding Trust Securities. (a) The
Regular Trustees shall issue on behalf of the Trust securities in fully
registered form representing undivided beneficial interests in the assets of the
Trust in accordance with Section 7.01(b).
(b) The Regular Trustees shall issue on behalf of the Trust one class of
preferred securities representing undivided beneficial interests in the assets
of the Trust having such terms as are set forth in Exhibit B (the "Preferred
Securities"), which terms are incorporated by reference in, and made a part of,
this Declaration as if specifically set forth herein, and one class of common
securities representing undivided beneficial interests in the assets of the
Trust having such terms as are set forth in Exhibit C (the "Common Securities"),
which terms are incorporated by reference in, and made a part of, this
Declaration as if specifically set forth herein. The Trust shall issue no
securities or other interests in the assets of the Trust other than the
Preferred Securities and the Common Securities.
(c) The Certificates shall be signed on behalf of the Trust by the Regular
Trustees (or, if there are more than two Regular Trustees, by any two of the
Regular Trustees). Such signatures may be the manual or facsimile signatures of
the present or any future Regular Trustee. Typographical and other minor errors
or defects in any such reproduction of any such signature shall not affect the
validity of any Certificate. In case any Regular Trustee of the Trust who shall
have signed any of the Certificates shall cease to be a 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 a Regular Trustee; and any Certificate may be signed on
behalf of the Trust by such persons as, at the actual date of the execution of
such Certificate, shall be the Regular Trustees of the Trust, although at the
date of the execution and delivery of the Declaration any such person was not
such a Regular Trustee. Certificates shall be printed, lithographed or engraved
or may be produced in any other manner as is reasonably acceptable to the
Regular Trustees, as evidenced by their execution thereof, and may have such
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letters, numbers or other marks of identification or designation and such
legends or endorsements as the Regular Trustees may deem appropriate, or as may
be required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Trust
Securities may be listed or of any Clearing Agency in which the Trust Securities
have been accepted for trading, or to conform to usage.
(d) The consideration received by the Trust for the issuance of the Trust
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(e) Upon issuance of the Trust Securities as provided in this Declaration,
the Trust Securities so issued shall be deemed to be validly issued, fully paid
and nonassessable.
(f) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner in accordance with the terms of this Declaration,
shall be deemed to have expressly assented and agreed to the terms of and shall
be bound by this Declaration.
(g) Upon issuance of the Trust Securities as provided in this Declaration,
the Regular Trustees on behalf of the Trust shall return to Time Warner the $10
constituting initial trust assets as set forth in the Original Declaration.
ARTICLE VIII
Termination of Trust
SECTION 8.01. Termination of Trust. This Declaration and the Trust shall
terminate and be of no further force or effect upon the earliest of:
(a) when all the Trust Securities shall have been called for
redemption and the amounts necessary for redemption thereof, including any
accrued and unpaid Payments thereon to the applicable date of redemption,
shall have been paid to the Holders of the Trust Securities in accordance
with the terms of the Trust Securities;
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(b) when all the Subordinated Debentures shall have been distributed
to the Holders of Trust Securities in exchange for all the Trust Securities
in accordance with the terms of the Trust Securities;
(c) upon the expiration of the term of the Trust as set forth in
Section 3.15; or
(d) if Time Warner shall direct the Trustees to terminate the Trust,
provided that Time Warner shall be the holder at such time of all the
outstanding Preferred Securities;
and a certificate of cancellation is filed by the Trustees with the Secretary of
State of the State of Delaware. The Trustees shall so file such a certificate as
soon as practicable after the occurrence of an event referred to in this Article
VIII.
The provisions of Section 3.10 and Article X shall survive the termination
of the Trust.
ARTICLE IX
Transfer of Interests
SECTION 9.01. Transfer of Trust Securities. (a) Trust Securities may only
be transferred, in whole or in part, in accordance with the terms and conditions
set forth in this Declaration. Any transfer or purported transfer of any Trust
Security not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article IX, Preferred Securities shall be freely
transferable.
(c) Subject to this Article IX, Time Warner and any Related Party may only
transfer Common Securities to Time Warner or a Related Party; provided that any
such transfer shall be subject to the condition that the transferor shall have
obtained (i) either a ruling from the Internal Revenue Service or an unqualified
written opinion addressed to the Trust and delivered to the Trustees of
nationally recognized independent tax counsel experienced in such matters to the
effect that such transfer will not (A) cause the Trust to be treated as issuing
a class of interests in the Trust differing from the class of interests
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represented by the Common Securities originally issued to Time Warner, (B)
result in the Trust acquiring or disposing of, or being deemed to have acquired
or disposed of, an asset or (C) result in or cause the Trust to be treated as an
association taxable as a corporation or partnership for United States Federal
income tax purposes or as anything other than a grantor trust for United States
Federal income tax purposes and (ii) an unqualified written opinion addressed to
the Trust and delivered to the Trustees of a nationally recognized independent
counsel experienced in such matters that such transfer will not cause the Trust
to be an Investment Company or controlled by an Investment Company.
SECTION 9.02. Transfer of Certificates. The Regular Trustees shall provide
for the registration of Certificates and of transfers of Certificates, which
will be effected without charge but only upon payment (with such indemnity as
the Regular Trustees may require) in respect of any tax or other government
charges which may be imposed in relation to such transfers. Upon surrender for
registration of transfer of any Certificate, the Regular Trustees shall cause
one or more new Certificates to be issued in the name of the designated
transferee or transferees. Every Certificate surrendered for registration of
transfer shall be accompanied by a written instrument of transfer in form
satisfactory to the Regular Trustees duly executed by the Holder or such
Holder's attorney duly authorized in writing. Each Certificate surrendered for
registration of transfer shall be canceled by the Regular Trustees. A transferee
of a Certificate shall be entitled to the rights and subject to the obligations
of a Holder hereunder upon the receipt by such transferee of a Certificate. By
acceptance of a Certificate, each transferee shall be deemed to have agreed to
be bound by this Declaration.
SECTION 9.03. Deemed Security Holders. The Trustees may treat the Person in
whose name any Certificate shall be registered on the books and records of the
Trust as the sole holder of such Certificate and of the Trust Securities
represented by such Certificate for purposes of receiving Payments 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.
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40
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 making
of Payments on such Certificates and receiving approvals, votes or consents
hereunder) as the Preferred Security Holder and the sole holder of such
Certificates and, except as set forth herein, shall have no obligation to
the Preferred Security Beneficial Owners;
(b) to the extent that the provisions of this Section 9.04 conflict
with any other provisions of this Declaration, the provisions of this
Section 9.04 shall control; and
(c) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security
Beneficial Owners and the Clearing Agency and/or the Clearing Agency
Participants. The Clearing Agency will make book-entry transfers among
Clearing Agency Participants and receive and transmit Payments on such
Certificates to such Clearing Agency Participants.
SECTION 9.05. Notices to Holders of Certificates. Whenever a notice or
other communication to the Holders is required to be given under this
Declaration, the relevant Trustees shall give such notices and communications to
the Holders and, with respect to any Preferred Security Certificate registered
in the name of a Clearing Agency or the nominee of a Clearing Agency, the
Trustees shall, except as set forth herein with respect to the Property Trustee,
have no obligations to the Preferred Security Beneficial Owners.
SECTION 9.06. Appointment of Successor Clearing Agency. If any Clearing
Agency elects to discontinue its services as securities depositary with respect
to the Preferred Securities, the Regular Trustees may, in their
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41
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.
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. The Property Trustee, as registrar and paying agent for the Regular
Trustees in accordance with Section 3.06(j), shall have the right and obligation
to perform any task of the Regular Trustees under this Section 9.08. 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
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42
not the lost, stolen or destroyed Certificate shall be found
at any time.
ARTICLE X
Limitation of Liability; Indemnification
SECTION 10.01. Liability. (a) Except as expressly set forth in this
Declaration, the Guarantee and the terms of the Trust Securities as set forth in
Exhibits B and C hereto, the Sponsor:
(i) shall not be personally liable for the return of any portion of
the capital contributions of the Holders of the Trust Securities, which
shall be made solely from assets of the Trust; and
(ii) shall not be required to pay to the Trust or to any Holder of
Trust Securities any deficit upon dissolution of the Trust or otherwise.
(b) Pursuant to Section 3803(a) of the Business Trust Act, the Holders of
the Trust Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
SECTION 10.02. Exculpation. (a) No Indemnified Person shall be liable,
responsible or accountable in damages or otherwise to the Trust or any Covered
Person for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Indemnified Person in good faith on behalf of the
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of the authority conferred on such Indemnified Person by this
Declaration or by law, except that an Indemnified Person shall be liable for any
such loss, damage or claim incurred by reason of such Indemnified Person's gross
negligence (or, in the case of the Property Trustee, except as otherwise set
forth in Section 3.10 hereof) or wilful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in good faith
upon the records of the Trust and upon such information, opinions, reports or
statements presented to the Trust by any Person as to
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43
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 Payments to Holders of Trust Securities might properly be
paid.
SECTION 10.03. Indemnification. (a) To the fullest extent permitted by
applicable law, the Sponsor shall indemnify and hold harmless each Indemnified
Person from and against any loss, damage or claim incurred by such Indemnified
Person by reason of any act or omission performed or omitted by such Indemnified
Person in good faith on behalf of the Trust and in a manner such Indemnified
Person reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Declaration, except that no Indemnified Person shall
be entitled to be indemnified in respect of any loss, damage or claim incurred
by such Indemnified Person by reason of gross negligence (or, in the case of the
Property Trustee, except as otherwise set forth in Section 3.10 hereof) or
wilful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses (including
reasonable legal fees) incurred by an Indemnified Person in defending any claim,
demand, action, suit or proceeding shall, from time to time, be advanced by the
Sponsor prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the Sponsor of an undertaking by or on behalf of the
Indemnified Person to repay such amount if it shall be determined that the
Indemnified Person is not entitled to be indemnified as authorized in Section
10.03(a).
SECTION 10.04. Outside Businesses. Any Covered Person, the Sponsor, the
Delaware Trustee and the Property Trustee may engage in or possess an interest
in other business ventures of any nature or description, independently or with
others, similar or dissimilar to the business of the Trust, and the Trust and
the Holders of Trust Securities shall have no rights by virtue of this
Declaration in and to such independent ventures or the income or profits derived
therefrom and the pursuit of any such venture, even if competitive with the
business of the Trust, shall not be deemed wrongful or improper. No Covered
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44
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
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 and 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
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45
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 may maintain one or more bank accounts in
the name and for the sole benefit of the Trust; provided, however, that all
payments of funds in respect of the Subordinated Debentures held by the Property
Trustee shall be made directly to the Property Account and no other funds from
the Trust shall be deposited in the Property Account. The sole signatories for
such accounts shall be designated by the Regular Trustees; provided, however,
that the Property Trustee shall designate the sole signatories for the Property
Account.
SECTION 11.04. Withholding. The Trust and the Trustees shall comply with
all withholding requirements under United States Federal, state and local law.
The Trust shall request, and the Holders shall provide to the Trust, such forms
or certificates as are necessary to establish an exemption from withholding with
respect to each Holder and any representations and forms as shall reasonably be
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46
requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Trust shall file required forms
with applicable jurisdictions and, unless an exemption from withholding is
properly established by a Holder, shall remit amounts withheld with respect to
the Holder to the applicable jurisdiction. To the extent that the Trust is
required to withhold and pay over any amounts to any authority with respect to
distributions or allocations to any Holder, the amount withheld shall be deemed
to be a distribution in the amount of the withholding to the Holder. In the
event of any claimed overwithholding, Holders shall be limited to an action
against the applicable jurisdiction. If the amount to be withheld was not
withheld from a distribution, the Trust may reduce subsequent Payments 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) 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 for
United States Federal income tax purposes an undivided beneficial interest in
the Subordinated Debentures and (B) a written unqualified opinion of nationally
recognized independent counsel experienced in such matters to the effect that
such amendment will not cause the Trust to be an Investment Company that is
required to be registered under the Investment Company Act, (ii) at such time
after the Trust has issued any Trust Securities which remain outstanding, any
amendment which would adversely affect the rights, privileges or preferences of
any Holder of Trust Securities may be effected only with such additional
requirements as may be set forth in the terms of such Trust Securities,
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47
(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) Subject to Section 12.01(a)(i), this Declaration may be amended without
the consent of the Holders of the Trust Securities to (i) cure any ambiguity,
(ii) correct or supplement any provision in this Declaration that may be
defective or inconsistent with any other provision of this Declaration, (iii)
add to the covenants, restrictions or obligations of the Sponsor and (iv)
conform to any changes in Rule 3a-5 or any change in interpretation or
application of Rule 3a-5 by the Commission, which amendment does not adversely
affect the rights, preferences or privileges of the Holders.
SECTION 12.02. Meetings of the Holders of Trust Securities; Action by
Written Consent. (a) Meetings of the Holders of Preferred Securities and/or
Common Securities may be called at any time by the Regular Trustees (or as
provided in the terms of the Trust Securities) to consider and act on any matter
on which Holders of such class of Trust Securities are entitled to act under the
terms of this Declaration, the terms of the Trust Securities or the rules of any
stock exchange or other self-regulatory organization (including the Nasdaq Stock
Market) on which the Preferred Securities are listed or admitted for trading.
The Regular Trustees shall call a meeting of Holders of Preferred Securities or
Common Securities if directed to do so by Holders of at least 10% in aggregate
liquidation amount of such class of Trust Securities. Such direction shall be
given by delivering to the Regular Trustees one or more written notifications
stating that the signing Holders of Trust Securities wish to call a meeting and
indicating the general or specific purpose for which the meeting is to be
called. Any Holders of Trust Securities calling a meeting
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48
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 or other self-regulatory organization (including the Nasdaq Stock
Market) 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 Trust Security may authorize any Person to act
for it by proxy on all matters in which a Holder of a Trust Security is
entitled to participate, including waiving notice of any meeting or voting
or participating at a meeting. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the
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49
Holder of the Trust Security executing it. Except as otherwise
provided herein or in the terms of the Trust Securities, all matters
relating to the giving, voting or validity of proxies shall be governed by
the General Corporation Law of the State of Delaware relating to proxies,
and judicial interpretations thereunder, as if the Trust were a Delaware
corporation and the Holders of the Trust Securities were stockholders of a
Delaware corporation;
(iii) each meeting of the Holders of the Trust Securities shall be
conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
(iv) unless otherwise provided in the Business Trust Act, this
Declaration or the rules of any stock exchange or other self-regulatory
organization (including the Nasdaq Stock Market) on which the Preferred
Securities are then listed or admitted for trading, the Regular Trustees,
in their sole discretion, shall establish all other provisions relating to
meetings of Holders of Trust Securities, including notice of the time,
place or purpose of any meeting at which any matter is to be voted on by
any Holders of Trust Securities, waiver of any such notice, action by
consent without a meeting, the establishment of a record date, quorum
requirements, voting in person or by proxy or any other matter with respect
to the exercise of any such right to vote.
ARTICLE XIII
Representations and Warranties of Property Trustee
and Delaware Trustee
SECTION 13.01. Representations and Warranties of Property Trustee and
Delaware Trustee. (a) The Trustee that acts as initial Property Trustee
represents and warrants to the Trust and to the Sponsor at the date of this
Declaration, and each Successor Property Trustee represents and warrants to the
Trust and the Sponsor at the time of the Successor Property Trustee's acceptance
of its appointment as Property Trustee that:
(i) The Property Trustee is a banking association with trust powers,
duly organized, validly existing and
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50
in good standing under the laws of the United States, or any State
therein, with trust power and authority to execute and deliver, and to
carry out and perform its obligations under the terms of, this Declaration.
(ii) The execution, delivery and performance by the Property Trustee
of this Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. The Declaration has been duly
executed and delivered by the Property Trustee and constitutes a legal,
valid and binding obligation of the Property Trustee, enforceable against
it in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency and other similar laws affecting
creditors' rights generally and to general principles of equity and the
discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(iii) The execution, delivery and performance of this Declaration by
the Property Trustee does not conflict with or constitute a breach of any
of the terms or provisions of or constitute a default under (i) the
Articles of Association or By-laws of the Property Trustee or any other
agreement or instrument to which the Property Trustee is a party or by
which it may be bound, (ii) any existing applicable law, rule or regulation
or (iii) any judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over the Property Trustee.
(iv) No consent, approval or authorization of, or registration with or
notice to, any banking authority which supervises or regulates the Property
Trustee is required for the execution, delivery or performance by the
Property Trustee of this Declaration.
(v) The Property Trustee satisfies the qualifications set forth in
Section 5.01(c).
(b) The Trustee which acts as initial Delaware Trustee represents and
warrants to the Trust and the Sponsor at the date of this Declaration, and each
Successor Delaware Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee, that:
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51
(i) it satisfies the qualifications set forth in Section 5.01(a)(C);
(ii) it has been authorized to perform its obligations under the
Certificate of Trust and the Declaration; and
(iii) the Declaration under Delaware law constitutes a legal, valid
and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium, insolvency, and other similar laws affecting
creditors' rights generally and to general principles of equity and the
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 Capital I
In care of Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Attention of John A. LaBarca,
Philip R. Lochner, Jr. and
Thomas W. McEnerney,
Trustees
Facsimile No.: (212) 333-3987
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52
(b) if given to the Property Trustee, at the mailing address of the
Property Trustee set forth below (or such other address as the Property
Trustee may give notice of to the Holders of the Trust Securities):
The First National Bank of Chicago
Corporate Trust Services Division
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Attention of: Melissa G. Weisman
Facsimile No.: (212) 373-1383
(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):
First Chicago Delaware Inc.
1201 Market Street, Suite 1401
Wilmington, Delaware 19801
Facsimile No.: (302) 594-8622
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder
of the Common Securities may give notice of to the Trust):
Time Warner Inc.
75 Rockefeller Center
New York, NY 10019
Attention of General Counsel
Facsimile No.: (212) 956-7281
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust.
A copy of any notice to the Property Trustee or the Delaware Trustee shall
also be sent to the Trust. Except as otherwise provided in the terms of the
Trust Securities, all notices shall be deemed to have been given when received
in person, telecopied with receipt confirmed or three Business Days after mailed
by first class mail, postage prepaid, except that, if a notice or other document
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53
is refused delivery or cannot be delivered because of a changed address of which
no notice was given, such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to deliver.
SECTION 14.02. Undertaking for Costs. All parties to this Declaration
agree, and each Holder of any Trust Securities by his or her acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Declaration or in
any suit against the Property Trustee for any action taken or omitted by it as
Property Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 14.02 shall not apply to any suit instituted by the
Property Trustee, to any suit instituted by any Holder or group of Holders of
Preferred Securities holding more than 10% in aggregate 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 principal or any
redemption price or interest on the Subordinated Debentures, on or after the
respective due dates expressed in such Subordinated Debentures.
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.
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54
SECTION 14.06. Counterparts. This Declaration may contain more than one
counterpart of the signature pages and this Declaration may be executed by the
affixing of the signature of the Sponsor and each of the Trustees to one of such
counterpart signature pages. All such counterpart signature pages shall be read
as though one, and they shall have the same force and effect as though all the
signers had signed a single signature page.
SECTION 14.07. Intention of the Parties. (a) It is the intention of the
parties hereto that the Trust not be classified for United States Federal income
tax purposes as an association taxable as a corporation or partnership but that
the Trust be treated as a grantor trust for United States Federal income tax
purposes. The provisions of this Declaration shall be interpreted to further
this intention of the parties.
(b) The Trust, the Trustees, Time Warner and each Holder of a Trust
Security, by his or her acceptance thereof, agree to treat the Subordinated
Debentures as debt instruments for United States Federal, state and local income
and franchise tax purposes and shall not take any contrary position before any
taxing authority or on any tax return.
SECTION 14.08. Successors and Assigns. Whenever in this Declaration any of
the parties hereto is named or referred to, the successors and assigns of such
party shall be deemed to be included, and all covenants and agreements 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.
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55
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: Thomas W. McEnerney
Title: Vice President
by
--------------------------
John A. LaBarca,
as Trustee
by
--------------------------
Philip R. Lochner, Jr.,
as Trustee
by
--------------------------
Thomas W. McEnerney,
as Trustee
THE FIRST NATIONAL BANK OF
CHICAGO, as Trustee,
by
--------------------------
Name: Melissa G. Weisman
Title: Assistant Vice
President
FIRST CHICAGO DELAWARE INC.,
as Delaware Trustee,
by
--------------------------
Name: Melissa G. Weisman
Title: Assistant Vice
President
<PAGE>
<PAGE>
CERTIFICATE OF TRUST
OF
TIME WARNER CAPITAL I
This Certificate of Trust of Time Warner Capital I (the "Trust"), dated
August 2, 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
Capital I.
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: Melissa G. Weisman
Title: Assistant Vice
President
FIRST CHICAGO DELAWARE INC., as
Delaware Trustee,
by
-------------------------
Name: Melissa G.Weisman
Title: Assistant Vice
President
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by
-------------------------
John A. LaBarca,
as trustee
by
-------------------------
Philip R. Lochner, Jr.,
as trustee
by
-------------------------
Thomas W. McEnerney,
as trustee
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EXHIBIT B
TERMS OF
PREFERRED SECURITIES
Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust
of Time Warner Capital I (the "Trust") dated as of December 5, 1995 (as amended
from time to time, the "Declaration"), the designations, rights, privileges,
restrictions, preferences and other terms and provisions of the Preferred
Securities are set forth below (each capitalized term used but not defined
herein having the meaning set forth in the Declaration or, to the extent not
defined therein, the Guarantee Agreement dated as of December 5, 1995 (as
amended from time to time, the "Guarantee") executed by Time Warner Inc. ("Time
Warner") on behalf of the Holders of the Preferred Securities):
1. Designation and Number. Preferred Securities of the Trust with an
aggregate liquidation amount in the assets of the Trust of Five Hundred
Seventy-Five Million Dollars ($575,000,000) and a liquidation amount in the
assets of the Trust of $25 per Preferred Security, are hereby designated as
"8-7/8% Preferred Trust Securities". The Preferred Security Certificates
evidencing the Preferred Securities shall be substantially in the form attached
hereto as Annex I, with such changes and additions thereto or deletions
therefrom as may be required by ordinary usage, custom or practice or to conform
to the rules of any stock exchange on which the Preferred Securities are listed
or to the rules of any Clearing Agency in which the Preferred Securities have
been accepted for trading. The Trust will invest the gross proceeds from the
issuance of the Preferred Securities together with the gross proceeds from the
sale to Time Warner of the Common Securities in Subordinated Debentures of Time
Warner having an aggregate principal amount equal to $592,783,525, and bearing
interest at an annual percentage rate of 8-7/8%, 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 a rate per annum of 8-7/8% (the "Coupon Rate") of the
aggregate liquidation amount of $25 per Preferred Security, such rate being the
rate of interest payable on the Subordinated
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2
Debentures to be held by the Property Trustee. Distributions in arrears beyond
the first date such Distributions are payable (or would be payable in not for
any Extension Period (as hereinafter defined) or default by Time Warner on the
Subordinated Debentures) will bear interest thereon at the Coupon Rate (to the
extent permitted by law), compounded quarterly. The term "Distributions" as used
in these terms means such periodic cash distributions and any such interest
payable unless otherwise stated. A Distribution will be made by the Property
Trustee only to the extent that interest payments are made in respect of the
Subordinated Debentures held by the Property Trustee. The amount of
Distributions (or amounts equal to accrued and unpaid Distributions) payable for
any period will be computed (i) for any full quarterly Distribution period, on
the basis of a 360-day year of twelve 30-day months and will include the first
day but exclude the last day of such period, and (ii) for any period shorter
than a full quarterly Distribution period, on the basis of a 360-day year of
twelve 30-day months and on the basis of the actual number of days elapsed in
any such 30-day month and will include the first day but exclude the last day of
such period.
(b) Distributions on the Preferred Securities will be cumulative, will
accrue from and including December 5, 1995, and will be payable quarterly in
arrears, on March 31, June 30, September 30 and December 31 of each year,
commencing on December 31, 1995, except as otherwise described below, but only
if and to the extent that interest payments are made in respect of the
Subordinated Debentures held by the Property Trustee. Time Warner, as issuer of
the Subordinated Debentures, has the right under the Indenture to defer payments
of interest by extending the interest payment period from time to time on the
Subordinated Debentures for a period not exceeding 20 consecutive quarters (each
an "Extension Period") and, during such Extension Period, Distributions will
also be deferred. Despite such deferral, quarterly Distributions will continue
to accrue with interest thereon (to the extent permitted by applicable law) at
the Coupon Rate compounded quarterly during any such Extension Period. In the
event that Time Warner exercises its rights to commence any Extension Period or
an extension period or other deferral of interest feature under any debt
security of Time Warner that ranks pari passu with the Subordinated Debentures,
then (a) Time Warner shall not declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a
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3
liquidation payment with respect to, any of its capital stock and (b) Time
Warner shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem the Subordinated Debentures or any debt
securities issued by Time Warner that rank pari passu with or junior to the
Subordinated Debentures; provided, however, that the foregoing restrictions do
not apply (i) to any interest or dividend payment by Time Warner where the
interest or dividend is paid by way of the issuance of securities that rank
junior to the Subordinated Debentures, (ii) any payments of interest, principal
or premium, if any, on, or repayment, repurchase or redemption of, Time Warner's
4% Subordinated Notes due December 23, 1995 and (iii) any payments or
distributions with respect to, or redemptions, purchases or acquisitions of, or
any payments in liquidation of, the $1.24% Preferred Exchangeable Redemption
Cumulative Securities issued by Time Warner Financing Trust (the "PERCS")
(including any of the foregoing with respect to the guarantee agreement entered
into by Time Warner for the benefit of the holders of the PERCS). Prior to the
termination of any such Extension Period, Time Warner may further extend such
Extension Period; provided that such Extension Period together with all such
previous and further extensions thereof may not exceed 20 consecutive quarters.
Upon the termination of any Extension Period, payments of accrued Distributions
will be payable to Holders as they appear on the books and records of the Trust
on the record date for the first payment date after the end of the Extension
Period. Upon the termination of any Extension Period and the payment of all
amounts then due, Time Warner may commence a new Extension Period, subject to
the above requirements. The Regular Trustees shall give notice to the Holders of
any Extension Period upon their receipt of notice thereof from Time Warner.
(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. While the Preferred Securities remain
in book-entry only form, the relevant record dates shall be one Business Day
prior to the relevant payment dates which payment dates correspond to the
interest payment dates on the Subordinated Debentures. Subject to any applicable
laws and regulations and the provisions of the Declaration, each such payment in
respect of the Preferred Securities will be made as described under the heading
"Description of the Preferred Securities--Book-
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4
Entry Only Issuance--The Depository Trust Company" in the Prospectus Supplement
dated November 30, 1995, to the Prospectus dated November 8, 1995 (together the
"Prospectus"), of the Trust included in the Registration Statement on Form S-3
of the Sponsor, the Trust and certain other business trusts.
If the Preferred Securities shall not continue to remain in book-entry only
form, the relevant record dates for the Preferred Securities shall conform to
the rules of any securities exchange on which the securities are listed and, if
none, shall be selected by the Regular Trustees, which dates shall be at least
one Business Day but less than 60 Business Days before the relevant payment
dates, which payment dates correspond to the interest payment dates on the
Subordinated Debentures. 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 Debentures 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 the
Distribution payable on such date will be made on the next succeeding day that
is a Business Day (and without any interest or other payment in respect of any
such delay), except that if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date.
(d) All Distributions paid with respect to the Preferred Securities and the
Common Securities will be paid on a Pro Rata Basis (as defined herein) to the
Holders thereof entitled thereto.
(e) In the event that there is any money or other property held by or for
the Trust that is not accounted for under the Declaration or these terms of the
Preferred
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5
Securities or the terms of the Common Securities, such money or property
shall be distributed on a Pro Rata Basis among the Holders of the Preferred
Securities and Common Securities.
3. Liquidation Distribution Upon Dissolution. In the event of any
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 an amount equal to (a) $25 per
Trust Security plus (b) the amount of accrued and unpaid Distributions thereon
to, but excluding, the date of payment (such amount being the "Liquidation
Distribution") in connection with such Liquidation Event, unless Subordinated
Debentures in an aggregate principal amount equal to the aggregate liquidation
amount of, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid Distributions on, the Trust Securities have been distributed
on a Pro Rata Basis (determined without regard to the proviso in the definition
of such term) to the Holders of the Trust Securities in exchange for such Trust
Securities. In the event that the assets of the Trust exceed the amount
necessary to pay to all Holders of the Trust Securities the full amount of the
Liquidation Distribution, such excess will be paid to the Holders of the Trust
Securities on a Pro Rata Basis (determined without regard to the proviso in the
definition of such term).
4. Redemption and Distribution of Subordinated Debentures. The Trust
Securities may be redeemed only if Subordinated Debentures having an aggregate
principal amount equal to the aggregate liquidation amount of, and accrued and
unpaid interest equal to accrued and unpaid Distributions on, the Trust
Securities are repaid, redeemed or distributed as set forth below:
(a) Upon the repayment of the Subordinated Debentures in whole or in part,
whether at maturity or upon redemption, the proceeds from such repayment or
payment shall be simultaneously applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Subordinated Debentures so repaid or redeemed at a redemption price equal to the
liquidation amount per Trust Security (the "Redemption Price") plus an amount
equal to all accrued and unpaid Distributions thereon to but excluding the date
of the
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6
redemption, payable in cash. Holders will be given not less than 20 nor more
than 45 Business Days notice of such redemption.
(b) If fewer than all the outstanding Trust Securities are to be so
redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and the
Preferred Securities to be redeemed will be redeemed as described in 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 automated
inter-dealer quotation system, (including the Nasdaq Stock Market) on which the
Preferred Securities are then listed, Time Warner pursuant to the Indenture will
only redeem the Subordinated Debentures in whole and, as a result, the Trust may
only redeem the Preferred Securities in whole.
(c)(i) If, at any time, a Tax Event or an Investment Company Event
(each as hereinafter defined, and each a "Special Event") shall occur and
be continuing, the Regular Trustees shall notify Time Warner thereof and
Time Warner shall elect to either: (A) direct the Regular Trustees to
dissolve the Trust and cause Subordinated Debentures having an aggregate
principal amount equal to the aggregate liquidation amount of, and accrued
and unpaid interest equal to accrued and unpaid Distributions on, and
having the same record dates for payment as, the Trust Securities
outstanding at such time, to be distributed to the Holders of the Trust
Securities on a Pro Rata Basis (determined without regard to the proviso in
the definition of such term) in liquidation of such Holders' interests in
the Trust, within 90 days following the occurrence of such Special Event;
provided, however, that in the case of the occurrence of a Tax Event, as a
condition of any such dissolution and distribution, the Regular Trustees
shall have received an opinion of nationally recognized independent tax
counsel experienced in such matters (a "No Recognition Opinion"), which
opinion may rely on any then applicable published revenue ruling of the
Internal Revenue Service, to the effect that the Holders of the 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 Debentures; (B) redeem the Subordinated
Debentures in whole (and not in part), upon not less than 20 nor more than
45 Business Days'
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7
notice, within 90 days following the occurrence of such Special Event,
in which case the Trust shall redeem in cash on a Pro Rata Basis Trust
Securities having an aggregate liquidation amount equal to the principal
amount of, and accrued and unpaid distributions equal to the accrued and
unpaid interest on, the Subordinated Debentures so redeemed, at a price per
Trust Security of (1) $25, plus (2) an amount equal to all accrued and
unpaid distributions on such Trust Security to but excluding the date of
such redemption (the "Special Redemption Date") or (C) in the case of a Tax
Event, allow the Subordinated Debentures and the Trust Securities to remain
outstanding and indemnify the Trust for all taxes payable by it as a result
of such Tax Event; provided that, if at the time there is available to the
Trust the opportunity to eliminate, within 90 days following the occurrence
of such Special Event (the "90-Day Period"), the Special Event by taking
some ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable measure that has no adverse effect
on the Trust, Time Warner or the Holders of the Trust Securities (a
"Ministerial Action"), the Trust will pursue such measure in lieu of
dissolution or redemption; provided further, that Time Warner shall have no
right to redeem the Subordinated Debentures or to direct the Regular
Trustees to dissolve the Trust while the Regular Trustees are pursuing such
Ministerial Action unless the Special Event shall not have been so
eliminated by the 85th day following the occurrence thereof, in which case
Time Warner shall be permitted to so direct the Regular Trustees or to
provide notice to the Holders of the redemption of the Subordinated
Debentures; and provided further, that if dissolution of the Trust and
distribution of the Subordinated Debentures to the Holders of the Trust
Securities would eliminate the condition causing the Special Event and all
other conditions to such dissolution and distribution have been satisfied,
Time Warner will not be permitted to redeem the Subordinated Debentures.
(ii) "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
November 30, 1995, as a result of (A) any amendment to, or change
(including any announced
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8
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 November 30, 1995, there is more than an insubstantial risk
that at such time or within 90 days of the date thereof (1) the Trust is,
or would be, subject to United States Federal income tax with respect to
income accrued or received on the Subordinated Debentures, (2) the interest
payable by Time Warner to the Trust on the Subordinated Debentures is not,
or would not be, deductible by Time Warner for United States Federal income
tax purposes or (3) the Trust is, or would be, subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.
(iv) "Investment Company Event" means that the Regular Trustees shall
have received an opinion of nationally recognized independent counsel
experienced in such matters that, as a result of the occurrence of a change
in law or regulation or a written change in interpretation or application
of law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), there is more than an
insubstantial risk that the Trust is or will be considered an Investment
Company that is required to be registered under the Investment Company Act,
which Change in 1940 Act Law becomes effective on or after November 30,
1995.
(v) On the date fixed for any distribution of Subordinated Debentures,
upon dissolution of the Trust, (i) the Preferred Securities will no longer
be deemed to be outstanding, (ii) neither the Trust nor Time
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9
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 Clearing Agency or its nominee, as the record holder
of the Preferred Securities, will receive a registered global certificate
or certificates representing the Subordinated Debentures to be delivered
upon such distribution and (iv) any certificates representing Preferred
Securities not held by the Clearing Agency or its nominee will be deemed to
represent Subordinated Debentures having an aggregate principal amount
equal to the aggregate 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.
(d) The Trust may not redeem fewer than all the outstanding Preferred
Securities 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 date of redemption.
(e) If Subordinated Debentures 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 Debentures listed on the New York Stock
Exchange or on such other exchange or self-regulatory organization (including
the Nasdaq Stock Market) as the Preferred Securities were listed immediately
prior to the distribution of the Subordinated Debentures.
(f) (i) Notice of any redemption (other than mandatory redemption) of,
or notice of distribution of Subordinated Debentures in exchange for, the
Preferred Securities and Common Securities (a "Redemption/ Distribution
Notice") will be given by the Regular Trustees on behalf of the Trust by
mail to each Holder of Preferred Securities and Common Securities to be
redeemed or exchanged not less than 20 nor more than 45 Business Days prior
to the date fixed for redemption or distribution thereof. For purposes of
the calculation of the date of redemption or exchange and the dates on
which notices are given pursuant to this paragraph (f)(i), a
Redemption/Distribution Notice shall be deemed to be given on the day such
notice is first mailed by first-class mail, postage prepaid, to
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Holders of Preferred Securities and Common Securities. Each
Redemption/Distribution Notice shall be addressed to the Holders of
Preferred Securities and Common Securities at the address of each such
Holder appearing in the books and records of the Trust. Such
Redemption/Distribution Notice shall set forth the aggregate liquidation
amount of Trust Securities to be redeemed, the date of such redemption or
such distribution and in the case of a Special Event, a brief description
thereof. No defect in the Redemption/Distribution Notice or in the mailing
of either thereof with respect to any Holder shall affect the validity of
the redemption or exchange proceedings with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Preferred
Securities are to be redeemed, the Preferred Securities to be redeemed will
be redeemed on a Pro Rata Basis from each Holder of Preferred Securities,
and, in the event Preferred Securities are held in book-entry only form by
the Clearing Agency or its nominee (or any successor Clearing Agency or its
nominee), the Clearing Agency will reduce on a Pro Rata Basis the amount of
the interest of each Clearing Agency Participant in the Preferred
Securities to be redeemed; provided that if, as a result of such
redemption, Clearing Agency Participants would hold fractional interests in
the Preferred Securities, the Clearing Agency will adjust the amount of the
interest of each clearing Agency Participant to be redeemed to avoid such
fractional interests.
(iii) Payment of the Redemption Price 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 date of redemption) after the
Redemption/Distribution Notice is given (to the extent such notice is
required). Payment of the Redemption Price, together with any accrued and
unpaid distributions on each Preferred Security, will be made by the
delivery of cash no later than the applicable date of redemption with
respect to such Preferred Security or, if later, the time of delivery or
transfer of such Preferred Security.
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11
(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), 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
Debentures, 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, together with any
accrued and unpaid Distributions on the Preferred Securities being
redeemed, but without interest on such amount. Neither the Trustees nor the
Trust shall be required to register or cause to be registered the transfer
of any Preferred Securities which have been so called for redemption. If
any date fixed for redemption of Preferred Securities is not a Business
Day, then payment of the Redemption Price payable on such date, together
with any accrued and unpaid Distributions to such date, will be made on the
next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business
Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment of the
Redemption Price in respect of Preferred Securities, together with any
accrued and unpaid Distributions on such Preferred Securities, is
improperly withheld or refused and not paid either by the Property Trustee
or by Time Warner pursuant to the Guarantee, Distributions on such
Preferred Securities will continue to accrue, from the original redemption
date to the date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Price and the amount of any such accrued and unpaid
distributions.
(v) Upon the date of dissolution of the Trust and distribution of
Subordinated Debentures to the Holders of the Trust Securities as a result
of the occurrence of a Special Event, Preferred Security Certificates
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12
shall be deemed to represent the Subordinated Debentures so
distributed to the Holders of Preferred Securities, and the Preferred
Securities will no longer be deemed outstanding and may be canceled by the
Regular Trustees. The Subordinated Debentures so distributed shall have an
aggregate principal amount equal to the aggregate liquidation amount of the
Preferred Securities in respect of which the Subordinated Debentures shall
have been so distributed.
(vi) Subject to the foregoing and applicable law (including, without
limitation, United States Federal securities laws), Time Warner or any of
its affiliates may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
Any such Preferred Securities purchased by Time Warner shall be surrendered
to the Trust for cancellation.
5. Voting Rights. (a) Except as provided under paragraph 5(b) below and as
otherwise required by law and the Declaration, the Holders of the Preferred
Securities will have no voting rights.
(b) (i) If (A) the Trust (1) fails to pay Distributions in full on the
Preferred Securities and such failure continues unremedied for 6
consecutive quarterly Distribution periods (2) fails to pay the Redemption
Price of any Preferred Securities to be redeemed on the applicable
redemption date; or (B) an Event of Default occurs and is continuing (each
an "Appointment Event"), then the Holders of the Preferred Securities,
acting as a single class, will be entitled by the vote of Holders of
Preferred Securities representing a Majority in aggregate 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. For purposes of determining whether the Trust has
failed to make Distributions in full for 6 consecutive quarterly
Distribution periods, Distributions shall be deemed to remain in arrears,
notwithstanding any payments in respect thereof, until full cumulative
Distributions have been or contemporaneously are paid with respect to all
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quarterly Distribution periods terminating on or prior to the date of
payment of such cumulative Distributions. Not later than 30 days after such
right to appoint a Special Regular Trustee arises, the Regular Trustees
will convene a meeting of the Holders of the Preferred Securities for the
purpose of appointing a Special Regular Trustee. If the Regular Trustees
fail to convene such meeting within such 30- day period, the Holders of
Preferred Securities representing not less than 10% in aggregate
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 aggregate 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 aggregate
liquidation amount of the Preferred Securities in accordance with Section
5.02(a)(ii)(B) of the Declaration. The Holders of 10% in aggregate
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, including the right to extend
the interest payment period on the Subordinated Debentures.
(ii) If any proposed amendment to the Declaration provides for, or the
Regular Trustees otherwise propose
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14
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 Debentures 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 Debentures, then the Holders of outstanding
Trust Securities will be entitled to vote on such amendment or proposal as
a class and such amendment or proposal shall not be effective except with
the approval of the Holders of Trust Securities representing a Majority in
aggregate 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 a Majority in aggregate 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 Debentures, is required under the Indenture with
respect to any amendment, modification or termination of the Indenture or
the Subordinated Debentures, 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 aggregate liquidation amount of the Trust Securities voting
together as a single class; provided that where such amendment,
modification or termination of the Indenture or the Subordinated Debentures
requires the consent or vote of (A) holders of Subordinated Debentures
representing a specified percentage greater than a
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15
majority in principal amount of the Subordinated Debentures or (B)
each holder of Subordinated Debentures, the Property Trustee may only vote
with respect to that amendment, modification or termination as directed by,
in the case of clause (A) above, the vote of Holders of Trust Securities
representing such specified percentage of the aggregate 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
not take any action in accordance with the directions of the Holders of
Trust Securities unless the Property Trustee shall have received, at the
expense of the Sponsor, an opinion of nationally recognized independent tax
counsel experienced in such matters to the effect that, as a result of such
action, Time Warner Capital will not fail to be classified as a grantor
trust for United States Federal income tax purposes.
(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
aggregate 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 Debentures, 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 Debentures, (2) waive any past
default that is waivable under Section 5.13 of the Indenture or (3)
exercise any right to rescind or annul a declaration that the principal of
all the Subordinated Debentures 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 Debentures representing a specified
percentage greater than a majority in principal amount of the Subordinated
Debentures or (y) each holder of
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16
Subordinated Debentures, 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 revoke any action previously authorized or approved by a
vote of the Holders of the Preferred Securities. The Property Trustee shall
not take any of the foregoing actions at the direction of the Holders of
Preferred Securities unless the Property Trustee shall have received, at
the expense of the Sponsor, an opinion of nationally recognized independent
tax counsel experienced in such matters to the effect that, as a result of
such action, Time Warner Capital will not fail to be classified as a
grantor trust for United States Federal income tax purposes. If the
Property Trustee fails to enforce its rights under the Declaration
(including its rights, powers and privileges as a holder of the
Subordinated Debentures 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
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<PAGE>
17
of any resolution proposed for adoption at such meeting on which such
Holders are entitled to vote or of such matter upon which written consent
is sought and (C) instructions for the delivery of proxies or consents.
(vii) No vote or consent of the Holders of Preferred Securities will
be required for the Trust to redeem and cancel Preferred Securities in
accordance with the Declaration.
(viii) Notwithstanding that Holders of Preferred Securities are
entitled to vote or consent under any of the circumstances described above,
any of the Preferred Securities at such time that are owned by Time Warner
or by any entity directly or indirectly controlling or controlled by or
under direct or indirect common control with Time Warner shall not be
entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
(ix) Except as provided in this paragraph 5, Holders of the Preferred
Securities will have no rights to increase or decrease the number of
Trustees or to appoint, remove or replace a Trustee, which voting rights
are vested solely in the Holders of the Common Securities.
6. Pro Rata Treatment. A reference in these terms of the Preferred
Securities to any payment, distribution or treatment as being made on a "Pro
Rata Basis" shall mean, with respect to such payment, distribution or treatment,
pro rata to each Holder of Trust Securities according to the aggregate
liquidation amount of the Trust Securities held by such Holder in relation to
the aggregate liquidation 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 Debentures,
any funds available to make such payment shall be paid (i) first to each Holder
of the Preferred Securities pro rata according to the aggregate liquidation
amount of Preferred Securities held by such Holder in relation to the aggregate
liquidation amount of all Preferred Securities outstanding up to an aggregate
amount equal to the amount then owed to the Holders of the Preferred Securities,
and (ii) only after satisfaction of all amounts owed to the Holders of the
Preferred Securities, to each Holder of Common Securities pro rata according to
the aggregate liquidation amount of Common Securities held by such Holder
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18
in relation to the aggregate liquidation amount of all Common Securities
outstanding.
7. Ranking. The Preferred Securities rank pari passu, and payments will be
made thereon on a Pro Rata Basis, with the Common Securities, except that if, as
a result of an Event of Default with respect to the Subordinated Debentures, the
assets of the Trust are insufficient to make payments of Distributions or
payments upon liquidation, redemption of the Trust Securities or otherwise, the
rights of Holders of the Common Securities to receive such payments will be
subordinated to the rights of the Holders of the Preferred Securities.
8. Mergers, Consolidations or Amalgamations. The Trust may not consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets to, any corporation or other body.
9. Transfer, Exchange, Method of Payments. Payment of Distributions and
payments on redemption of the Preferred Securities or on dissolution of the
Trust will be payable, the transfer of the Preferred Securities will be
registrable, and Preferred Securities will be exchangeable for Preferred
Securities of other denominations of a like aggregate 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 or on dissolution of the Trust will be made only upon surrender of such
Preferred Security to the Property Trustee.
10. Acceptance of Indenture and Guarantee and Certain Other Matters. Each
Holder of Preferred Securities, by the acceptance thereof, agrees (a) to the
provisions of (i) the Guarantee, including the subordination provisions therein
and (ii) the Indenture and the Subordinated Debentures, including the
subordination provisions of the Indenture and (b) to treat the Subordinated
Debentures as debt instruments for United States Federal, state and local income
and franchise tax purposes and not to take any contrary position before any
taxing authority or on any tax return.
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19
11. No Preemptive Rights. The Holders of Preferred Securities shall have no
preemptive rights to subscribe to any additional Preferred Securities or Common
Securities.
12. Miscellaneous. These terms shall constitute a part of the Declaration.
The Regular Trustees will provide a copy of the Declaration, the Guarantee and
the Indenture to a Holder without charge on written request to the Trust at its
principal place of business.
<PAGE>
<PAGE>
Annex I
Certificate Number Number of Preferred Securities
B-1
CUSIP NO. 88731G204
Certificate Evidencing Preferred Securities
of
Time Warner Capital I
8-7/8% Preferred Trust Securities
Time Warner Capital I, 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 8-7/8% Preferred Trust 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 December 5, 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 Debentures (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 December
5, 1995 (the "Guarantee") to the extent provided therein. The Regular Trustees
will furnish a copy of the Declaration, the Guarantee and the Indenture to the
Holder without charge upon written request to the Trust at its principal place
of business or registered office. Terms used herein and not defined herein have
the meanings ascribed to such terms in the Declaration.
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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 Debentures,
including that the Subordinated Debentures are (a) subordinate and junior in
right of payment to all Senior Indebtedness (as defined in the Indenture, which
term includes Time Warner's outstanding 8-3/4% Convertible Subordinated
Debentures due 2015) as and to the extent provided in the Indenture and (ii)
agreed to the terms of the Guarantee, including that the Guarantee is (a)
subordinate and junior in right of payment to all other liabilities of Time
Warner, (b) pari passu with the guarantee delivered by Time Warner in connection
with the PERCS, (c) 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 (d) senior to Time Warner's common
stock.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, Trustees of the Trust have executed this certificate
this fifth day of December, 1995.
TIME WARNER CAPITAL I,
by
------------------------
Name: Thomas W. McEnerney
Title: Trustee
by
------------------------
Name: John A. LaBarca
Title: Trustee
by
------------------------
Name: Philip R. Lochner, Jr.
Title: Trustee
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<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>
<PAGE>
EXHIBIT C
TERMS OF
COMMON SECURITIES
Pursuant to Section 7.01 of the Amended and Restated Declaration of Trust
of Time Warner Capital I (the "Trust") dated as of December 5, 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):
1. Designation and Number. Common Securities of the Trust with an aggregate
liquidation amount in the assets of the Trust of Seventeen Million, Seven
Hundred Eighty- Three Thousand, Five Hundred Twenty-Five ($17,783,525) and a
aggregate liquidation amount in the assets of the Trust of $25 per Common
Security, are hereby designated as "8-7/8% 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 $17,783,525 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
Debentures of Time Warner having an aggregate principal amount equal to
$592,783,525, 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.
2. Distributions. (a) Periodic distributions payable on each Common
Security will be fixed at a rate per annum of 8-7/8% (the "Coupon Rate") of the
aggregate liquidation amount of $25 per Common Security, such rate being the
rate of interest payable on the Subordinated Debentures to be held by the
Property Trustee. Distributions in arrears beyond the first date such
Distributions are payable (or would be payable if not for any Extension Period
(as hereinafter defined) or default by Time Warner on the Subordinated
Debentures) will bear interest thereon at the Coupon Rate (to the extent
permitted by law), compounded quarterly. The term "Distributions" as
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2
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 Debentures held by the Property Trustee. The amount of
Distributions (or amounts equal to accrued and unpaid Distributions) payable for
any period will be computed (i) for any full quarterly Distribution period, on
the basis of a 360-day year of twelve 30-day months and will include the first
day but exclude the last day of such period, and (ii) for any period shorter
than a full quarterly Distribution period, on the basis of a 360-day year of
twelve 30-day months and on the basis of the actual number of days elapsed in
any such 30-day month and will include the first day but exclude the last day of
such period.
(b) Distributions on the Common Securities will be cumulative, will accrue
from and including December 5, 1995, and will be payable quarterly in arrears,
on March 31, June 30, September 30 and December 31 of each year, commencing on
December 31, 1995, except as otherwise described below, but only if and to the
extent that interest payments are made in respect of the Subordinated Debentures
held by the Property Trustee. Time Warner, as issuer of the Subordinated
Debentures, has the right under the Indenture to defer payments of interest by
extending the interest payment period from time to time on the Subordinated
Debentures for a period not exceeding 20 consecutive quarters (each an
"Extension Period") and, during such Extension Period, Distributions will also
be deferred. Despite such deferral, quarterly Distributions will continue to
accrue with interest thereon (to the extent permitted by applicable law) at the
Coupon Rate compounded quarterly during any such Extension Period. In the event
that Time Warner exercises its rights to commence any Extension Period or an
extension period or other deferral of interest feature under any debt security
of Time Warner that ranks pari passu with the Subordinated Debentures, then (a)
Time Warner shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock and (b) Time Warner shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem the Subordinated Debentures or any debt securities issued by Time Warner
that rank pari passu with or junior to the Subordinated Debentures; provided,
however, that the foregoing restrictions do not apply (i) to any
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3
interest or dividend payment by Time Warner where the interest or dividend is
paid by way of the issuance of securities that rank junior to the Subordinated
Debentures, (ii) any payments of interest, principal or premium, if any, on, or
repayment, repurchase or redemption of, Time Warner's 4% Subordinated Notes due
December 23, 1995 and (iii) any payments or distributions with respect to, or
redemptions, purchases or acquisitions of, or any payments in liquidation of,
the $1.24 Preferred Exchangeable Redemption Cumulative Securities issued by Time
Warner Financing Trust (the "PERCS") (including any of the foregoing with
respect to the guarantee agreement entered into by Time Warner for the benefit
of the holders of the PERCS). Prior to the termination of any such Extension
Period, Time Warner may further extend such Extension Period; provided that such
Extension Period together with all such previous and further extensions thereof
may not exceed 20 consecutive quarters. Upon the termination of any Extension
Period, payments of accrued Distributions will be payable to Holders as they
appear on the books and records of the Trust on the record date for the first
payment date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, Time Warner may
commence a new Extension Period, subject to the above requirements.
(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. While the Preferred Securities remain in
book-entry only form, the relevant record dates shall be one Business Day prior
to the relevant payment dates which payment dates correspond to the interest
payment dates on the Subordinated Debentures.
If the Preferred Securities shall not continue to remain in book-entry only
form, the relevant record dates for the Preferred Securities shall conform to
the rules of any securities exchange on which the securities are listed and, if
none, shall be selected by the Regular Trustees, which dates shall be at least
one Business Day but less than 60 Business Days before the relevant payment
dates, which payment dates correspond to the interest payment dates on the
Subordinated Debentures. Distributions payable on any Common 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
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<PAGE>
4
Subordinated Debentures 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
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on such date.
(d) All Distributions paid with respect to the Common Securities and the
Preferred Securities will be paid on a Pro Rata Basis (as defined herein) to the
Holders thereof entitled thereto.
(e) In the event that there is any money or other property held by or for
the Trust that is not accounted for under the Declaration or the terms of the
Preferred Securities or these terms of the Common Securities, such money or
property shall be distributed on a Pro Rata Basis among the Holders of the
Preferred Securities and Common Securities.
3. Liquidation Distribution Upon Dissolution. In the event of any
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 an amount equal to (a) $25 per
Trust Security plus (b) the amount of accrued and unpaid Distributions thereon
to, but excluding, the date of payment (such amount being the "Liquidation
Distribution") in connection with such Liquidation Event unless Subordinated
Debentures in an aggregate principal amount equal to the aggregate liquidation
amount of, and bearing accrued and unpaid interest in an amount equal to the
accrued and unpaid
<PAGE>
<PAGE>
5
Distributions on, the Trust Securities have been distributed on a Pro Rata Basis
(determined without regard to the proviso in the definition of such term) to the
Holders of the Trust Securities in exchange for such Trust Securities. 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).
4. Redemption and Distribution of Subordinated Debentures. The Trust
Securities may be redeemed only if Subordinated Debentures having an aggregate
principal amount equal to the aggregate liquidation amount of, and accrued and
unpaid interest equal to accrued and unpaid distributions on, the Trust
Securities are repaid, redeemed or distributed as set forth below:
(a) Upon the repayment of the Subordinated Debentures in whole or in part,
whether at maturity or upon redemption, the proceeds from such repayment or
payment shall be simultaneously applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Subordinated Debentures so repaid or redeemed at a redemption price equal to the
liquidation amount per Trust Security (the "Redemption Price") plus an amount
equal to all accrued and unpaid Distributions thereon to but excluding the date
of the redemption, payable in cash. Holders will be given not less than 20 nor
more than 45 Business Days notice of such redemption.
(b) If fewer than all the outstanding Trust Securities are to be so
redeemed, the Trust Securities will be redeemed on a Pro Rata Basis and the
Common Securities to be redeemed will be redeemed as described in paragraph
4(e)(ii) below. If a partial redemption would result in the delisting of the
Preferred Securities by any national securities exchange or other automated
inter-dealer quotation system (including the Nasdaq Stock Market) on which the
Preferred Securities are then listed, Time Warner pursuant to the Indenture will
only redeem the Subordinated Debentures in whole and, as a result, the Trust may
only redeem the Common Securities in whole.
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6
(c)(i) If, at any time, a Tax Event or an Investment Company Event (each as
hereinafter defined, and each a "Special Event") shall occur and be continuing,
the Regular Trustees shall notify Time Warner thereof and Time Warner shall
elect to either: (A) direct the Regular Trustees to dissolve the Trust and cause
Subordinated Debentures having an aggregate principal amount equal to the
aggregate liquidation amount of, and accrued and unpaid interest equal to
accrued and unpaid Distributions on, and having the same record dates for
payment as, the Trust Securities outstanding at such time, to be distributed to
the Holders of the Trust Securities on a Pro Rata Basis (determined without
regard to the proviso in the definition of such term) in liquidation of such
Holders' interests in the Trust, within 90 days following the occurrence of such
Special Event; provided, however, that in the case of the occurrence of a Tax
Event, as a condition of any such dissolution and distribution, the Regular
Trustees shall have received an opinion of nationally recognized independent tax
counsel experienced in such matters (a "No Recognition Opinion"), which opinion
may rely on any then applicable published revenue ruling of the Internal Revenue
Service, to the effect that the Holders of the 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
Debentures; (B) redeem the Subordinated Debentures 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, in which case the Trust shall
redeem in cash on a Pro Rata Basis Trust Securities having an aggregate
liquidation amount equal to the principal amount of, and accrued and unpaid
distributions equal to the accrued and unpaid interest on, the Subordinated
Debentures so redeemed, at a price per Trust Security of (1) $25, plus (2) an
amount equal to all accrued and unpaid distributions on such Trust Security to
but excluding the date of such redemption (the "Special Redemption Date") or (C)
in the case of a Tax Event, allow the Subordinated Debentures and the Trust
Securities to remain outstanding and indemnify the Trust for all taxes payable
by it as a result of such Tax Event; provided that, if at the time there is
available to the Trust the opportunity to eliminate, within 90 days following
the occurrence of such Special Event (the "90-Day Period"), the Special Event by
taking some ministerial action, such as filing a form or making an election, or
pursuing some other similar reasonable measure that has no adverse effect on the
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7
Trust, Time Warner or the Holders of the Trust Securities (a "Ministerial
Action"), the Trust will pursue such measure in lieu of dissolution or
redemption; provided further, that Time Warner shall have no right to redeem the
Subordinated Debentures or to direct the Regular Trustees to dissolve the Trust
while the Regular Trustees are pursuing such Ministerial Action unless the
Special Event shall not have been so eliminated by the 85th day following the
occurrence thereof, in which case Time Warner shall be permitted to so direct
the Regular Trustees or to provide notice to the Holders of the redemption of
the Subordinated Debentures; and provided further, that if dissolution of the
Trust and distribution of the Subordinated Debentures to the Holders of the
Trust Securities would eliminate the condition causing the Special Event and all
other conditions to such dissolution and distribution have been satisfied, Time
Warner will not be permitted to redeem the Subordinated Debentures.
(ii) "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
November 30, 1995, 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 November 30, 1995, there is more
than an insubstantial risk that at such time or within 90 days of the date
thereof (1) the Trust is, or would be, subject to United States Federal
income tax with respect to income accrued or received on the Subordinated
Debentures, (2) the interest payable by
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8
Time Warner to the Trust on the Subordinated Debentures is not, or
would not be, deductible by Time Warner for United States Federal income
tax purposes or (3) the Trust is, or would be, subject to more than a de
minimis amount of other taxes, duties, assessments or other governmental
charges.
(iv) "Investment Company Event" means that the Regular Trustees shall
have received an opinion of nationally recognized independent counsel
experienced in such matters that, as a result of the occurrence of a change
in law or regulation or a written change in interpretation or application
of law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), there is more than an
insubstantial risk that the Trust is or will be considered an Investment
Company that is required to be registered under the Investment Company Act,
which Change in 1940 Act Law becomes effective on or after November 30,
1995.
(v) On the date fixed for any distribution of Subordinated Debentures,
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 the Subordinated Debentures having an aggregate
principal amount equal to the aggregate 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.
(d) 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.
(e) (i) Notice of any redemption (other than a mandatory redemption)
of, or notice of distribution of Subordinated Debentures 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
<PAGE>
<PAGE>
9
Holder of Preferred Securities and Common Securities to be redeemed or
exchanged not less than 20 nor more than 45 Business Days prior to the date
fixed for redemption or distribution thereof. For purposes of the
calculation of the date of redemption or exchange and the dates on which
notices are given pursuant to this paragraph (e)(i), a
Redemption/Distribution Notice shall be deemed to be given on the day such
notice is first mailed by first-class mail, postage prepaid, to Holders of
Preferred Securities and Common Securities. Each Redemption/Distribution
Notice shall be addressed to the Holders of Preferred Securities and Common
Securities at the address of each such Holder appearing in the books and
records of the Trust. Such Redemption/Distribution Notice shall set forth
the aggregate liquidation amount of Trust Securities to be redeemed, the
date of such redemption or such distribution and, in the case of a Special
Event, a brief description thereof. No defect in the Redemption/
Distribution Notice or in the mailing of either thereof with respect to any
Holder shall affect the validity of the redemption or exchange proceedings
with respect to any other Holder.
(ii) In the event that fewer than all the outstanding Common
Securities are to be redeemed, the Common Securities to be redeemed will be
redeemed on a Pro Rata Basis from each Holder of Common Securities, and, in
the event Common Securities are held in book-entry only form by the
Clearing Agency or its nominee (or any successor Clearing Agency or its
nominee), the Clearing Agency will reduce on a Pro Rata Basis the amount of
the interest of each Clearing Agency Participant in the Common Securities
to be redeemed; provided that if, as a result of such redemption, Clearing
Agency Participants would hold fractional interests in the Preferred
Securities, the Clearing Agency will adjust the amount of the interest of
each clearing Agency Participant to be redeemed to avoid such fractional
interests.
(iii) Payment of the Redemption Price 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 date of redemption) after the
<PAGE>
<PAGE>
10
Redemption/Distribution Notice is given (to the extent such notice is
required). Payment of the Redemption Price, together with any accrued and
unpaid Distributions on each Common Security, will be made by the delivery
of cash no later than the applicable date of redemption 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, 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
Debentures, 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, together with any
accrued and unpaid Distributions on the Common Securities being redeemed,
but without interest on such amount. Neither the Trustees nor the Trust
shall be required to register or cause to be registered the transfer of any
Common Securities which have been so called for 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, together with any
accrued and unpaid Distributions to such date, will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date fixed for redemption. If payment of the
Redemption Price in respect of Common Securities, together with any accrued
and unpaid Distributions on such Common Securities, is improperly withheld
or refused and not paid by the Property Trustee, Distributions on such
Common Securities will continue to accrue, from the original redemption
date to the date of payment, in which case the actual payment date will be
considered the date
<PAGE>
<PAGE>
11
fixed for redemption for purposes of calculating the Redemption Price
and the amount of any such accrued and unpaid Distributions.
(v) Upon the date of dissolution of the Trust and distribution of
Subordinated Debentures to the Holders of the Trust Securities as a result
of the occurrence of a Special Event, Common Security Certificates shall be
deemed to represent the Subordinated Debentures so distributed to the
Holders of Trust Securities, and the Common Securities will no longer be
deemed outstanding and may be canceled by the Regular Trustees. The
Subordinated Debentures so distributed shall have an aggregate principal
amount equal to the aggregate liquidation amount of the Common Securities
in respect of which the Subordinated Debentures shall have been so
distributed.
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 aggregate 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 Debentures 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
Debentures, then the Holders of outstanding Trust Securities will be entitled to
vote on such amendment or proposal as a class and such amendment or proposal
shall not be effective except with the approval of the Holders of Trust
Securities representing a Majority in aggregate liquidation amount of such
securities
<PAGE>
<PAGE>
12
affected thereby; provided, however, (1) if any amendment or proposal referred
to in clause (A) above would adversely affect only the Preferred Securities or
the Common Securities, then only the affected class will be entitled to vote on
such amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a Majority in aggregate 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 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 Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, 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 aggregate liquidation
amount of the Trust Securities voting together as a single class; provided that
where such amendment, modification or termination of the Indenture or the
Subordinated Debentures requires the consent or vote of (1) holders of
Subordinated Debentures representing a specified percentage greater than a
majority in principal amount of the Subordinated Debentures or (2) each holder
of Subordinated Debentures, 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 not take any
action in accordance with the directions of the Holders of the Trust Securities
unless the Property Trustee shall have received, at the expense of the Sponsor,
an opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that, as a result of such action, Time Warner Capital will
not fail to be classified as a grantor trust for United States Federal income
tax purposes.
<PAGE>
<PAGE>
13
(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 aggregate
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 power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee, as
holder of the Subordinated Debentures, 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 Debentures, (2) waive any past default and its consequences
that is waivable under Section 5.13 of the Indenture, or (3) exercise any right
to rescind or annul a declaration that the principal of all the Subordinated
Debentures 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 Debentures representing a specified percentage greater than a
majority in principal amount of the Subordinated Debentures or (y) each holder
of Subordinated Debentures, 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. The Property Trustee shall not take any of the
foregoing actions at the direction of the Holders of Common Securities unless
the Property Trustee shall have received, at the expense of the Sponsor, an
opinion of nationally recognized independent tax counsel experienced in such
matters to the effect that, as a result of such action, Time Warner Capital will
not fail to be classified as a grantor trust for United States Federal income
tax purposes.
<PAGE>
<PAGE>
14
(c) (i) Notwithstanding any other provision of these terms, each Holder of
Common Securities will be deemed to have waived any Event of Default with
respect to the Common Securities and its consequences until Events of Default
with respect to the Preferred Securities have been cured, waived by the Holders
of Preferred Securities as provided in the Declaration or otherwise eliminated,
and until all Events of Default with respect to the Preferred Securities have
been so cured, waived by the Holders of Preferred Securities or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the Holders of Preferred Securities and only the Holders of the Preferred
Securities will have the right to direct the Property Trustee in accordance with
the terms of the Declaration or of the Trust Securities. In the event that any
Event of Default with respect to the Preferred Securities is waived by the
Holders of Preferred Securities as provided in the Declaration, the Holders of
Common Securities agree that such waiver shall also constitute the waiver of
such Event of Default with respect to the Common 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.
<PAGE>
<PAGE>
15
(e) No vote or consent of the Holders of Common Securities will be required
for the Trust to redeem and cancel Common Securities in accordance with the
Declaration.
6. Pro Rata Treatment. A reference in these terms of the Common Securities
to any payment, distribution or treatment as being made on a "Pro Rata Basis"
shall mean, with respect to such payment, distribution or treatment, pro rata to
each Holder of Trust Securities according to the aggregate liquidation amount of
the Trust Securities held by such Holder in relation to the aggregate
liquidation 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 Debentures, any funds
available to make such payment shall be paid (a) first to each Holder of the
Preferred Securities pro rata according to the aggregate liquidation amount of
Preferred Securities held by such Holder in relation to the aggregate
liquidation amount of all Preferred Securities outstanding up to an aggregate
amount equal to the amount then owed to the Holders of the Preferred Securities,
and (b) only after satisfaction of all amounts owed to the Holders of the
Preferred Securities, to each Holder of Common Securities pro rata according to
the aggregate liquidation amount of Common Securities held by such Holder in
relation to the aggregate liquidation amount of all Common Securities
outstanding.
7. Ranking. The Common Securities rank pari passu, and payments will be
made thereon on a Pro Rata Basis with, the Preferred Securities, except that if,
as a result of an Event of Default with respect to the Subordinated Debentures,
the assets of the Trust are insufficient to make payments of Distributions or
payments upon liquidation, redemption of the Trust Securities or otherwise, the
rights of Holders of the Common Securities to receive such payments will be
subordinated to the rights of the Holders of the Preferred Securities.
8. Mergers, Consolidations or Amalgamations. The Trust may not consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets to, any corporation or other body.
9. Transfers, Exchanges, Method of Payments. Payment of Distributions and
payments on redemption of the Common Securities or on dissolution of the Trust
will be payable, the transfer of the Common Securities will be
<PAGE>
<PAGE>
16
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 or on
dissolution of the Trust will be made only upon surrender of such Common
Security to the Property Trustee. Notwithstanding the foregoing, transfers of
Common Securities are subject to conditions set forth in Section 9.01(c) of the
Declaration.
10. Acceptance of Indenture and Certain Other Matters. Each Holder of
Common Securities, by the acceptance thereof, agrees (a) to the provisions of
the Indenture and the Subordinated Debentures, including the subordination
provisions thereof and (b) to treat the Subordinated Debentures as debt
instruments for United States Federal, state and local income and franchise tax
purposes and not to take any contrary position before any taxing authority or on
any tax return.
11. No Preemptive Rights. The Holders of Common Securities shall have no
preemptive rights to subscribe to any additional Common Securities or Preferred
Securities.
12. Miscellaneous. These terms shall constitute a part of the Declaration.
The Regular Trustees will provide a copy of the Declaration and the Indenture to
a Holder without charge on written request to the Trust at its principal place
of business.
<PAGE>
<PAGE>
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 Capital I
8-7/8% Common Securities
Time Warner Capital I, a statutory business trust formed under the laws of
the State of Delaware (the "Trust"), hereby certifies that (the "Holder") is the
registered owner of ( ) common securities of the Trust representing undivided
beneficial interests in the assets of the Trust designated the 8-7/8% Common
Securities (the "Common Securities"). The Common Securities are transferable on
the books and records of the Trust, in person or by a duly authorized attorney,
upon surrender of this certificate duly endorsed and in proper form for transfer
and satisfaction of the other conditions set forth in the Declaration (as
defined below) including, without limitation Section 9.01(c) thereof. The
designations, rights, privileges, restrictions, preferences and other terms and
provisions of the Common Securities are set forth in, and this certificate and
the Common Securities represented hereby are issued and shall in all respects be
subject to the terms and provisions of, the Amended and Restated Declaration of
Trust of the Trust dated as of December 5, 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 Debentures (as defined in the Declaration) issued by Time
Warner Inc., a Delaware corporation, to the Trust pursuant to the Indenture
referred
<PAGE>
<PAGE>
2
to in the Declaration. The Regular Trustees will furnish a copy of the
Declaration and the Indenture to the Holder without charge upon written request
to the Trust at its principal place of business or registered office.
The Holder of this Certificate, by accepting this Certificate, is deemed to
have agreed to the terms of the Indenture and the Subordinated Debentures,
including that the Subordinated Debentures are subordinate and junior in right
of payment to all Senior Indebtedness (as defined in the Indenture, which term
includes Time Warner's outstanding 8-3/4% Convertible Subordinated Debentures
due 2015) as and to the extent provided in the Indenture.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
IN WITNESS WHEREOF, Trustees of the Trust have executed this certificate
this fifth day of December, 1995.
TIME WARNER CAPITAL I,
by
-----------------------------------
Name: Thomas W. McEnerney
Title: Trustee
by
-----------------------------------
Name: John A. LaBarca
Title: Trustee
by
-----------------------------------
Name: Philip R. Lochner, Jr.
Title: Trustee
<PAGE>
<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>
<PAGE>
================================================================================
INDENTURE
between
TIME WARNER INC.
and
CHEMICAL BANK
Trustee
Dated as of December 5, 1995
Providing for Issuance of
Subordinated Securities in Series
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions ............................................... 1
SECTION 1.02. Compliance Certificates and
Opinions .............................................. 14
SECTION 1.03. Form of Documents Delivered to
Trustee ............................................... 14
SECTION 1.04. Acts of Securityholders ................................... 15
SECTION 1.05. Notices, etc., to Trustee and
Company ............................................... 17
SECTION 1.06. Notices to Securityholders;
Waiver ................................................ 18
SECTION 1.07. Conflict with Trust Indenture Act ......................... 18
SECTION 1.08. Effect of Headings and Table of
Contents .............................................. 18
SECTION 1.09. Successors and Assigns .................................... 19
SECTION 1.10. Separability Clause ....................................... 19
SECTION 1.11. Benefits of Indenture ..................................... 19
SECTION 1.12. Governing Law ............................................. 19
SECITON 1.13. Counterparts .............................................. 19
SECTION 1.14. Judgment Currency ......................................... 19
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally ........................................... 20
SECTION 2.02. Forms of Securities ....................................... 20
SECTION 2.03. Form of Trustee's Certificate of
Authentication ........................................ 21
SECTION 2.04. Securities Issuable in the Form of a
Global Security ....................................... 21
ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations;
Issuable in Series; Terms of
Paricular Series ...................................... 24
<PAGE>
<PAGE>
Contents, p. 2
Page
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SECTION 3.02. Denominations ............................................. 27
SECTION 3.03. Execution, Authentication and
Delivery and Dating ................................... 28
SECTION 3.04. Temporary Securities ...................................... 30
SECTION 3.05. Registration, Transfer and Exchange ....................... 30
SECTION 3.06. Mutilated, Destroyed, Lost and
Stolen Securities ..................................... 32
SECTION 3.07. Payment of Interest; Interest Rights
Preserved ............................................. 33
SECTION 3.08. Persons Deemed Owners ..................................... 35
SECTION 3.09. Cancellation .............................................. 35
SECITON 3.10. Computation of Interest ................................... 35
SECTION 3.11. Delayed Issuance of Securities ............................ 35
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of
Indenture ............................................. 36
SECTION 4.02. Application of Trust Money ................................ 38
SECTION 4.03. Defeasance upon Deposit of Funds or
Government Obligations ................................ 38
SECTION 4.04. Reinstatement ............................................. 41
SECTION 4.05. Subordination Provisions
Inapplicable .......................................... 41
ARTICLE V
Remedies
SECTION 5.01. Events of Default ......................................... 42
SECTION 5.02. Acceleration of Maturity; Rescission
and Annulment ......................................... 43
SECTION 5.03. Collection of Indebtedness and Suits
for Enforcement by Trustee ............................ 45
SECTION 5.04. Trustee May File Proofs of Claim .......................... 46
SECTION 5.05. Trustee May Enforce Claims Without
Possession of Securities .............................. 48
SECTION 5.06. Application of Money Collected ............................ 48
SECTION 5.07. Limitation on Suits ....................................... 48
SECTION 5.08. Unconditional Right of Security-
holders To Receive Principal,
Premium and Interest .................................. 49
SECTION 5.09. Restoration of Rights and Remedies ........................ 49
SECTION 5.10. Rights and Remedies Cumulative ............................ 50
<PAGE>
<PAGE>
Contents, p. 3
Page
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SECTION 5.11. Delay or Omission Not Waiver .............................. 50
SECTION 5.12. Control by Securityholders ................................ 50
SECTION 5.13. Waiver of Past Defaults ................................... 51
SECTION 5.14. Undertaking for Costs ..................................... 51
SECTION 5.15. Waiver of Stay or Extension Laws .......................... 52
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities ....................... 52
SECTION 6.02. Notice of Defaults ........................................ 53
SECTION 6.03. Certain Rights of Trustee ................................. 54
SECTION 6.04. Not Responsible for Recitals or
Issuance of Securities ................................ 56
SECTION 6.05. May Hold Securities ....................................... 56
SECTION 6.06. Money Held in Trust ....................................... 56
SECTION 6.07. Compensation and Reimbursement ............................ 56
SECTION 6.08. Disqualification; Conflicting
Interests ............................................. 57
SECTION 6.09. Corporate Trustee Required;
Eligibility ........................................... 57
SECTION 6.10. Resignation and Removal; Appointment
of Successor .......................................... 58
SECTION 6.11. Acceptance of Appointment by
Successor ............................................. 60
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business ................................ 61
SECTION 6.13. Preferential Collection of Claims
Against Company ....................................... 62
SECTION 6.14. Appointment of Authenticating Agent ....................... 67
ARTICLE VII
Securityholders' Lists and Reports by Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and
Addresses of Securityholders .......................... 69
SECTION 7.02. Preservation of Information;
Communications to Securityholders ..................... 69
SECTION 7.03. Reports by Trustee ........................................ 71
SECTION 7.04. Reports by Company ........................................ 73
<PAGE>
<PAGE>
Contents, p. 4
Page
----
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
SECTION 8.01. Company May Consolidate, etc., only
on Certain Terms ...................................... 73
SECTION 8.02. Successor Person Substituted .............................. 74
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures without
Consent of Securityholders ............................ 74
SECTION 9.02. Supplemental Indentures with Consent
of Securityholders .................................... 76
SECTION 9.03. Execution of Supplemental
Indentures ............................................ 78
SECTION 9.04. Effect of Supplemental Indentures ......................... 78
SECTION 9.05. Conformity with Trust Indenture Act ....................... 78
SECTION 9.06. Reference in Securities to
Supplemental Indentures ............................... 78
SECTION 9.07. Subordination Unimpaired .................................. 78
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and
Interest .............................................. 79
SECTION 10.02. Maintenance of Office or Agency ........................... 79
SECTION 10.03. Money for Security Payments To Be
Held in Trust ......................................... 80
SECTION 10.04. Statement as to Compliance ................................ 81
SECTION 10.05. Legal Existence ........................................... 82
SECTION 10.06. Waiver of Certain Covenants ............................... 82
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article .................................. 83
SECTION 11.02. Election To Redeem; Notice to
Trustee ............................................... 83
<PAGE>
<PAGE>
Contents, p. 5
Page
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SECTION 11.03. Selection by Trustee of Securities
To Be Redeemed ........................................ 84
SECTION 11.04. Notice of Redemption ...................................... 85
SECTION 11.05. Deposit of Redemption Price ............................... 86
SECTION 11.06. Securities Payable on Redemption
Date .................................................. 86
SECTION 11.07. Securities Redeemed in Part ............................... 86
SECTION 11.08. Provisions with Respect to Any
Sinking Funds ......................................... 87
SECTION 11.09. Rescission of Redemption .................................. 88
ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege ...................................... 90
SECTION 12.02. Conversion Procedure; Rescission of
Conversion; Conversion Price;
Fractional Shares ..................................... 90
SECTION 12.03. Adjustment of Conversion Price for
Common Stock or Other Marketable
Securities ............................................ 93
SECTION 12.04. Consolidation or Merger of the
Company ............................................... 98
SECTION 12.05. Notice of Adjustment ...................................... 99
SECTION 12.06. Notice in Certain Events .................................. 99
SECTION 12.07. Company To Reserve Stock or Other
Marketable Securities;
Registration; Listing ................................. 100
SECTION 12.08. Taxes on Conversion ....................................... 101
SECTION 12.09. Conversion After Record Date .............................. 101
SECTION 12.10. Corporate Action Regarding Par Value
of Common Stock ....................................... 102
SECTION 12.11. Company Determination Final ............................... 102
SECTION 12.12. Trustee's Disclaimer ...................................... 102
ARTICLE XIII
Subordination
SECTION 13.01. Agreement To Subordinate .................................. 102
SECTION 13.02. Liquidation, Dissolution, Bankruptcy ...................... 103
SECTION 13.03. Default on Senior Indebtedness ............................ 105
SECTION 13.04. Dispute with Holders of Certain
Senior Indebtedness ................................... 106
SECTION 13.05. Acceleration of Notes ..................................... 107
<PAGE>
<PAGE>
Contents, p. 6
Page
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SECTION 13.06. When Distribution Must be Paid Over ....................... 107
SECTION 13.07. Relative Rights ........................................... 107
SECTION 13.08. Subordination May Not Be Impaired by
Company ............................................... 108
SECTION 13.09. Distribution or Notice to
Representative ........................................ 108
SECTION 13.10. Rights of Trustee and Paying Agent ........................ 108
SECTION 13.11. Notice to Trustee ......................................... 108
SECTION 13.12. Trustee Not a Fiduciary ................................... 109
SECTION 13.13. Effectuation of Subordination by
Trustee ............................................... 109
SECTION 13.14. Article Applicable to Paying Agents ....................... 109
SECTION 13.15. Trustee; Compensation Not Prejudiced ...................... 109
<PAGE>
<PAGE>
INDENTURE between TIME WARNER INC., a
Delaware corporation (hereinafter called the
"Company") having its principal office at 75
Rockefeller Plaza, New York, New York 10019, and
CHEMICAL BANK, a New York banking corporation,
trustee (hereinafter called the "Trustee"), made and
entered into as of the 5th day of December, 1995.
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance of its subordinated debentures, notes,
bonds or other evidences of indebtedness, to be issued in one or more fully
registered series.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
To set forth or to provide for the establishment, of the terms and
conditions upon which the Securities are and are to be authenticated, issued and
delivered, and in consideration of the premises and the purchase of Securities
by the Holders thereof, it is mutually covenanted and agreed as follows, for the
equal and proportionate benefit of all Holders of the Securities or of a series
thereof, as the case may be:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture and of
any indenture supplemental hereto, except as otherwise expressly provided or
unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act or by Commission rule under the Trust Indenture Act, either
directly or by
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2
reference therein, have the meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles and
any accounting rules or interpretations promulgated by the commission as
are generally in effect in the United states of America as of the date of
this Indenture; and
(d) all references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections
and other subdivisions of this instrument as originally executed. The
words "herein", "hereof" and "hereunder" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision.
Certain terms, used principally in Article VI, are defined in that
Article.
"Act", when used with respect to any Securityholder, has the meaning
specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to
authenticate Securities under Section 614.
"Board of Directors" means (a) the board of directors of the
Company, (b) any duly authorized committee of such board, (c) any committee of
officers of the Company or (d) any officer of the Company acting, in the case of
(c) or (d), pursuant to authority granted by the board of directors of the
Company or any committee of such board.
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3
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means, with respect to any series of Securities,
unless otherwise specified in a Board Resolution or an Officer's Certificate
with respect to a particular series of Securities, any day other than a Saturday
or Sunday or any other day on which banking institutions in the pertinent Place
or Places of Payment or the city in which the Corporate Trust Office is located
are authorized or required by law or executive order to be closed.
"Closing Price" of the Common Stock or other Marketable Security, as
the case may be, shall mean the last reported sale price of such stock or other
Marketable Security (regular way) as shown on the Composite Tape of the NYSE
(or, if such stock or other Marketable Security is not listed or admitted to
trading on the NYSE, on the principal national securities exchange on which such
stock or other Marketable Security is listed or admitted to trading), or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices on the NYSE (or, if such stock or other Marketable Security is not
listed or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock or other Marketable Security is listed or admitted
to trading), or, if it is not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices as reported
by the National Association of Securities Dealers Automated Quotation System
(NASDAQ), or if such stock or other Marketable Security is not so reported, the
average of the closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc., selected from time to time by
the Company for that purpose.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" shall mean the class of Common Stock, par value $1.00
per share, of the Company authorized
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4
at the date of this Indenture as originally signed, or any other class of stock
resulting from successive changes or reclassifications of such Common Stock, and
in any such case including any shares thereof authorized after the date of this
Indenture, and any other shares of stock of the Company which do not have any
priority in the payment of dividends or upon liquidation over any other class of
stock.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor.
"Company Request", "Company Order" and "Company Consent" mean a
written request, order or consent, respectively, signed in the name of the
Company by its Chairman of the Board, President or a Vice President, and by its
Treasurer, an Assistant Treasurer, Controller, an Assistant Controller,
Secretary or an Assistant Secretary, and delivered to the Trustee.
"Conversion Agent" means any Person authorized by the Company to
receive Securities to be converted into Common Stock or other Marketable
Securities on behalf of the Company. The Company initially authorizes the
Trustee to act as Conversion Agent for the Securities on its behalf. The Company
may at any time and from time to time authorize one or more Persons to act as
Conversion Agent in addition to or in place of the Trustee with respect to any
series of Securities issued under this Indenture.
"Conversion Price" means, with respect to any series of Securities
which are convertible into Common Stock or other Marketable Securities, the
price per share of Common Stock or the price per designated unit of other
Marketable Security at which the Securities of such series are so convertible as
set forth in the Board Resolution with respect to such series (or in any
supplemental indenture entered into pursuant to Section 9.01(ix) with respect to
such series), as the same may be adjusted from time to time in accordance with
Section 12.03 (or such supplemental indenture).
"Converting Holder" shall have the meaning specified in Section
12.02(c) of this Indenture.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust
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5
business shall be principally administered, which office at the date hereof is
located at 450 West 33rd Street, 15th Floor, New York, New York 10001.
"Current Market Price" on any date shall mean the average of the
daily Closing Prices per share of Common Stock or of such other Marketable
Securities for any 30 consecutive Trading Days selected by the Company prior to
the day in question, which 30 consecutive Trading Day period shall not commence
more than 45 Trading Days prior to the day in question; provided that, with
respect to Section 12.03(c), the "Current Market Price" of the Common Stock or
of such other Marketable Securities shall mean the average of the daily Closing
Prices per share of Common Stock or of such other Marketable Securities for the
five consecutive Trading Days ending on the date of the distribution referred to
in Section 12.03(c) (or if such date shall not be a Trading Day, on the Trading
Day immediately preceding such date).
"Defaulted Interest" has the meaning specified in Section 3.07.
"Depository" means, unless otherwise specified by the Company
pursuant to either Section 2.04 or 3.01, with respect to Securities of any
series issuable or issued as a Global Security, The Depository Trust Company,
New York, New York, or any successor thereto registered as a clearing agency
under the Securities Exchange Act of 1934, as amended, or other applicable
statute or regulation.
"Event of Default" has the meaning specified in Article Five.
"GAAP" means generally accepted accounting principles as such
principles are in effect as of the date of this Indenture.
"Global Security", when used with respect to any series of
Securities issued hereunder, means a Security which is executed by the Company
and authenticated and delivered by the Trustee to the Depository or pursuant to
the Depository's instruction, all in accordance with this Indenture and an
indenture supplemental hereto, if any, or Board Resolution and pursuant to a
Company Request, which shall be registered in the name of the Depository or its
nominee and which shall represent, and shall be denominated in an amount equal
to the aggregate principal amount of, all of the Outstanding Securities of such
series or any portion
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6
thereof, in either case having the same terms, including, without limitation,
the same original issue date, date or dates on which principal is due, and
interest rate or method of determining interest.
"Holder", when used with respect to any Security, means a
Securityholder.
"Indenture" or "this Indenture" means this instrument as originally
executed or as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of particular series of Securities
established as contemplated by Section 3.01.
"Interest", when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, means interest
payable after Maturity.
"Interest Payment Date", when used with respect to any series of
Securities, means the Stated Maturity of any installment of interest on those
Securities.
"Marketable Security" means any common stock, debt security or other
security of a Person which is (or will, upon distribution thereof, be) listed on
the NYSE, the American Stock Exchange or any national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934, as amended,
or approved for quotation in the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System or any
similar system of automated dissemination of quotations of securities prices in
the United States or for which there is a recognized market maker or trading
market.
"Material U.S. Subsidiary" means any Person that is a Subsidiary if
(a) if such Person is organized under the laws of the United States of America
or any political subdivision thereof (including any state thereof or the
District of Columbia) and (b) at the end of the most recent fiscal quarter of
the Company, the aggregate amount, determined in accordance with GAAP
consistently applied, of securities of, loans and advances to, and other
investments in, such Person held by the Company and its other Subsidiaries
exceeded 10% of the Company's Consolidated Net Worth. For purposes of the
foregoing, "Consolidated Net Worth" means the consolidated stockholders' or
owners' equity of the holders of capital stock or partnership
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7
interests of such Person and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP consistently applied; provided that to the extent
the Company's 8-3/4% Convertible Subordinated Debentures due 2015 or 11%
Convertible Subordinated Debentures due 2015 have been issued in exchange for
the Company's outstanding Series C 8-3/4% Convertible Exchangeable Preferred
Stock or Series D 11% Convertible Exchangeable Preferred Stock, respectively,
such Debentures that are then outstanding shall be considered equity for the
purposes of the computation of the Company's Consolidated Net Worth.
"Maturity", when used with respect to any Securities, means the date
on which the principal of any such Security becomes due and payable as therein
or herein provided, whether on a Repayment Date, at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, the President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or
an Assistant Secretary of the Company and delivered to the Trustee. Wherever
this Indenture requires that an Officers' Certificate be signed also by an
engineer or an accountant or other expert, such engineer, accountant or other
expert (except as otherwise expressly provided in this Indenture) may be in the
employ of the Company, and shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may
(except as otherwise expressly provided in this Indenture) be an employee of or
of counsel to the Company, which is delivered to the Trustee. Such counsel shall
be acceptable to the Trustee, whose acceptance shall not be unreasonably
withheld.
"Original Issue Discount Security" means (a) any Security which
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration of the Maturity thereof, and (b) any
other Security which is issued with "original issue discount" within the meaning
of Section 1273(a) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
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8
"Outstanding", when used with respect to Securities or Securities of
any series, means, as of the date of determination, all such Securities
theretofore authenticated and delivered under this Indenture, except:
(a) such Securities theretofore canceled by the Trustee or delivered
to the Trustee for cancellation;
(b) such Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent in trust for the Holders of such Securities; provided that,
if such Securities are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor satisfactory
to the Trustee has been made; and
(c) such Securities in exchange for or in lieu of which other
Securities have been authenticated and delivered pursuant to this
Indenture, or which shall have been paid pursuant to the terms of Section
306 (except with respect to any such Security as to which proof
satisfactory to the Trustee is presented that such Security is held by a
Person in whose hands such Security is a legal, valid and binding
obligation of the Company).
In determining whether the Holders of the requisite principal amount of such
Securities Outstanding have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, (i) the principal amount of any Original
Issue Discount Security that shall be deemed to be Outstanding shall be the
amount of the principal thereof that would be due and payable as of the date of
the taking of such action upon a declaration of acceleration of the Maturity
thereof and (ii) Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding. In determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Securities which a Responsible
Officer assigned to the Corporate Trust Department of the Trustee knows to be
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or such other obligor shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
to act as owner with
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9
respect to such Securities and that the pledgee is not the Company or any other
obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"pari passu", as applied to the ranking of any indebtedness or other
obligation of a Person in relation to other indebtedness or other obligation of
such Person, means that each such indebtedness or other obligation either (a) is
not subordinated in right of payment to any indebtedness or other obligation or
(b) is subordinate in right of payment to the same indebtedness or other
obligation as is the other, and is so subordinate to the same extent, and is not
subordinate in right of payment to each other or to any indebtedness or other
obligation as to which the other is not so subordinate.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company. The Company initially authorizes the Trustee to act as Paying Agent
for the Securities on its behalf. The Company may at any time and from time to
time authorize one or more Persons to act as Paying Agent in addition to or in
place of the Trustee with respect to any series of Securities issued under this
Indenture.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means with respect to any series of Securities
issued hereunder the city or political subdivision so designated with respect to
the series of Securities in question in accordance with the provisions of
Section 3.01.
"Predecessor Securities" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 306 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Redemption Date", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
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10
"Redemption Price", when used with respect to any Security to be
redeemed, means the price specified in the Security at which it is to be
redeemed pursuant to this Indenture.
"Redemption Rescission Event" shall mean the occurrence of (a) any
general suspension of trading in, or limitation on prices for, securities on the
principal national securities exchange on which shares of Common Stock or
Marketable Securities are registered and listed for trading (or, if shares of
Common Stock or Marketable Securities are not registered and listed for trading
on any such exchange, in the over-the-counter market) for more than 6-1/2
consecutive trading hours, (b) any decline in either the Dow Jones Industrial
Average or the Standard & Poor's Index of 400 Industrial Companies (or any
successor index published by Dow Jones & Company, Inc., or Standard & Poor's
Corporation) by either (i) an amount in excess of 10%, measured from the close
of business on any Trading Day to the close of business on the next succeeding
Trading Day during the period commencing on the Trading Day preceding the day
notice of any redemption of Securities is given (or, if such notice is given
after the close of business on a Trading Day, commencing on such Trading Day)
and ending at the time and date fixed for redemption in such notice or (ii) an
amount in excess of 15% (or if the time and date fixed for redemption is more
than 15 days following the date on which such notice of redemption is given,
20%), measured from the close of business on the Trading Day preceding the day
notice of such redemption is given (or, if such notice is given after the close
of business on a Trading Day, from such Trading Day) to the close of business on
any Trading Day at or prior to the time and date fixed for redemption, (c) a
declaration of a banking moratorium or any suspension of payments in respect of
banks by Federal or state authorities in the United States or (d) the
commencement of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States which in the
reasonable judgment of the Company could have a material adverse effect on the
market for the Common Stock or Marketable Securities.
"Regular Record Date" for the interest payable on any Security on
any Interest Payment Date means the date specified in such Security as the
Regular Record Date.
"Repayment Date", when used with respect to any Security to be
repaid, means the date fixed for such repayment pursuant to such Security.
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11
"Repayment Price", when used with respect to any Security to be
repaid, means the price at which it is to be repaid pursuant to such Security.
"Representative" means any Person whom the Company has, by written
notice to the Trustee, identified as the indenture trustee or other trustee,
agent or representative for an issue of Senior Indebtedness.
"Required Currency", when used with respect to any Security, has the
meaning set forth in Section 1.14.
"Responsible Officer", when used with respect to the Trustee, means
any other officer of the Trustee with direct responsibility for the
administration of this Indenture and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Security" or "Securities" means any note or notes, bond or bonds,
debenture or debentures, or any other evidences of indebtedness, as the case may
be, of any series authenticated and delivered from time to time under this
Indenture.
"Securityholder" means a Person in whose name a Security is
registered in the Security Register.
"Security Register" shall have the meaning specified in Section
3.05.
"Security Registrar" means the Person who keeps the Security
Register specified in Section 3.05. The Company initially appoints the Trustee
to act as Security Registrar for the Securities on its behalf. The Company may
at any time and from time to time authorize any Person to act as Security
Registrar in place of the Trustee with respect to any series of Securities
issued under this Indenture.
"Senior Indebtedness" means all indebtedness or obligations of the
Company, 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 Company incurred, assumed,
guaranteed or otherwise created any such indebtedness or obligation expressly
provide that such obligation or obligations is subordinated to all other
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12
indebtedness of the Company or that such indebtedness is not superior or is
subordinated in right of payment to the Securities, 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): (a)
any indebtedness incurred by the Company or assumed or guaranteed, directly or
indirectly, by the Company (i) for money borrowed, including the Company's
outstanding 8-3/4% Convertible Subordinated Debentures due 2015, (ii) in
connection with the acquisition of any business, property or other assets (other
than trade payables incurred in the ordinary course of business) or (iii) 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; (b) any obligation of the Company (or of a Subsidiary which is
guaranteed by the Company) as lessee under a lease of real or personal property;
(c) any obligation of the Company to purchase property at a future date in
connection with a financing by the Company or a Subsidiary; (d) letters of
credit; (e) currency swaps and interest rate hedges; and (f) a deferral,
renewal, extension or refunding of any of the foregoing.
"Senior Subordinated Indenture" means the Indenture dated as of
October 15, 1992, between the Company and Chemical Bank, as trustee.
"Special Record Date" for the payment of any Defaulted Interest (as
defined in Section 3.07) means a date fixed by the Trustee pursuant to Section
3.07.
"Stated Maturity" when used with respect to any Security or any
installment of principal thereof or interest thereon means the date specified in
such Security as the fixed date on which the principal of such Security or such
installment of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person, any corporation more
than 50% of the voting stock of which is owned directly or indirectly by such
Person, and any partnership, association, joint venture or other entity in which
such Person owns more than 50% of the equity interests or has the power to elect
a majority of the board of directors or other governing body.
"Trading Day" shall mean with respect to the Common Stock or a
Marketable Security, so long as the Common Stock or such Marketable Security, as
the case may be, is
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13
listed or admitted to trading on the NYSE, a day on which the NYSE is open for
the transaction of business, or, if the Common Stock or such Marketable
Security, as the case may be, is not listed or admitted to trading on the NYSE,
a day on which the principal national securities exchange on which the Common
Stock or such Marketable Security, as the case may be, is listed is open for the
transaction of business, or, if the Common Stock or such Marketable Security, as
the case may be, is not so listed or admitted for trading on any national
securities exchange, a day on which NASDAQ is open for the transaction of
business.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this instrument was executed; provided,
however, that, in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" or "TIA" means, to the extent required by any
such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the Trustee in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee", shall mean and include each Person who is then a Trustee hereunder.
If at any time there is more than one such Person, "Trustee" as used with
respect to the Securities of any series shall mean the Trustee with respect to
Securities of that series.
"Vice President" when used with respect to the Company or the
Trustee means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president", including,
without limitation, an assistant vice president.
"Voting Stock", as applied to the stock of any corporation, means
stock of any class or classes (however designated) having by the terms thereof
ordinary voting power to elect a majority of the members of the board of
directors (or other governing body) of such corporation other than stock having
such power only by reason of the happening of a contingency.
"WCI" means Warner Communications Inc., a Delaware corporation.
"Yield to Maturity" means t he yield to maturity on a series of
Securities, calculated by the Company at the
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14
time of issuance of such series of Securities, or, if applicable, at the most
recent redetermination of interest on such series, in accordance with accepted
financial practice.
SECTION 1.02. Compliance Certificates and Opinions. Upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officers' Certificate stating that all conditions precedent, if any (including
any covenants compliance with which constitutes a condition precedent), provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such Counsel all such
conditions precedent, if any (including any covenants compliance with which
constitutes a condition precedent), have been complied with, except that in the
case of any such application or request as to which the furnishing of such
documents is specifically required by any provision of this Indenture relating
to such particular application or request, no additional certificate or opinion
need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than annual
statements of compliance provided pursuant to Section 10.04) shall include
(a) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) 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;
(c) a statement that, in the opinion of each such individual, 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 compiled with; and
(d) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee. In any case
where several matters are required to
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15
be certified by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons may certify or give an opinion
as to the other matters, and any such Person may certify or give an opinion and
to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such Counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. Acts of Securityholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Securityholders or Securityholders of any
series may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Securityholders in person or by an
agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee, and, where it is hereby expressly required, to the
Company. If any Securities are denominated in coin or currency other than that
of the United States, then for the purposes of determining whether the Holders
of the requisite principal amount of Securities have taken any action as herein
described, the principal amount of such Securities shall be deemed to be
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16
that amount of United States dollars that could be obtained for such principal
amount on the basis of the spot rate of exchange into United States dollars for
the currency in which such Securities are denominated (as evidenced to the
Trustee by an Officers' Certificate) as of the date the taking of such action by
the Holders of such requisite principal amount is evidenced to the Trustee as
provided in the immediately preceding sentence. Such instrument or instruments
(and the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Securityholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness to such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by an officer of a corporation or a member of a partnership, on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority. The fact and date of the
execution of any such instrument or writing, or the authority of the person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, by Board Resolution, fix in advance a record date
for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other action, but the
Company shall have no obligation to do so. Such record date shall be the later
of 10 days prior to the first solicitation of such action or the date of the
most recent list of Holders furnished to the Trustee pursuant to Section 7.01.
If such a record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other action may be given before or after the record
date, but only the Holders of record at
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17
the close of business on the record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Securities Outstanding have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other action, and
for that purpose the Securities Outstanding shall be computed as of the record
date; provided that no such authorization, agreement or consent by the Holders
on the record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date, and that no such authorization, agreement or consent may be
amended, withdrawn or revoked once given by a Holder, unless the Company shall
provide for such amendment, withdrawal or revocation in conjunction with such
solicitation of authorizations, agreements or consents or unless and to the
extent required by applicable law.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Security shall bind the Holder of
every Security issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof, in respect of anything done or suffered to be done
by the Trustee or the Company in reliance thereon whether or not notation of
such action is made upon such Security.
SECTION 1.05. Notices, etc., to Trustee and Company. Any request,
demand, authorization, direction, notice, consent, waiver or Act of
Securityholders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with:
(a) the Trustee by any Securityholder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or filed
in writing to or with the Trustee at its Corporate Trust Office, Attention
of Corporate Trust Department; or
(b) the Company by the Trustee or by any securityholder shall be
sufficient for every purpose hereunder (except as provided in Section
5.01(d) or, in the case of a request for repayment, as specified in the
Security carrying the right to repayment) if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at the address
of its principal office specified in the first paragraph of this
instrument, Attention of Treasurer, or at any other
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18
address previously furnished in writing to the Trustee by the Company.
SECTION 1.06. Notices to Securityholders; Waiver. Where this
Indenture or any Security provides for notice to Securityholders of any event,
such notice shall be sufficiently given (unless otherwise herein or in such
Security expressly provided) if in writing and mailed, first-class postage
prepaid, to each Securityholder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Securityholders is given by mail, neither the failure to
mail such notice, nor any defect in any notice so mailed, to any particular
Securityholder shall affect the sufficiency of such notice with respect to other
Securityholders. Where this Indenture or any Security provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Securityholders shall be filed
with the Trustee, but such filing shall not be a condition precedent to the
validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or otherwise, it shall be impractical to mail
notice of any event to any Securityholder when such notice is required to be
given pursuant to any provision of this Indenture, then any method of
notification as shall be satisfactory to the Trustee and the Company shall be
deemed to be a sufficient giving of such notice.
SECTION 1.07. Conflict with Trust Indenture Act. If and to the
extent that any provision hereof limits, qualifies or conflicts with the duties
imposed by, or with another provision (an "incorporated provision") included in
this Indenture by operation of, any of Sections 3.10 to 3.18, inclusive, of the
Trust Indenture Act, such imposed duties or incorporated provision shall
control.
SECTION 1.08. Effect of Headings and Table of Contents. The Article
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
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19
SECTION 1.09. Successors and Assigns. All covenants and agreements
in this Indenture by the Company shall bind its successors and assigns, whether
so expressed or not.
SECTION 1.10. Separability Clause. In case any provision in this
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in
any Securities, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder, any Authenticating Agent or
Paying Agent, the Security Registrar, the holders of Senior Indebtedness and the
Holders of Securities (or such of them as may be affected thereby), any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law. This Indenture shall be construed in
accordance with and governed by the laws of the State of New York.
SECTION 1.13. Counterparts. This instrument may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 1.14. Judgment Currency. The Company agrees, to the fullest
extent that it may effectively do so under applicable law, that (a) if for the
purpose of obtaining judgment in any court it is necessary to convert the sum
due in respect of the principal of, or premium or interest, if any, on the
Securities of any series (the "Required Currency") into a currency in which a
judgment will be rendered (the "Judgment Currency"), the rate of exchange used
shall be the rate at which in accordance with normal banking procedures the
Trustee could purchase in the City of New York the Required Currency with the
Judgment Currency on the New York Banking Day preceding that on which a final
unappealable judgment is given and (b) its obligations under this Indenture to
make payments in the Required Currency (i) shall not be discharged or satisfied
by any tender, or any recovery pursuant to any judgment (whether or not entered
in accordance with subsection (a)), in any currency other than the Required
Currency, except to the extent that such tender or recovery shall result in the
actual receipt,
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20
by the payee, of the full amount of the Required Currency, expressed to be
payable in respect of such payments, (ii) shall be enforceable as an alternative
or additional cause of action for the purpose of recovering in the Required
Currency the amount, if any, by which such actual receipt shall fall short of
the full amount of the Required Currency so expressed to be payable and (iii)
shall not be affected by judgment being obtained for any other sum due under
this Indenture. For purposes of the foregoing, "New York Banking Day" means any
day except a Saturday, Sunday or a legal holiday in the City of New York or a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to close.
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally. The Securities shall have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon,
as may be required to comply with the rules of any securities exchange, or as
may, consistently herewith, be determined by the officers executing such
Securities, as evidenced by their execution of the Securities. Any portion of
the text of any Security may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner, all as determined by the officers executing
such Securities, as evidenced by their execution of such Securities, subject,
with respect to the Securities of any series, to the rules of any securities
exchange on which such Securities are listed.
SECTION 2.02. Forms of Securities. Each Security shall be in one of
the forms approved from time to time by or pursuant to a Board Resolution, or
established in one or more indentures supplemental hereto. Prior to the delivery
of a Security to the Trustee for authentication in any form approved by or
pursuant to a Board Resolution, the Company shall deliver to the Trustee the
Board Resolution by or pursuant to which such form of Security has been
approved,
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21
which Board Resolution shall have attached thereto a true and correct copy of
the form of Security which has been approved thereby or, if a Board Resolution
authorizes a specific officer or officers to approve a form of Security, a
certificate of such officer or officers approving the form of Security attached
thereto. Any form of Security approved by or pursuant to a Board Resolution must
be acceptable as to form to the Trustee, such acceptance to be evidenced by the
Trustee's authentication of Securities in that form or a certificate signed by a
Responsible Officer of the Trustee and delivered to the Company.
SECTION 2.03. Form of Trustee's Certificate of Authentication. The
form of Trustee's Certificate of Authentication for any Security issued pursuant
to this Indenture shall be substantially as follows:
"TRUSTEE'S CERTIFICATE OF AUTHENTICATION
"This is one of the Securities of the series designated therein
referred to in the within mentioned Indenture.
CHEMICAL BANK,
as Trustee,
by
-------------------
Authorized Officer"
SECTION 2.04. Securities Issuable in the Form of a Global Security.
(a) If the Company shall establish pursuant to Sections 2.02 and 3.01 that the
Securities of a particular series are to be issued in whole or in part in the
form of one or more Global Securities, then the Company shall execute and the
Trustee or its agent shall in accordance with Section 3.03 and the Company Order
delivered to the Trustee or its agent thereunder, authenticate and deliver, such
Global Security or Securities, which (i) shall represent, and shall be
denominated in an amount equal to the aggregate principal amount of, the
Outstanding Securities of such series to be represented by such Global Security
or Securities, or such portion thereof as the Company shall specify in a Company
Order, (ii) shall be registered in the name of the Depository for such Global
Security or
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22
Securities or its nominee, (iii) shall be delivered by the Trustee or its agent
to the Depository or pursuant to the Depository's instruction and (iv) shall
bear a legend substantially to the following effect:
"Unless this certificate is presented by an authorized representative of
the Depository to Issuer or its agent for registration of transfer,
exchange, or payment, and any certificate issued is registered in the name
of the nominee of the Depository or in such other name as is requested by
an authorized representative of the Depository (and any payment is made to
the nominee of the Depository or to such other entity as is requested by
an authorized representative of the Depository), ANY TRANSFER, PLEDGE, OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
inasmuch as the registered owner hereof, the nominee of the Depository,
has an interest herein."
(b) Notwithstanding any other provision of this Section 2.04 or of
Section 3.05, and subject to the provisions of paragraph (c) below, unless the
terms of a Global Security expressly permit such Global Security to be exchanged
in whole or in part for individual Securities, a Global Security may be
transferred, in whole but not in part and in the manner provided in Section 305,
only to a nominee of the Depository for such Global Security, or to the
Depository, or a successor Depository for such Global Security selected or
approved by the Company, or to a nominee of such successor Depository.
(c) (i) If at any time the Depository for a Global Security notifies
the Company that it is unwilling or unable to continue as Depository for such
Global Security or if at any time the Depository for the Securities for such
series shall no longer be eligible or in good standing under the Securities
Exchange Act of 1934, as amended, or other applicable statute or regulation, the
Company shall appoint a successor Depository with respect to such Global
Security. If a successor Depository for such Global Security is not appointed by
the Company within 90 days after the Company receives such notice or becomes
aware of such ineligibility, the Company will execute, and the Trustee or its
agent, upon receipt of a Company Request for the authentication and delivery of
individual Securities of such series in exchange for such Global Security, will
authenticate and deliver, individual Securities of such series of like tenor and
terms in an aggregate principal amount equal to the principal
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23
amount of the Global Security in exchange for such Global Security.
(ii) The Company may at any time and in its sole discretion
determine that the Securities of any series or portion thereof issued or
issuable in the form of one or more Global Securities shall no longer be
represented by such Global Security or Securities. In such event the Company
will execute, and the Trustee, upon receipt of a Company Request for the
authentication and delivery of individual Securities of such series in exchange
in whole or in part for such Global Security, will authenticate and deliver
individual Securities of such series of like tenor and terms in definitive form
in an aggregate principal amount equal to the principal amount of such Global
Security or Securities representing such series or portion thereof in exchange
for such Global Security or Securities.
(iii) If specified by the Company pursuant to Sections 2.02 and 3.01
with respect to Securities issued or issuable in the form of a Global Security,
the Depository for such Global Security may surrender such Global Security in
exchange in whole or in part for individual Securities of such series of like
tenor and terms in definitive form on such terms as are acceptable to the
Company and such Depository. Thereupon the Company shall execute, and the
Trustee or its agent shall authenticate and deliver, without service charge, (A)
to each Person specified by such Depository a new Security or Securities of the
same series of like tenor and terms and of any authorized denomination as
requested by such Person in aggregate principal amount equal to and in exchange
for such Person's beneficial interest as specified by such Depository in the
Global Security; and (B) to such Depository a new Global Security of like tenor
and terms and in an authorized denomination equal to the difference, if any,
between the principal amount of the surrendered Global Security and the
aggregate principal amount of Securities delivered to Holders thereof.
(iv) In any exchange provided for in any of the preceding three
paragraphs, the Company will execute and the Trustee or its agent will
authenticate and deliver individual Securities in definitive registered form in
authorized denominations. Upon the exchange of the entire principal amount of a
Global Security for individual Securities, such Global Security shall be
canceled by the Trustee or its agent. Except as provided in the preceding
paragraph, Securities issued in exchange for a Global Security pursuant to this
Section shall be registered in
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24
such names and in such authorized denominations as the Depository for such
Global Security, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee or the Security Registrar.
The Trustee or the Security Registrar shall deliver at its Corporate Trust
Office such Securities to the Persons in whose names such Securities are so
registered.
ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations; Issuable in
Series; Terms of Particular Series. The aggregate principal amount of Securities
which may be authenticated and delivered and outstanding under this Indenture is
not limited.
The Securities may be issued in one or more series as from time to
time may be authorized by the Board of Directors. There shall be established in
or pursuant to a Board Resolution or in a supplemental indenture, subject to
Section 3.11, prior to the issuance of Securities of any such series:
(a) the title of the Securities of such series (which shall
distinguish the Securities of such series from Securities of any other
series);
(b) the Person to whom any interest on a Security of such series
shall be payable, if other than the Person in whose name that Security (or
one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest;
(c) the date or dates on which the principal of the Securities of
such series is payable;
(d) the rate or rates at which the Securities of such series shall
bear interest, if any, the date or dates from which such interest shall
accrue, the Interest Payment Dates on which any such interest shall be
payable and the Regular Record Date for any interest payable on any
Interest Payment Date;
(e) the place or places where the principal of and any premium and
interest on Securities of such series shall be payable;
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25
(f) the period or periods within which, the Redemption Price or
Prices or the Repayment Price or Prices, as the case may be, at which and
the terms and conditions upon which Securities of such series may be
redeemed or repaid (including the applicability of Section 11.09), as the
case may be, in whole or in part, at the option of the Company or the
Holder;
(g) the obligation, if any, of the Company to purchase Securities of
such series pursuant to any sinking fund or analogous provisions or at the
option of a Holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which
Securities of such series shall be purchased, in whole or in part,
pursuant to such obligation;
(h) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of such series shall be
issuable;
(i) provisions, if any, with regard to the conversion or exchange of
the Securities of such series, at the option of the Holders thereof or the
Company, as the case may be, for or into new Securities of a different
series, Common Stock or other securities and, if the Securities of such
series are convertible into Common Stock or other Marketable Securities,
the Conversion Price therefor;
(j) if other than U.S. dollars, the currency or currencies or units
based on or related to currencies in which the Securities of such series
shall be denominated and in which payments of principal of, and any
premium and interest on, such Securities shall or may be payable;
(k) if the principal of (and premium, if any) or interest, if any,
on the Securities of such series are to be payable, at the election of the
Company or a Holder thereof, in a coin or currency (including a composite
currency) other than that in which the Securities are stated to be
payable, the period or periods within which, and the terms and conditions
upon which, such election may be made;
(l) if the amount of payments of principal of (and premium, if any)
or interest, if any, on the Securities of such series may be determined
with reference to an
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26
index based on a coin or currency (including a composite currency) other
than that in which the Securities are stated to be payable, the manner in
which such amounts shall be determined;
(m) any limit upon the aggregate principal amount of the Securities
of such series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of the series pursuant to Section 3.04, 3.05, 3.06, 9.06,
11.07, 12.02 and except for any Securities which, pursuant to Section
3.03, are deemed never to have been authenticated and delivered
hereunder);
(n) provisions, if any, with regard to the exchange of Securities of
such series, at the option of the Holders thereof, for other Securities of
the same series of the same aggregate principal amount of a different
authorized kind or different authorized denomination or denominations, or
both;
(o) provisions, if any, with regard to the appointment by the
Trustee of an Authenticating Agent in one or more places other than the
location of the office of the Trustee with power to act on behalf of the
Trustee and subject to its direction in the authentication and delivery of
the Securities of any one or more series in connection with such
transactions as shall be specified in the provisions of this Indenture or
in or pursuant to such Board Resolution or supplemental indenture;
(p) the portion of the principal amount of Securities of the series,
if other than the principal amount thereof, which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section
5.02 or provable in bankruptcy pursuant to Section 5.04;
(q) any Event of Default with respect to the Securities of such
series, if not set forth herein, and any additions, deletions or other
changes to the Events of Default set forth herein that shall be applicable
to the Securities of such series;
(r) any covenant solely for the benefit of the Securities of such
series and any additions, deletions
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27
or other changes to Article X or Section 1.01 or any definitions otherwise
applicable to the Securities of that series;
(s) if Section 4.03 of this Indenture shall not be applicable to the
Securities of such series and if Section 4.03 shall be applicable to any
covenant or Event of Default established in or pursuant to a Board
Resolution or in a supplemental indenture as described above that has not
already been established herein;
(t) if the Securities of such series shall be issued in whole or in
part in the form of a Global Security or Securities, the terms and
conditions, if any, upon which such Global Security or Securities may be
exchanged in whole or in part for other individual Securities; and the
Depository for such Global Security or Securities; and
(u) any other terms of such series, all upon such terms as may be
determined in or pursuant to such Board Resolution or supplemental
indenture with respect to such series.
The form of the Securities of each series shall be established
pursuant to the provisions of this Indenture in or pursuant to the Board
Resolution or in the supplemental indenture creating such series. The Securities
of each series shall be distinguished from the Securities of each other series
in such manner, reasonably satisfactory to the Trustee, as the Board of
Directors may determine.
Unless otherwise provided with respect to Securities of a particular
series, the Securities of any series may only be issuable in registered form,
without coupons.
Any terms or provisions in respect of the Securities of any series
issued under this Indenture may be determined pursuant to this Section by
providing for the method by which such terms or provisions shall be determined.
SECTION 3.02. Denominations. The Securities of each series shall be
issuable in such denominations and currency as shall be provided the provisions
of this Indenture or in or pursuant to the Board Resolution or the supplemental
indenture creating such series. In the absence of any such provisions with
respect to the Securities of any
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28
series, the Securities of that series shall be issuable only in fully registered
form in denominations of $1,000 and any integral multiple thereof.
SECTION 3.03. Execution, Authentication and Delivery and Dating. The
Securities shall be executed on behalf of the Company by its Chairman of the
Board, its President, one of its Vice Presidents or its Treasurer under its
corporate seal reproduced thereon and attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Securities
may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication; and the Trustee shall, upon Company Order,
authenticate and deliver such Securities as in this Indenture provided and not
otherwise.
Prior to any such authentication and delivery, the Trustee shall be
entitled to receive, in addition to any Officers' Certificate and Opinion of
Counsel required to be furnished to the Trustee pursuant to Section 1.02, and
the Board Resolution and any certificate relating to the issuance of the series
of Securities required to be furnished pursuant to Section 2.02, an Opinion of
Counsel stating that:
(a) all instruments furnished to the Trustee conform to the
requirements of the Indenture and constitute sufficient authority
hereunder for the Trustee to authenticate and deliver such Securities;
(b) the form and terms of such Securities have been established in
conformity with the provisions of this Indenture;
(c) all laws and requirements with respect to the execution and
delivery by the Company of such Securities have been complied with, the
Company has the
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29
corporate power to issue such Securities and such Securities have been
duly authorized and delivered by the Company and, assuming due
authentication and delivery by the Trustee, constitute legal, valid and
binding obligations of the Company enforceable in accordance with their
terms (subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium or other laws and legal principles
affecting creditors' rights generally from time to time in effect and to
general equitable principles, whether applied in an action at law or in
equity) and entitled to the benefits of this Indenture, equally and
ratably with all other Securities, if any, of such series Outstanding;
(d) the Indenture is qualified under the Trust Indenture Act; and
(e) such other matters as the Trustee may reasonably request;
and, if the authentication and delivery relates to a new series of Securities
created by an indenture supplemental hereto, also stating that all laws and
requirements with respect to the form and execution by the Company of the
supplemental indenture with respect to that series of Securities have been
complied with, the Company has corporate power to execute and deliver any such
supplemental indenture and has taken all necessary corporate action for those
purposes and any such supplemental indenture has been executed and delivered and
constitutes the legal, valid and binding obligation of the Company enforceable
in accordance with its terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other laws and
legal principles affecting creditors' rights generally from time to time in
effect and to general equitable principles, whether applied in an action at law
or in equity).
The Trustee shall not be required to authenticate such Securities if
the issue thereof will adversely affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture.
Unless otherwise provided in the form of Security for any series,
all Securities shall be dated the date of their authentication.
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30
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 3.09, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
SECTION 3.04. Temporary Securities. Pending the preparation of
definitive Securities of any series, the Company may execute, and, upon receipt
of the documents required by Section 3.03, together with a Company Order, the
Trustee shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will
cause definitive Securities of such series to be prepared without unreasonable
delay. After the preparation of definitive Securities, the temporary Securities
of such series shall be exchangeable for definitive Securities of such series
upon surrender of the temporary Securities of such series at the office or
agency of the Company in a Place of Payment, without charge to the Holder; and
upon surrender for cancellation of any one or more temporary Securities the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Securities of such series of
authorized denominations and of like tenor and terms. Until so exchanged the
temporary Securities of such series shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities of such series.
SECTION 3.05. Registration, Transfer and Exchange. The Company shall
keep or cause to be kept a
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31
register or registers (herein sometimes referred to as the "Security Register")
in which, subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration of Securities, or of Securities of a
particular series, and of transfers of Securities or of Securities of such
series. Any such register shall be in written form or in any other form capable
of being converted into written form within a reasonable time. At all reasonable
times the information contained in such register or registers shall be available
for inspection by the Trustee at the office or agency to be maintained by the
Company as provided in Section 10.02. There shall be only one Security Register
per series of Securities.
Subject to Section 2.04, upon surrender for registration of transfer
of any Security of any series at the office or agency of the Company maintained
for such purpose in a Place of Payment, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Securities of such series of any authorized
denominations, of a like aggregate principal amount and Stated Maturity and of
like tenor and terms.
Subject to Section 2.04, at the option of the Holder, Securities of
any series may be exchanged for other Securities of such series of any
authorized denominations, of a like aggregate principal amount and Stated
Maturity and like tenor and terms, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate and
deliver, the Securities which the Securityholder making the exchange is entitled
to receive.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed, by the Holder thereof
or his attorney duly authorized in writing.
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Unless otherwise provided in the Security to be registered for
transfer or exchanged, no service charge shall be made on any Securityholder for
any registration of transfer or exchange of Securities, but the Company may
(unless otherwise provided in such Security) require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security of any series during a period beginning at
the opening of business 15 days before the day of the mailing of a notice of
redemption of Securities of such series selected for redemption under Section
11.03 and ending at the close of business on the date of such mailing or (b) to
register the transfer of or exchange any Security so selected for redemption in
whole or in part.
None of the Company, the Trustee, any agent of the Trustee, any
Paying Agent or the Security Registrar will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests of a Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. If
(a) any mutilated Security is surrendered to the Trustee, or the Company and the
Trustee receive evidence to their satisfaction of the destruction, loss or theft
of any Security and(b) there is delivered to the Company and the Trustee such
security or indemnity as may be required by them to save each of them harmless,
then, in the absence of notice to the Company or the Trustee that such Security
has been acquired by a bona fide purchaser, the Company shall execute and upon
its written request the Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Security, a new
Security of like tenor, series, Stated Maturity and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
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33
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of the same series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. Payment of Interest; Interest Rights Preserved. Unless
otherwise provided with respect to such security pursuant to Section 3.01,
interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the registered
Holder on the relevant Regular Record Date by virtue of his having been such
Holder; and, except as hereinafter provided, such Defaulted Interest may be paid
by the Company, at its election in each case, as provided in clause (a) or
clause (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names any such Securities (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each such Security and the
date of the proposed payment, and at the same time the Company shall
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deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Clause
provided. Thereupon the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 nor less than 10 days
prior to the date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name and at
the expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed, first
class postage prepaid, to the Holder of each such Security at his address as it
appears in the Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been mailed as aforesaid, such Defaulted
Interest shall be paid to the Persons in whose names such Securities (or their
respective Predecessor Securities) are registered on such Special Record Date
and shall no longer be payable pursuant to the following clause (b).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which such Securities may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
If any installment of interest the Stated Maturity of which is on or
prior to the Redemption Date for any Security called for redemption pursuant to
Article Eleven is not paid or duly provided for on or prior to the Redemption
Date in accordance with the foregoing provisions of this Section, such interest
shall be payable as part of the Redemption Price of such Securities.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest
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35
accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.08. Persons Deemed Owners. The Company, the Trustee and
any agent of the Company or the Trustee may treat the Person in whose name any
Security is registered as the owner of such Security for the purpose of
receiving payment of principal of (and premium, if any), and (subject to Section
3.07) interest on, such Security and for all other purposes whatsoever, whether
or not such Security be overdue, and neither the Company, the Trustee nor any
agent of the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
SECTION 3.09. Cancellation. All Securities surrendered for payment,
redemption, conversion, registration of transfer, or exchange or credit against
a sinking fund shall, if surrendered to any Person other than the Trustee, be
delivered to the Trustee and, if not already cancelled, shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and all Securities
so delivered shall be promptly cancelled by the Trustee. No Security shall be
authenticated in lieu of or in exchange for any Securities cancelled as provided
in this Section, except as expressly permitted by this Indenture. The Trustee
shall dispose of all cancelled Securities in accordance with its standard
procedures and deliver a certificate of such disposition to the Company.
SECTION 3.10. Computation of Interest. Unless otherwise provided as
contemplated in Section 3.01, interest on the Securities shall be calculated on
the basis of a 360-day year of twelve 30-day months.
SECTION 3.11. Delayed Issuance of Securities. Notwithstanding any
contrary provision herein, if all Securities of a series are not to be
originally issued at one time, it shall not be necessary for the Company to
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36
deliver to the Trustee an Officers' Certificate, Board Resolution, supplemental
indenture, Opinion of Counsel or Company Order otherwise required pursuant to
Sections 1.02, 2.02, 3.01 and 3.03 at or prior to the time of authentication of
each Security of such series if such documents are delivered to the Trustee or
its agent at or prior to the authentication upon original issuance of the first
Security of such series to be issued; provided that any subsequent request by
the Company to the Trustee to authenticate Securities of such series upon
original issuance shall constitute a representation and warranty by the Company
that as of the date of such request, the statements made in the Officers'
Certificate or other certificates delivered pursuant to Sections 1.02 and 2.02
shall be true and correct as if made on such date.
A Company Order, Officers', Certificate or Board Resolution or
supplemental indenture delivered by the Company to the Trustee in the
circumstances set forth in the preceding paragraph may provide that Securities
which are the subject thereof will be authenticated and delivered by the Trustee
or its agent on original issue from time to time in the aggregate principal
amount, if any, established for such series pursuant to such procedures
acceptable to the Trustee as may be specified from time to time by Company Order
upon the telephonic, electronic or written order of Persons designated in such
Company Order, Officers' Certificate, supplemental indenture or Board Resolution
(any such telephonic or electronic instructions to be promptly confirmed in
writing by such Persons) and that such Persons are authorized to determine,
consistent with such Company Order, Officers' Certificate, supplemental
indenture or Board Resolution, such terms and conditions of said Securities as
are specified in such Company Order, Officers' Certificate, supplemental
indenture or Board Resolution.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture. This
Indenture shall cease to be of further effect with respect to any series of
Securities (except as to any surviving rights of conversion or transfer or
exchange of Securities of such series expressly provided for herein or in the
form of Security for such series), and the Trustee, on receipt of a Company
Request and at the expense of the Company, shall execute proper instruments
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37
acknowledging satisfaction and discharge of this Indenture as to such series,
when:
(a) either:
(i) all Securities of that series theretofore authenticated
and delivered (other than (A) Securities of such series which have
been destroyed, lost or stolen and which have been replaced or paid
as provided in Section 3.06 and (B) Securities of such series for
whose payment money in the Required Currency has theretofore been
deposited in trust or segregated and held in trust by the Company
and thereafter repaid to the Company or discharged from such trust,
as provided in Section 10.03) have been delivered to the Trustee
canceled or for cancellation; or
(ii) all such Securities of that series not theretofore
delivered to the Trustee canceled or for cancellation:
(A) have become due and payable,
(B) will become due and payable at their Stated Maturity
within one year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company,
and the Company, in the case of (a), (B) or (C) above, has
irrevocably deposited or caused to be deposited (which deposit is
not prohibited by Article XIII) with the Trustee as trust funds in
trust for the purpose an amount in the Required Currency sufficient
to pay and discharge the entire indebtedness on such Securities not
theretofore delivered to the Trustee canceled or for cancellation,
for principal (and premium, if any) and interest to the date of such
deposit (in the case of Securities which have become due and
payable), or to the Stated Maturity or Redemption Date, as the case
may be;
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38
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company with respect to the Securities of such series;
and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture with respect to the Securities of such series have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture with respect to
any series of Securities, the obligations of the Company to the Trustee with
respect to that series under Section 6.07 shall survive and the obligations of
the Company and the Trustee under Sections 3.05, 3.06, 4.02, 10.02 and 10.03
shall survive.
SECTION 4.02. Application of Trust Money. Subject to the provisions
of the last paragraph of Section 10.03, all money deposited with the Trustee
pursuant to Section 4.01 or Section 4.03 shall be held in trust and applied by
it, in accordance with the provisions of the series of Securities in respect of
which it was deposited and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own Paying Agent)
as the Trustee may determine, to the Persons entitled thereto, of the principal
(and premium, if any) and interest for whose payment such money has been
deposited with the Trustee; but such money need not be segregated from other
funds except to the extent required by law.
Anything herein to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon Company Request any money
or securities deposited with and held by it as provided in Section 4.03 and this
Section 4.02 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent satisfaction and discharge,
Discharge or covenant defeasance; provided that the Trustee shall not be
required to liquidate any securities in order to comply with the provisions of
this paragraph.
SECTION 4.03. Defeasance upon Deposit of Funds or Government
Obligations. Unless pursuant to Section 3.01
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provision is made that this Section shall not be applicable to the Securities of
any series, at the Company's option, either (a) the Company shall be deemed to
have been Discharged (as defined below) from its obligations with respect to any
series of Securities after the applicable conditions set forth below have been
satisfied or (b) the Company shall cease to be under any obligation to comply
with any term, provision or condition set forth in Sections 10.05 and 10.07 and
Article Eight (and any other Sections or covenants applicable to such Securities
that are determined pursuant to Section 3.01 to be subject to this provision),
and clause (d) of Section 5.01 of this Indenture (and any other Events of
Default applicable to such Securities that are determined pursuant to Section
3.01 to be subject to this provision) shall be deemed not to be an Event of
Default, with respect to any series of Securities at any time after the
applicable conditions set forth below have been satisfied:
(i) the Company shall have deposited or caused to be deposited
(which deposit is not prohibited by Article Thirteen) irrevocably with the
Trustee as trust funds in trust, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of the Securities of such
series (A) money in an amount, (B) the equivalent in securities of the
government which issued the currency in which the Securities are
denominated or government agencies backed by the full faith and credit of
such government which through the payment of interest and principal in
respect thereof in accordance with their terms will provide, not later
than one day before the due date of any payment, money in an amount or (C)
a combination of (A) and (B), sufficient, in the opinion (with respect to
(B) and (C)) of a nationally recognized firm of independent. public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge each installment of principal (including
mandatory sinking fund payments) and any premium of, interest on and any
repurchase or redemption obligations with respect to the outstanding
Securities of such series on the dates such installments of interest or
principal or repurchase or redemption obligations are due (before such a
deposit, if the Securities of such series are then redeemable or may be
redeemed in the future pursuant to the terms thereof, in either case at
the option of the Company, the Company may give to the Trustee, in
accordance with Section 11.02, a notice of its election to redeem all of
the Securities of such
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series at a future date in accordance with Article Eleven);
(ii) no Event of Default or event (including such deposit) which
with notice or lapse of time would become an Event of Default with respect
to the Securities of such series shall have occurred and be continuing on
the date of such deposit;
(iii) the Company shall have delivered to the Trustee (A) an Opinion
of Counsel to the effect that Holders of the Securities of such series
will not recognize income, gain or loss for Federal income tax purposes as
a result of the Company's exercise of its option under this Section 4.03
and will be subject to Federal income tax on the same amount and in the
same manner and at the same times as would have been the case if such
option had not been exercised, and, in the case of Securities being
Discharged, accompanied by a ruling to that effect from the Internal
Revenue Service, unless, as set forth in such Opinion of Counsel, there
has been a change in the applicable federal income tax law since the date
of this Indenture such that a ruling from the Internal Revenue Service is
no longer required and (B) an Opinion of Counsel, subject to such
qualifications, exceptions, assumptions and limitations as are reasonably
deemed necessary by such counsel and are reasonably satisfactory to
counsel for the Trustee, to the effect that the trust resulting from the
deposit referred to in paragraph (i) above does not violate the Investment
Company Act of 1940; and
(iv) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit referred to in paragraph (i) above
was not made by the Company with the intent of preferring the Holders over
other creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others.
"Discharged" means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by, and obligations under, the
Securities of such series and to have satisfied all the obligations under this
Indenture relating to the Securities of such series (and the Trustee, upon
receipt of a Company Request and at the expense of the Company, shall execute
proper instruments acknowledging the same), except (a) the rights of Holders of
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41
Securities to receive, from the trust fund described in paragraph (i) above,
payment of the principal and any premium of and any interest on such Securities
when such payments are due; (B) the Company's obligations with respect to such
Securities under Sections 3.05, 3.06, 4.02, 6.07, 10.02 and 10.03; (c) the
Company's right of redemption, if any, with respect to any Securities of such
series pursuant to Article XI, in which case the Company may redeem the
Securities of such series in accordance with Article XI by complying with such
Article and depositing with the Trustee, in accordance with Section 11.05, an
amount of money sufficient, together with all amounts held in trust pursuant to
Section 4.02 with respect to Securities of such series, to pay the Redemption
Price of all the Securities of such series to be so redeemed; and (d) the
rights, powers, trusts, duties and immunities of the Trustee hereunder.
SECTION 4.04. Reinstatement. If the Trustee or paying Agent is
unable to apply any money or securities in accordance with Section 4.02 of this
Indenture by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, the Company's obligations under this
Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 4.01 or 4.03 of this Indenture, as the
case may be, until such time as the Trustee or Paying Agent is permitted to
apply all such money or securities in accordance with Section 4.02 of this
Indenture; provided that, if the Company has made any payment of principal of or
interest on any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or securities held by the Trustee or paying
Agent.
SECTION 4.05. Subordination Provisions Inapplicable. Notwithstanding
anything contained herein to the contrary, any money that shall have been
deposited by the Company with the Trustee pursuant to Section 4.01 or Section
4.03 shall not be subject to the provisions of Article Thirteen of this
Indenture respecting subordination of the Securities; provided, however, that
said provisions respecting subordination shall continue to apply to such money,
if any, that has been returned to the Company or its legal representative
pursuant to any legal proceeding or an order or judgment of a court or
governmental authority.
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ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default", wherever used
herein, means with respect to any series of Securities any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body), unless such event is either inapplicable
to a particular series or it is specifically deleted or modified in or pursuant
to the supplemental indenture or Board Resolution creating such series of
Securities or in the form of Security for such series:
(a) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default
for a period of 30 days; or
(b) default in the payment of the principal of (or premium, if any,
on) any Security of that series at its Maturity; or
(c) default in the payment of any sinking or purchase fund or
analogous obligation when the same becomes due by the terms of the
Securities of such series; or
(d) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture in respect of the Securities of
such series (other than a covenant or warranty in respect of the
Securities of such series a default in the performance of which or the
breach of which is elsewhere in this Section specifically dealt with), all
of such covenants and warranties in the Indenture which are not expressly
stated to be for the benefit of a particular series of Securities being
deemed in respect of the Securities of all series for this purpose, and
continuance of such default or breach for a period of 90 days after there
has been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25%
in principal amount of the Outstanding Securities of such series, a
written notice specifying such default or breach and
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43
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(e) the entry of an order for relief against the Company under Title
11, United States Code (the "Federal Bankruptcy Act") by a court having
jurisdiction in the premises or a decree or order by a court having
jurisdiction in the premises adjudging the Company or any Material U.S.
Subsidiary a bankrupt or insolvent under any other applicable Federal or
State law, or the entry of a decree or order approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of
or in respect of the Company or such Material U.S. Subsidiary under the
Federal Bankruptcy Act or any other applicable Federal or State law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or such Material U.S. Subsidiary or
of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days; or
(f) the consent by the Company or any Material U.S. Subsidiary to
the institution of bankruptcy or insolvency proceedings against it, or-the
filing by it of a petition or answer or consent seeking reorganization or
relief under the Federal Bankruptcy Act or any other applicable Federal or
State law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or such Material U.S.
Subsidiary or of any substantial part of its property, or the making by it
of an assignment for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they become due, or
the taking of corporate action by the Company or such Material U.S.
Subsidiary in furtherance of any such action; or
(g) any other Event of Default provided in the supplemental
indenture or Board Resolution under which such series of Securities is
issued or in the form of Security for such series.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment. If
an Event of Default described in paragraph (a), (b), (c), (d) or (g) (if the
Event of
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Default under paragraph (d) or (g) is with respect to less than all series of
Securities then Outstanding) of Section 5.01 occurs and is continuing with
respect to any series, then and in each and every such case, unless the
principal of all the Securities of such series shall have already become due and
payable, either the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities of such series then Outstanding hereunder
(each such series acting as a separate class), by notice in writing to the
Company (and to the Trustee if given by Holders), may declare the principal
amount (or, if the Securities of such series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) of all the Securities of such series and all accrued
interest thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Securities of such series contained to the
contrary notwithstanding. If an Event of Default described in paragraph (d) or
(g) (if the Event of Default under paragraph (d) or (g) is with respect to all
series of Securities then Outstanding), of Section 5.01 occurs and is
continuing, then and in each and every such case; unless the principal of all
the Securities shall have already become due and payable, either the Trustee or
the Holders of not less than 25% in aggregate principal amount of all the
Securities then outstanding hereunder (treated as one class), by notice in
writing to the Company (and to the Trustee if given by Holders), may declare the
principal amount (or, if any Securities are Original Issue Discount Securities,
such portion of the principal amount as may be specified in the terms thereof)
of all the Securities then Outstanding and all accrued interest thereon to be
due and payable immediately, and upon any such declaration the same shall become
and shall be immediately due and payable, anything in this Indenture or in the
Securities contained to the contrary notwithstanding. If an Event of Default of
the type set forth in clause (e) or clause (f) of Section 5.01 occurs and is
continuing, the principal of and any interest on the Securities then Outstanding
shall become immediately due and payable.
At any time after such a declaration of acceleration has been made
with respect to the Securities of any or all series, as the case may be, and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article provided, the Holders of a majority
in principal amount of the Outstanding Securities of such series, by written
notice to the Company and
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the Trustee, may rescind and annul such declaration and its consequences if
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue installments of interest on the Securities of
such series;
(ii) the principal of (and premium, if any, on) any Securities
of such series which have become due otherwise than by such
declaration of acceleration, and interest thereon at the rate or
rates prescribed therefor by the terms of the Securities of such
series, to the extent that payment of such interest is lawful;
(iii) interest upon overdue installments of interest at the
rate or rates prescribed therefor by the terms of the Securities of
such series to the extent that payment of such interest is lawful,
and
(iv) all sums paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel and all other amounts due the
Trustee under Section 6.07; and
(b) all Events of Default with respect to such series of Securities,
other than the nonpayment of the principal of the Securities of such
series which have become due solely by such acceleration, have been cured
or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement
by Trustee. The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security of any series when such interest becomes due and payable;
(b) default is made in the payment of the principal of (or premium,
if any, on) any Security at the Maturity thereof; or
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(c) default is made in the payment of any sinking or purchase fund
or analogous obligation when the same becomes due by the terms of the
Securities of any series;
and any such default continues for any period of grace provided with respect to
the Securities of such series, the Company will, upon demand of the Trustee, pay
to it, for the benefit of the Holder of any such Security (or the Holders of any
such series in the case of Clause (c) above), the whole amount then due and
payable on any such Security (or on the Securities of any such series in the
case of Clause (c) above) for principal (and premium, if any) and interest, with
interest, to the extent that payment of such interest shall be legally
enforceable, upon the overdue principal (and premium, if any) and upon overdue
installments of interest, at such rate or rates as may be prescribed therefor by
the terms of any such Security (or of securities of any such series in the case
of Clause (c) above); and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel and all other amounts due the Trustee under Section 6.07.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities of such series and
collect the money adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon such
Securities, wherever situated.
If an Event of Default with respect to any series of securities
occurs and is continuing, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the Holders of Securities of such
series by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of the
pendency of any receivership, insolvency,
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liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceedings or otherwise,
(a) to file and prove a claim for the whole amount of principal (or
portion thereof determined pursuant to Section 3.01(16) to be provable in
bankruptcy) (and premium, if any) and interest owing and unpaid in respect
of the Securities and to file such other papers or documents as may be
necessary and advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel and all
other amounts due the Trustee under Section 6.07) and of the
Securityholders allowed in such judicial proceeding; and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar
official) in any such judicial proceeding is hereby authorized by each
Securityholder to make such payment to the Trustee and in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
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SECTION 5.05. Trustee May Enforce Claims Without Possession of
Securities. All rights of action and claims under this Indenture or the
Securities of any series may be prosecuted and enforced by the Trustee without
the possession of any of the Securities of such series or the production thereof
in any proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel and any other amounts due the Trustee under Section 6.07, be for the
ratable benefit of the Holders of the Securities of the series in respect of
which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money collected by
the Trustee with respect to a series of Securities pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Securities of such
series and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
(a) to the payment of all amounts due the Trustee under Section
6.07;
(b) subject to Article XIII, to the payment of the amounts then due
and unpaid upon the Securities of that series for principal (and premium, if
any) and interest, in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for principal (and
premium, if any) and interest, respectively.
SECTION 5.07. Limitation on Suits. No Holder of any Security of any
series shall have any right to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default with respect to Securities of such
series;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Securities of such series
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49
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more Holders of Securities
of such series shall have any right in any manner whatever by virtue of,
or by availing of, any provision of this Indenture to affect, disturb or
prejudice the rights of any other Holders of Securities of such series, or
to obtain or to seek to obtain priority or preference over any other such
Holders or to enforce any right under this Indenture, except in the manner
herein provided and for the equal and proportionate benefit of all the
Holders of all Securities of such series.
SECTION 5.08. Unconditional Right of Security-holders To Receive
Principal, Premium and Interest. Notwithstanding any other provisions in this
Indenture except for the provisions of Article XIII, the Holder of any Security
shall have the right, which is absolute and unconditional, to receive payment of
the principal of (and premium, if any) and (subject to Section 3.07) interest on
such Security on the respective Stated Maturities expressed in such Security
(or, in the case of redemption or repayment, on the Redemption Date or Repayment
Date, as the case may be) and to institute suit for the enforcement of any such
payment, and such right shall not be impaired without the consent of such
Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or
any Securityholder has instituted any proceeding to enforce any right or remedy
under this Indenture and such proceeding has been discontinued or abandoned for
any reason, then and in every such case the Company, the Trustee and the
Securityholders shall, subject
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50
to any determination in such proceeding, be restored severally and respectively
to their former positions hereunder, and thereafter all rights and remedies of
the Trustee and the Securityholders shall continue as though no such proceeding
had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. No right or remedy
herein conferred upon or reserved to the Trustee or to the Securityholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy give hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Securityholders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Securityholders, as the case may be.
SECTION 5.12. Control by Securityholders. The Holders of a majority
in principal amount of the Outstanding Securities of any series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee with respect to the Securities of such series, provided that:
(a) the Trustee shall have the right to decline to follow any such
direction if the Trustee, being advised by counsel, determines that the
action so directed may not lawfully be taken or would conflict with this
Indenture or if the Trustee in good faith shall, by a Responsible Officer,
determine that the proceedings so directed would involve it in personal
liability or be unjustly prejudicial to the Holders not taking part in
such direction; and
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51
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. The Holders of not less than
a majority in principal amount of the Outstanding Securities of any series may
on behalf of the Holders of all the Securities of such series waive any past
default hereunder with respect to such series and its consequences, except a
default not theretofore cured:
(a) in the payment of the principal of (or premium, if any) or
interest on any Security of such series, or in the payment of any sinking
or purchase fund or analogous obligation with respect to the Securities of
such series; or
(b) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series.
Upon any such waiver, 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 Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Security by his 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 Indenture, or in any suit
against the Trustee for any action taken or omitted by it as 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 shall not apply to any
suit instituted by the Trustee, to any suit instituted by any Securityholder, or
group of Securityholders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities of any series to which the suit relates, or
to any suit instituted by and Securityholder for the enforcement of the payment
of the principal of (or premium, if any) or interest on any Security on or after
the respective Stated Maturities
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52
expressed in such Security (or, in the case of redemption or repayment, on or
after the Redemption Date or Repayment Date, as the case may be).
SECTION 5.15. Waiver of Stay or Extension Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law wherever enacted, now or at
any time hereafter in force, which may affect the covenants or the performance
of this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
ARTICLE IV
The Trustee
SECTION 6.01. Certain Duties and Responsibilities. (a) Except during
the continuance of an Event of Default with respect to any series of Securities:
(i) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture with respect to the
Securities of such series, and no implied covenants or obligations shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may, with
respect to Securities of such series, 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; but in the case of any such
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a duty
to examine the same to determine whether or not they conform to the
requirements of this Indenture.
(b) In case an Event of Default with respect to any series of
Securities has occurred and is continuing, the Trustee shall exercise with
respect to the Securities of
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53
such series such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own wilful misconduct, except that:
(i) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error of judgment made
in good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) the 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 a majority in principal amount of the
Outstanding Securities of any series relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture with respect to the Securities of such series; and
(iv) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder, or in the exercise of any
of its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Section.
SECTION 6.02. Notice of Defaults. Within 90 days after the
occurrence of any default hereunder with respect to Securities of any series,
the Trustee shall transmit by mail to all Securityholders of such series, as
their names and addresses appear in the Security Register, notice of such
default hereunder known to the Trustee, unless such
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54
default shall have been cured or waived; provided, however, that, except in the
case of a default in the payment of the principal of (or premium, if any) or
interest on any Security of such series or in the payment of any sinking or
purchase fund installment or analogous obligation with respect to Securities of
such series, the 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 Trustee in good faith determine
that the withholding of such notice is in the interests of the Securityholders
of such series; and provided further that in the case of any default of the
character specified in Section 5.01(4) with respect to Securities of such series
no such notice to Securityholders of such series shall be given until at least
90 days after the occurrence thereof. For the purpose of this Section, the term
"default", with respect to Securities of any series, means any event which is,
or after notice or lapse of time or both would become, an Event of Default with
respect to Securities of such series.
SECTION 6.03. Certain Rights of Trustee. Except as otherwise
provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and
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55
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Securityholders pursuant to this Indenture, unless
such Securityholders shall have offered to the Trustee reasonable security
or indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or
attorney;
(g) the 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 Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(h) the Trustee shall not be charged with knowledge of any default
(as defined in Section 6.02) or Event of Default with respect to the
Securities of any series for which it is acting as Trustee unless either
(1) a Responsible Officer of the Trustee assigned to the Corporation Trust
Department of the Trustee (or any successor division or department of the
Trustee) shall have actual knowledge of such default or Event of Default
or (2) written notice of such default or Event of Default shall have been
given to the Trustee by the Company or any other obligor on such
Securities or by any Holder of such Securities; and
(i) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the
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discretion or rights or powers conferred upon it by this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of
Securities. The recitals contained herein and in the Securities, except the
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
of the Securities. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 6.05. May Hold Securities. The Trustee, any Authenticating
Agent, any Paying Agent, the Security Registrar, any Conversion Agent or any
other agent of the Company, in its individual or any other capacity, may become
the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may
otherwise deal with the Company with the same rights it would have if it were
not Trustee, Authenticating Agent, Paying Agent, Security Registrar, Conversion
Agent or such other agent.
SECTION 6.06. Money Held in Trust. Subject to the provisions of
Section 10.03 hereof, all moneys in any currency or currency received by the
Trustee shall, until used or applied as herein provided, be held in trust for
the purposes for which they were received, but need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Company.
SECTION 6.07. Compensation and Reimbursement. The Company agrees:
(a) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its
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agents and counsel), except any such expense, disbursement or advance as
may be attributable to its negligence or bad faith; and
(c) to indemnify the Trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on
its part, arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
As security for the performance of the obligations of the Company
under this Section the Trustee shall have a lien prior to the Securities upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the payment of principal of (and premium, if any) or interest
on particular Securities.
When the Trustee incur expenses or renders services in connection
with an Event of Default specified in Section 5.01(e) or (f), the expenses and
the compensation for the services are intended to constitute expenses of
administration under any bankruptcy law.
The Company's obligations under this Section 6.07 and any lien
arising hereunder shall survive the resignation or removal of any Trustee, the
discharge of the Company's obligations pursuant to Article IV of this Indenture
and/or the termination of this Indenture.
SECTION 6.08. Disqualification; Conflicting Interests. The Trustee
for the Securities of any series issued hereunder shall be subject to the
provisions of Section 3.10(b) of the Trust Indenture Act during the period of
time provided for therein. In determining whether the Trustee has a conflicting
interest as defined in Section 3.10(b) of the Trust Indenture Act with respect
to the Securities of any series, there shall be excluded this Indenture with
respect to Securities of any particular series of Securities other than that
series. Nothing herein shall prevent the Trustee from filing with the Commission
the application referred to in the second to last paragraph of Section 3.10(b)
of the Trust Indenture Act.
SECTION 6.09. Corporate Trustee Required; Eligibility. There shall
at all times be a Trustee
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hereunder with respect to each series of Securities, which shall be either:
(a) a corporation organized and doing business under the laws of the
United States of America or of any State, authorized under such laws to
exercise corporate trust powers and subject to supervision or examination
by Federal or State authority; or
(b) a corporation or other Person organized and doing business under
the laws of a foreign government that is permitted to act as Trustee
pursuant to a rule, regulation or order of the Commission, authorized
under such laws to exercise corporate trust powers, and subject to
supervision or examination by authority of such foreign government or a
political subdivision thereof substantially equivalent to supervision or
examination applicable to United States institutional trustees,
in either case having a combined capital and surplus of at least $50 million. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, 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. Neither the Company nor any
Person directly or indirectly controlling, controlled by, or under common
control with the Company shall serve as trustee for the Securities of any series
issued hereunder. If at any time the Trustee with respect to any series of
Securities shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect specified
in Section 6.10.
SECTION 6.10. Resignation and Removal; Appointment of Successor. (a)
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign with respect to any series of Securities
at any time by giving written notice thereof to the Company. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of
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resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed with respect to any series of
Securities at any time by Act of the Holders of a majority in principal amount
of the Outstanding Securities of that series, delivered to the Trustee and to
the Company.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 3.10(b) of the
Trust Indenture Act pursuant to Section 6.08 with respect to any series of
Securities after written request therefor by the Company or by any
Securityholder who has been a bona fide Holder of a Security of that
series for at least six months, unless the Trustee's duty to resign is
stayed in accordance with the provisions of Section 3.10(b) of the Trust
Indenture Act; or
(ii) the Trustee shall cease to be eligible under Section 6.09 with
respect to any series of Securities and shall fail to resign after written
request therefor by the Company or by any such Securityholder; or
(iii) the Trustee shall become incapable of acting with respect to
any series of Securities; or
(iv) the Trustee shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation;
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee, with respect to the series, or in the case of Clause (iv), with respect
to all series, or (B) subject to Section 5.14, any Securityholder who has been a
bona fide Holder of a Security of such series for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee with respect to the series, or, in the case of Clause (iv),
with respect to all series.
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(e) If the Trustee shall resign, be removed or become incapable of
acting with respect to any series of Securities, or if a vacancy shall occur in
the office of the Trustee with respect to any series of Securities for any
cause, the Company, by a Board Resolution, shall promptly appoint a successor
Trustee for that series of Securities. If, within one year after such
resignation, removal or incapacity, or the occurrence of such vacancy, a
successor Trustee with respect to such series of Securities shall be appointed
by Act of the Holders of a majority in principal amount of the Outstanding
Securities of such series delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee with respect to such series and
supersede the successor Trustee appointed by the Company with respect to such
series. If no successor Trustee with respect to such series shall have been so
appointed by the Company or the Securityholders of such series and accepted
appointment in the manner hereinafter provided, subject to Section 5.14, any
Securityholder who has been a bona fide Holder of a Security of that series for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to any series and each appointment of a
successor Trustee with respect to any series by mailing written notice of such
event by first-class mail, postage prepaid, to the Holders of Securities of that
series as their names and addresses appear in the Security Register. Each notice
shall include the name of the successor Trustee and the address of its principal
Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor. Every
successor Trustee appointed hereunder shall execute, acknowledge and deliver to
the Company and to the predecessor Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the predecessor Trustee
shall become effective with respect to any series as to which it is resigning or
being removed as Trustee, and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts and
duties of the predecessor Trustee with respect to any such series; but, on
request of the Company or the successor Trustee, such predecessor Trustee shall,
upon payment of its reasonable charges, if any,
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execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the predecessor Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such predecessor Trustee hereunder with respect to all or any such series,
subject nevertheless to its lien, if any, provided for in Section 6.07. Upon
request of any such successor Trustee, the Company shall execute any and all
instruments for more fully and certainly vesting in and confirming to such
successor Trustee all such rights, powers and trusts.
In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
predecessor Trustee and each successor Trustee with respect to the Securities of
any applicable series shall execute and deliver an indenture supplemental hereto
which shall contain such provisions as shall be deemed necessary or desirable to
confirm that all the rights, powers, trusts and duties of the predecessor
Trustee with respect to the Securities of any series as to which the predecessor
Trustee is not being succeeded shall continue to be vested in the predecessor
Trustee, and shall add to or change any of the provisions of this Indenture as
shall be necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be Trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee.
No successor Trustee with respect to any series of Securities shall
accept its appointment unless at the time of such acceptance such successor
Trustee shall be qualified and eligible with respect to that series under this
Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
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In case any Securities shall have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor Trustee
had itself authenticated such Securities.
SECTION 6.13. Preferential Collection of Claims Against Company. (a)
Subject to Subsection (b) of this Section, if the Trustee shall be or shall
become a creditor, directly or indirectly, secured or unsecured, of the Company
within three months prior to a default, as defined in Subsection (c) of this
Section, or subsequent to such a default, then, unless and until such default
shall be cured, the Trustee shall set apart and hold in a special account for
the benefit of the Trustee individually, the Holders of the Securities and the
holders of other indenture securities (as defined in Subsection (c) of this
Section):
(i) an amount equal to any and all reduction in the amount due and
owing upon any claim as such creditor in respect of principal or interest,
effected after the beginning of such three-month period and valid as
against the Company and its other creditors, except any such reduction
resulting from the receipt or disposition of any property described in
paragraph (ii) of this Subsection, or from the exercise of any right of
set-off which the Trustee could have exercised if a petition in bankruptcy
had been filed by or against the Company upon the date of such default;
and
(ii) all property received by the Trustee in respect of any claim as
such creditor, either as security therefor, or in satisfaction or
composition thereof, or otherwise, after the beginning of such three-month
period, or an amount equal to the proceeds of any such property, if
disposed of, subject, however, to the rights, if any, of the Company and
its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee
(A) to retain for its own account (I) payments made on account of
any such claim by any Person (other than the Company) who is liable
thereon, and (II) the proceeds of the bona fide sale of any such claim by
the Trustee to a third Person, and (III) distributions made
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in cash, securities or other property in respect of claims filed against
the Company in bankruptcy or receivership or in proceedings for
reorganization pursuant to the Federal Bankruptcy Act or applicable State
law;
(B) to realize, for its own account, upon any property held by it as
security for any such claim, if such property was so held prior to the
beginning of such three-month period;
(C) to realize, for its own account, but only to the extent of the
claim hereinafter mentioned, upon any property held by it as security for
any such claim, if such claim was created after the beginning of such
three-month period and such property was received as security therefor
simultaneously with the creation thereof, and if the Trustee shall sustain
the burden of proving that at the time such property was so received the
Trustee had no reasonable cause to believe that a default as defined in
Subsection (c) of this Section would occur within three months; or
(D) to receive payment on any claim referred to in paragraph (B) or
(C) or against the release of any property held as security for such claim
as provided in paragraph (B) or (C), as the case may be, to the extent of
the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property
substituted after the beginning of such three-month period for property held as
security at the time of such substitution shall, to the extent of the fair value
of the property released, have the same status as the property released, and, to
the extent that any claim referred to in any of such paragraphs is created in
renewal of or in substitution for or for the purpose of repaying or refunding
any pre-existing claim of the Trustee as such creditor, such claim shall have
the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property
held in such special account and the proceeds thereof shall be apportioned
between the Trustee, the Securityholders and the holders of other indenture
securities in such manner that the Trustee, the Security-holders and the holders
of other indenture securities realize, as a result of payments from such special
account and payments of dividends on claims filed against the Company in
bankruptcy or receivership or in proceedings for
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reorganization pursuant to the Federal Bankruptcy Act or applicable State law,
the same percentage of their respective claims, figured before crediting to the
claim of the Trustee anything on account of the receipt by it from the Company
of the funds and property in such special account and before crediting to the
respective claims of the Trustee and the Securityholders and the holders of
other indenture securities dividends on claims filed against the Company in
bankruptcy or receivership or in proceedings for reorganization pursuant to the
Federal Bankruptcy Act or applicable State law, but after crediting thereon
receipts on account of the indebtedness represented by their respective claims
from all sources other than from such dividends and from the funds and property
so held in such special account. As used in this paragraph, with respect to any
claim, the term "dividends" shall include any distribution with respect to such
claim, in bankruptcy or receivership or proceedings for reorganization pursuant
to the Federal Bankruptcy Act or applicable State law, whether such distribution
is made in cash, securities, or other property, but shall not include any such
distribution with respect to the secured portion, if any, of such claim. The
court in which such bankruptcy, receivership or proceedings for reorganization
is pending shall have jurisdiction (i) to apportion between the Trustee and the
Securityholders and the holders of other indenture securities, in accordance
with the provisions of this paragraph, the funds and property held in such
special account and proceeds thereof, or (ii) in lieu of such apportionment, in
whole or in part, to give to the provisions of this paragraph due consideration
in determining the fairness of the distributions to be made to the Trustee and
the Securityholders and the holders of other indenture securities with respect
to their respective claims, in which event it shall not be necessary to
liquidate or to appraise the value of any securities or other property held in
such special account or as security for any such claim, or to make a specific
allocation of such distributions as between the secured and unsecured portions
of such claims, or otherwise to apply the provisions of this paragraph as a
mathematical formula.
Any Trustee which has resigned or been removed after the beginning
of such three-month period shall be subject to the provisions of this Subsection
as though such resignation or removal had not occurred. If any Trustee has
resigned or been removed prior to the beginning of such three-month period, it
shall be subject to the provisions of
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this Subsection if and only if the following conditions exist:
(i) the receipt of property or reduction of claim, which would have
given rise to the obligation to account, if such Trustee had continued as
Trustee, occurred after the beginning of such three-month period; and
(ii) such receipt of property or reduction of claim occurred within
three months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection (a) of
this Section a creditor relationship arising from
(i) the ownership or acquisition of securities issued under any
indenture, or any security or securities having a maturity of one year or
more at the time of acquisition by the Trustee;
(ii) advances authorized by a receivership or bankruptcy court of
competent jurisdiction, or by this Indenture, for the purpose of
preserving any property which shall at any time be subject to the lien of
this Indenture or of discharging tax liens or other prior liens or
encumbrances thereon), if notice of such advances and of the circumstances
surrounding the making thereof is given to the Securityholders at the time
and in the manner provided in this Indenture;
(iii) disbursements made in the ordinary course of business in the
capacity of trustee under an indenture, transfer agent, registrar,
custodian, paying agent, fiscal agent or depository, or other similar
capacity;
(iv) an indebtedness created as a result of services rendered or
premises rented; or an indebtedness created as a result of goods or
securities sold in a cash transaction as defined in Subsection (c) of this
Section;
(v) the ownership of stock or of other securities of a corporation
organized under the provisions of Section 25(a) of the Federal Reserve
Act, as amended, which is directly or indirectly a creditor of the
Company; or
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(vi) the acquisition, ownership, acceptance or negotiation of any
drafts, bills of exchange, acceptances or obligations which fall within
the classification of self-liquidating paper as defined in Subsection (c)
of this Section.
(c) For the purposes of this Section only:
(i) The term "default" means any failure to make payment in full of
the principal of or interest on any of the Securities or upon the other
indenture securities when and as such principal or interest becomes due
and payable.
(ii) The term "other indenture securities" means securities upon
which the Company is an obligor outstanding under any other indenture (A)
under which the Trustee is also trustee, (B) which contains provisions
substantially similar to the provisions of this Section, and (C) under
which a default exists at the time of the apportionment of the funds and
property held in such special account.
(iii) The term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand.
(iv) The term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security is
received by the Trustee simultaneously with the creation of the creditor
relationship with the Company arising from the making, drawing,
negotiating or incurring of the draft, bill of exchange, acceptance or
obligation.
(v) The term "Company" means any obligor upon the securities.
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SECTION 6.14. Appointment of Authenticating Agent. At any time when
any of the Securities remain Outstanding the Trustee, with the approval of the
Company, may appoint an authenticating Agent or Agents with respect to one or
more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issuance,
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 3.06, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as an
Authenticating Agent, having a combined capital and surplus of not less than $50
Million and, if other than the Company itself, subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
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 an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any
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paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and, if other than the Company, to the Company.
The Trustee may at any time terminate the agency of an Authenticating Agent by
giving written notice thereof to such Authenticating Agent and, if other than
the Company, to the company. Upon receiving such a notice of resignation or upon
such a termination, or in case at any time such Authenticating Agent shall cease
to be eligible in accordance with the provisions of this Section, the Trustee,
with the approval of the Company, may appoint a successor Authenticating Agent
which shall be acceptable to the Company and shall mail written notice of such
appointment by first-class mail, postage prepaid, to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve, as
their names and addresses appear in the Security Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.07.
If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have endorsed
thereon, in addition to the
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Trustee's certificate of authentication, an alternate certificate of
authentication in the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned indenture.
CHEMICAL BANK,
as Trustee
by
-----------------------------
As Authenticating Agent
by
-----------------------------
Authorized Agent
ARTICLE VII
Securityholders' Lists and Reports by
Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and Addresses of
Securityholders. The Company will furnish or cause to be furnished to the
Trustee:
(a) semi-annually, not more than 15 days after December 15 and June
15 in each year in such form as the Trustee may reasonably require, a list
of the names and addresses of the Holders of Securities of each series as
of such December 15 and June 15, as applicable, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such request, a
list of similar form and content as of a date not more than 15 days prior
to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar for Securities of a series, no such list need be furnished with
respect to such series of Securities.
SECTION 7.02. Preservation of Information; Communications to
Securityholders. (a) The Trustee shall preserve, in as current a term as is
reasonably practicable,
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the names and addresses of Holders of Securities contained in the most recent
list furnished to the Trustee as provided in Section 7.01 and the names and
addresses of Holders of Securities received by the Trustee in its capacity as
Security Registrar, it so acting. The Trustee may destroy any list furnished to
it as provided in Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders of Securities of any series
(hereinafter referred to as "applicants") apply in writing to the Trustee, and
furnish to the Trustee reasonable proof that each such applicant has owned a
Security of such series for a period of at least six months preceding the date
of such application, and such application states that the applicants desire to
communicate with other Holders of Securities of such series or with the Holders
of all Securities with respect to their rights under this Indenture or under
such Securities and is accompanied by a copy of the form of proxy or other
communication which such applicants propose to transmit, then the Trustee shall,
within five Business Days after the receipt of such application, at its
election, either
(i) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Section 7.02(a), or
(ii) inform such applicants as to the approximate number of Holders
of Securities of such series or all Securities, as the case may be, whose
names and addresses appear in the information preserved at the time by the
Trustee in accordance with Section 7.02(a), and as to the approximate cost
of mailing to such Securityholders the form of proxy or other
communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to
such information, the Trustee shall, upon the written request of such
applicants, mail to each Holder of a Security of such series or to all
Security-holders, as the case may be, whose names and addresses appear in the
information preserved at the time by the Trustee in accordance with Section
7.02(a), a copy of the form of proxy or other communication which is specified
in such request, with reasonable promptness after a tender to the Trustee of the
material to be mailed and of payment, or provision for the payment, of the
reasonable expenses of mailing, unless, within five days after such tender, the
Trustee shall mail to such applicants and file with the
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Commission, together with a copy of the material to be mailed, a written
statement to the effect that, in the opinion of the Trustee, such mailing would
be contrary to the best interests of the Holders of Securities of such series or
all Securityholders, as the case may be, or would be in violation of applicable
law. Such written statement shall specify the basis of such opinion. If the
Commission, after opportunity for a hearing upon the objections specified in the
written statement so filed, shall enter an order refusing to sustain any of such
objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing,
that all the objections so sustained have been met and shall enter an order so
declaring, the Trustee shall mail copies of such material to all Securityholders
of such series or all Securityholders, as the case may be, with reasonable
promptness after the entry of such order and the renewal of such tender;
otherwise the Trustee shall be relieved of any obligation or duty to such
applicants respecting their application.
(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
shall be held accountable by reason of the disclosure of any such information as
to the names and addresses of the Holders of Securities in accordance with
Section 7.02(b), regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 7.02(b).
SECTION 7.03. Reports by Trustee. (a) The term to "reporting date"
as used in this Section means May 15. Within 60 days after the reporting date in
each year, beginning in 1993, the Trustee shall transmit by mail to all
Securityholders, as their names and addresses appear in the Security Register, a
brief report dated as of such reporting date with respect to any of the
following events which may have occurred during the 12 months preceding the date
of such report (but if no such event has occurred within such period, no report
need be transmitted):
(i) any change to its eligibility under Section 6.09 and its
qualifications under Section 6.08;
(ii) the creation of or any material change to a relationship
specified in Section 3.10(b)(1) through Section 3.10(b)(10) of the Trust
Indenture Act;
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(iii) the character and amount of any advances (and if the Trustee
elects so to state, the circumstances surrounding the making thereof) made
by the Trustee (as such) which remain unpaid on the date of such report,
and for the reimbursement of which it claims or may claim a lien or
charge, prior to that of Securities of any series, on any property or
funds held or collected by it as Trustee, except that the Trustee shall
not be required (but may elect) to report such advances if such advances
so remaining unpaid aggregate not more than one-half of 1% of the
principal amount of the Securities of such series Outstanding on the date
of such report;
(iv) any change to the amount, interest rate and maturity date of
all other indebtedness owing by the Company (or by any other obligor on
the Securities) to the Trustee in its individual capacity, on the date of
such report, with a brief description of any property held as collateral
security therefor, except an indebtedness based upon a creditor
relationship arising in any manner described in Section 613(b)(ii), (iii),
(iv), or (vi);
(v) any change to the property and funds, if any, physically in the
possession of the Trustee as such on the date of such report;
(vi) any additional issue of Securities for which the Trustee so
acts and which the Trustee has not previously reported; and
(vii) any action taken by the Trustee in the performance of its
duties hereunder which it has not previously reported and which in its
opinion materially affects the Securities, except action in respect of a
default, notice of which has been or is to be withheld by the Trustee in
accordance with Section 6.02.
(b) The Trustee shall transmit by mail to all Securityholders, as
their names and addresses appear in the Security Register, a brief report with
respect to the character and amount of any advances (and if the Trustee elects
so to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) since the date of the last report transmitted pursuant to
Subsection (a) of this Section (or if no such report has yet been so
transmitted, since the date of execution of this instrument) for the
reimbursement of which it claims or may claim a lien or
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73
charge, prior to that of the Securities of any series, on property or funds held
or collected by it as Trustee, and which it has not previously reported pursuant
to this Subsection, except that the Trustee shall not be required (but may
elect) to report such advances if such advances remaining unpaid at any time
aggregate 10% or less of the principal amount of the Securities outstanding of
such series at such time, such report to be transmitted within 90 days after
such time.
(c) A copy of each such report shall, at the time of such
transmission to Securityholders, be furnished to the Company and be filed by the
Trustee with each stock exchange upon which the Securities are listed, and also
with the Commission. The Company will notify the Trustee when the Securities are
listed on any stock exchange.
SECTION 7.04. Reports by Company. The Company shall file with the
Trustee, and transmit to Holders, such information, documents and other reports,
and such summaries thereof, as may be required pursuant to the Trust Indenture
Act at the times and in the manner provided pursuant to such Act; provided that
any such information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission. The Company also shall comply with the
other provisions of Trust Indenture Act Section 3.14(a).
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
SECTION 8.01. Company May Consolidate, etc., only on Certain Terms.
The Company shall not consolidate with or merge into any other corporation or
convey or transfer its properties and assets substantially as an entirety to any
Person, unless:
(a) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Company substantially as an entirety
shall be organized and existing under the laws of the United States of
America or any political subdivision thereof, and shall expressly assume,
by an indenture supplemental hereto, executed and delivered to the
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Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of (and premium, if any) and interest on all the
Securities and the performance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such supplemental
indenture comply with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied with.
SECTION 8.02. Successor Person Substituted. Upon any consolidation
or merger, or any conveyance or transfer of the properties and assets of the
Company substantially as an entirety in accordance with Section 8.01, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor had been named as the
Company herein. In the event of any such conveyance or transfer, the Company as
the predecessor shall be discharged from all obligations and covenants under
this Indenture and the Securities and may be dissolved, wound up or liquidated
at any time thereafter.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of
Securityholders. Without the consent of the Holders of any Securities, the
Company, when authorized by a Board Resolution, and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental
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hereto, in form satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another corporation or Person to
the Company, and the assumption by any such successor of the covenants of
the Company herein and in the Securities contained;
(b) to add to the covenants of the Company, or to surrender any
right or power herein conferred upon the Company, for the benefit of the
Holders of the Securities of any or all series (and if such covenants or
the surrender of such right or power are to be for the benefit of less
than all series of Securities, stating that such covenants are expressly
being included or such surrenders are expressly being made solely for the
benefit of one or more specified series);
(c) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture;
(d) to add to this Indenture such provisions as may be expressly
permitted by the TIA, excluding, however, the provisions referred to in
Section 3.16(a)(2) of the TIA as in effect at the date as of which this
instrument was executed or any corresponding provision in any similar
Federal statute hereafter enacted;
(e) to establish any form of Security, as provided in Article II,
and to provide for the issuance of any series of Securities as provided in
Article III and to set forth the terms thereof, and/or to add to the
rights of the Holders of the Securities of any series;
(f) to evidence and provide for the acceptance of appointment by
another corporation as a successor Trustee hereunder with respect to one
or more series of Securities and to add to or change any of the provisions
of this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, pursuant
to Section 6.11;
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(g) to add any additional Events of Default in respect of the
Securities of any or all series (and if such additional Events of Default
are to be in respect of less than all series of Securities, stating that
such Events of Default are expressly being included solely for the benefit
of one or more specified series);
(h) to provide for the issuance of Securities in coupon as well as
fully registered form;
(i) to provide for the terms and conditions of conversion into
Common Stock or other Marketable Securities of the Securities of any
series which are convertible into Common Stock or other Marketable
Securities, if different from those set forth in Article XII; or
(j) to secure the Securities of any series pursuant to Section 10.06
or otherwise.
No supplemental indenture for the purposes identified in Clauses
(b), (c), (e) or (g) above may be entered into if to do so would adversely
affect the interest of the Holders of Securities of any series in any material
respect.
SECTION 9.02. Supplemental Indentures with Consent of
Securityholders. With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities of each series affected by such
supplemental indenture or indentures, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders of the Securities of each such series under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby:
(a) change the Maturity of the principal of, or the Stated Maturity
of any premium on, or any installment of interest on, any Security, or
reduce the principal amount thereof or the interest or any premium
thereon, or change the method of computing the amount of principal thereof
or interest thereon on any date or
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change any Place of Payment where, or the coin or currency in which, any
Security or any premium or interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or
after the Maturity or the Stated Maturity, as the case may be, thereof
(or, in the case of redemption or repayment, on or after the Redemption
Date or the Repayment Date, as the case may be), or alter the provisions
of this Indenture so as to affect adversely the terms, if any, of
conversion of any Securities into Common Stock or other securities, or
alter the provisions of Article XIII or the definition of Senior
Indebtedness so as to affect adversely the rights of any Holder of
Securities;
(b) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences, provided for in this
Indenture;
(c) modify any of the provisions of this Section, Section 5.13 or
Section 10.06, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; or
(d) impair or adversely affect the right of any Holder to institute
suit for the enforcement of any payment on, or with respect to, the
Securities of any series on or after the Stated Maturity of such
Securities (or in the case of redemption, on or after the Redemption
Date).
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Securityholders under this
Section to approve the particular
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form of any proposed supplemental indenture, but it shall be sufficient if such
Act shall approve the substance thereof.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
6.01) shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture under this Article, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby to the extent provided therein.
SECTION 9.05. Conformity with Trust Indenture Act. Every
supplemental indenture executed pursuant to this Article shall conform to the
requirements of TIA as then in effect.
SECTION 9.06. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
so modified as to conform, in the opinion of the Trustee and the Board of
Directors, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 9.07. Subordination Unimpaired. No supplemental indenture
entered into under this Article shall modify, directly or indirectly, the
provisions of Article XIII or the definition of Senior Indebtedness in Section
1.01 in any manner that adversely affects the rights
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of the holders of Senior Indebtedness then outstanding under Article XIII unless
written consents are obtained from holders of such Senior Indebtedness;
provided, however, that in any case where the instrument or agreement governing
Senior Indebtedness contains express provisions pertaining to the giving of
consent in such circumstances, such consents shall only be required to the
extent they are required under the terms of such instrument or agreement.
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest. With
respect to each series of Securities, the Company will duly and punctually pay
the principal of (and premium, if any) and interest on such Securities in
accordance with their terms and this Indenture, and will duly comply with all
the other terms, agreements and conditions contained in, or made in the
Indenture for the benefit of, the Securities of such series.
SECTION 10.02. Maintenance of Office or Agency. The Company will
maintain an office or agency in each Place of Payment where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange, where notices and demands to or upon the
Company in respect of the Securities and this Indenture may be served and where
any Securities with conversion privileges may be presented and surrendered for
conversion. The Company will give prompt written notice to the Trustee of the
location, and of any change in the location, of such office or agency. If at any
time the Company shall fail to maintain such office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Company hereby appoints the Trustee its agent to receive all
such presentations, surrenders, notices and demands.
Unless otherwise set forth in, or pursuant to, a Board Resolution or
Indenture supplemental hereto with respect to a series of Securities, the
Company hereby initially designates as the Place of Payment for each series of
Securities, the Borough of Manhattan, the City and State of New York, and
initially appoints the Trustee at its
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Corporate Trust office as the Company's office or agency for each such purpose
in such city.
SECTION 10.03. Money for Security Payments To Be Held in Trust. If
the Companies shall at any time act as its own Paying Agent for any series of
Securities, it will, on or before each due date of the principal of (and
premium, if any) or interest on, any of the Securities of such series, segregate
and hold in trust for the benefit of the Persons entitled thereto a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided, and will promptly notify the Trustee of its action or failure
to act.
Whenever the Company shall have one or more Paying Agents for any
series of Securities, it will, on or prior to each due date of the principal of
(and premium, if any) or interest on, any Securities of such series, deposit
with a Paying Agent a sum sufficient to pay the principal (and premium, if any)
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal (and premium, if any) or interest, and
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee for
any series of Securities to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of principal of (and
premium, if any) or interest on Securities of such series in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to
such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities of such series) in the making of any
such payment of principal (and premium, if any) or interest on the
Securities of such series; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee,
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forthwith pay to the Trustee all sums so held in trust by such Paying
Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture with respect to any series of
Securities or for any other purpose, pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such
Paying Agent in respect of each and every series of Securities as to which it
seeks to discharge this Indenture or, if for any other purpose, all sums so held
in trust by the Company in respect of all Securities, such sums to be held by
the Trustee upon the same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of (and premium,
if any) or interest on any Security of any series and remaining unclaimed for
two years after such principal (and premium, if any) or interest has become due
and payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease. The Trustee or such Paying Agent, before
being required to make any such repayment, may at the expense of the Company
mail to the Holders of the Securities as to which the money to be repaid was
held in trust, as their names and addresses appear in the Security Register, a
notice that such moneys remain unclaimed and that, after a date specified in the
notice, which shall not be less than 30 days from the date on which the notice
was first mailed to the Holders of the Securities as to which the money to be
repaid was held in trust, any unclaimed balance of such moneys then remaining
will be paid to the Company free of the trust formerly impressed upon it.
SECTION 10.04. Statement as to Compliance. The Company will deliver
to the Trustee, within 120 days after the end of each fiscal year, a written
statement signed by
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the principal executive officer, principal financial officer or principal
accounting officer of the Company stating that:
(a) a review of the activities of the Company during such year and
of performance under this Indenture and under the terms of the Securities
has been made under his supervision; and
(b) to the best of his knowledge, based on such review, the Company
has fulfilled all its obligations under this Indenture and has complied
with all conditions and covenants on its part contained in this Indenture
through such year, or, if there has been a default in the fulfillment of
any such obligation, covenant or condition, specifying each such default
known to him and the nature and status thereof.
For the purpose of this Section 10.04, default and compliance shall
be determined without regard to any grace period or requirement of notice
provided pursuant to the terms of this Indenture.
SECTION 10.05. Legal Existence. Subject to Article VIII the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its legal existence.
SECTION 10.06. Waiver of Certain Covenants. The Company may omit in
respect of any series of Securities, in any particular instance, to comply with
any covenant or condition set forth in a Board Resolution or supplemental
indenture with respect to the Securities of such series, unless otherwise
specified in such Board Resolution or supplemental indenture, if before or after
the time for such compliance the Holders of at least a majority in principal
amount of the Securities at the time Outstanding of such series shall, by Act of
such Securityholders, either waive such compliance in such instance or generally
waive compli- ance with such covenant or condition, but no such waiver shall
extend to or affect such covenant or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such covenant or
condition shall remain in full force and effect. Nothing in this Section 10.06
shall permit the waiver of compliance with any covenant or condition set forth
in such Board Resolution or supplemental indenture which, if in the form of an
indenture supplemental hereto, would not be permitted
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by Section 9.02 without the consent of the Holder of each outstanding Security
affected thereby.
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article. The Company may reserve the
right to redeem and pay before Stated Maturity all or any part of the Securities
of any series, either by optional redemption, sinking or purchase fund or
analogous obligation or otherwise, by provision therefor in the form of Security
for such series established and approved pursuant to Section 2.02 and on such
terms as are specified in such form or in the indenture supplemental hereto with
respect to Securities of such series as provided in Section 3.01. Redemption of
Securities of any series shall be made, subject to the provisions of Section
13.03 hereof, in accordance with the terms of such Securities and, to the extent
that this Article does not conflict with such terms, the succeeding Sections of
this Article. Notwithstanding anything to the contrary in this Indenture, except
in the case of redemption pursuant to a sinking fund, the Trustee shall not make
any payment in connection with the redemption of Securities until the close of
business on the Redemption Date.
SECTION 11.02. Election To Redeem; Notice to Trustee. The election
of the Company to redeem any Securities redeemable at the election of the
Company shall be evidenced by, or pursuant to authority granted by, a Board
Resolution. In case of any redemption at the election of the Company of less
than all of the Securities of any series, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series and the Tranche (as defined
in Section 11.03) to be redeemed.
In the case of any redemption of Securities (a) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture, or (b) pursuant to an election of the
Company which is subject to a condition specified in the terms of such
Securities, the Company shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction or condition.
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SECTION 11.03. Selection by Trustee of Securities To Be Redeemed. If
less than all the Securities of like tenor and terms of any series (a "Tranche")
are to be redeemed, the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such Tranche not previously called for redemption, by
such method as the Trustee shall deem fair and appropriate and which may include
provision for the selection for redemption of portions of the principal of
Securities of such Tranche of a denomination larger than the minimum authorized
denomination for Securities of that series. Unless otherwise provided in the
terms of a particular series of Securities, the portions of the principal of
Securities so selected for partial redemption shall be equal to the minimum
authorized denomination of the Securities of such series, or an integral
multiple thereof, and the principal amount which remains outstanding shall not
be less than the minimum authorized denomination for Securities of such series.
If less than all the Securities of unlike tenor and terms of series are to be
redeemed, the particular Tranche of Securities to be redeemed shall be selected
by the Company.
If any convertible Security selected for partial redemption is
converted in part before the termination of the conversion right with respect to
the portion of the Security so selected, the converted portion of such Security
shall be deemed (so far as may be) to be the portion selected for redemption.
Upon any redemption of fewer than all the Securities of a Series or
Tranche, the Company and the Trustee may treat as Outstanding any Securities
surrendered for conversion during the period of 15 days next preceding the
mailing of a notice of redemption, and need not treat as Outstanding any
Security authenticated and delivered during such period in exchange for the
unconverted portion of any Security converted in part during such period.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
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portion of the principal of such Security which has been or is to be redeemed.
SECTION 11.04. Notice of Redemption. Notice of redemption shall be
given by first-class mail, postage prepaid, mailed not less than 20 (or 15, if
so provided in the Board Resolution establishing the relevant series) nor more
than 45 days prior to the Redemption Date, to each holder of Securities to be
redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
respective principal amounts) of the Securities to be redeemed, from the
Holder to whom the notice is given;
(d) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security, and that interest, if any, thereon
shall cease to accrue from and after said date;
(e) the place where such Securities are to be surrendered for
payment of the Redemption Price, which shall be the office or agency of
the Company in the Place of Payment;
(f) that the redemption is on account of a sinking or purchase fund,
or other analogous obligation, if that be the case;
(g) if such Securities are convertible into Common Stock or other
securities, the Conversion Price or other conversion price and the date on
which the right to convert such Securities into Common Stock or other
securities will terminate; and
(h) that the redemption may be rescinded by the Company, at its sole
option, pursuant to Section 11.09 of this Indenture upon the occurrence of
a Redemption Rescission Event, except in the case of any redemption on
account of a sinking fund.
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Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 11.05. Deposit of Redemption Price. On or prior to any
Redemption Date and subject to Section 11.09, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 10.03) an amount of
money sufficient to pay the Redemption Price of all the Securities which are to
be redeemed on that date. If any Security to be redeemed is converted into
Common Stock or other securities, any money so deposited with the Trustee or a
Paying Agent shall be paid to the Company upon Company Request or, if then so
segregated and held in trust by the Company, shall be discharged from such
trust.
SECTION 11.06. Securities Payable on Redemption Date. Notice of
Redemption having been given as aforesaid, the Securities so to be redeemed
shall, subject to Section 11.09, on the Redemption Date, become due and payable
at the Redemption Price therein specified and from and after such date (unless
the Company shall default in the payment of the Redemption Price) such
Securities shall cease to bear interest and any rights to convert such
Securities shall terminate. Upon surrender of such Securities for redemption in
accordance with the notice and subject to Section 11.09, such Securities shall
be paid by the Company at the Redemption Price. Unless otherwise provided with
respect to such Securities pursuant to Section 3.01, installments of interest
the Stated Maturity of which is on or prior to the Redemption Date shall be
payable to the Holders of such Securities registered as such on the relevant
Regular Record Dates according to their terms and the provisions of Section
3.07.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid, bear interest
from the Redemption Date at the rate borne by the Security, or as otherwise
provided in such Security.
SECTION 11.07. Securities Redeemed in Part. Any Security which is to
be redeemed only in part shall be surrendered at the office or agency of the
Company in the Place of Payment with respect to that series (with, if the
Company or the Trustee so requires, due endorsement by, or a
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written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing) and the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security without service charge, a new Security or
Securities of the same series and Stated Maturity and of like tenor and terms,
of any authorized denomination as requested by such Holder in aggregate
principal amount equal to and in exchange for the unredeemed portion of the
principal of the Security so surrendered.
SECTION 11.08. Provisions with Respect to Any Sinking Funds. Unless
the form or terms of any series of Securities shall provide otherwise, in lieu
of making all or any part of any mandatory sinking fund payment with respect to
such series of Securities in cash, the Company may at its option (a) deliver to
the Trustee for cancellation any Securities of such series theretofore acquired
by the Company or converted by the Holder thereof into Common Stock or other
securities, or (b) receive credit for any Securities of such series (not
previously so credited) acquired by the Company (including by way of optional
redemption (pursuant to the sinking fund or otherwise but not by way of
mandatory sinking fund redemption) or converted by the Holder thereof into
Common Stock or other securities and theretofore delivered to the Trustee for
cancellation, and if it does so (i) Securities so delivered or credited shall be
credited at the applicable sinking fund Redemption Price with respect to
Securities of such series and (ii) on or before the 60th day next preceding each
sinking fund Redemption Date with respect to such series of Securities, the
Company will deliver to the Trustee (A) an Officers' Certificate specifying the
portions of such sinking fund payment to be satisfied by payment of cash and by
delivery or credit of Securities of such series acquired by the Company or
converted by the Holder thereof and (B) such Securities, to the extent not
previously surrendered. Such Officers' Certificate shall also state the basis
for such credit and that the Securities for which the Company elects to receive
credit have not been previously so credited and were not acquired by the Company
through operation of the mandatory sinking fund, if any, provided with respect
to such Securities and shall also state that no Event of Default with respect to
Securities of such series has occurred and is continuing. All Securities so
delivered to the Trustee shall be canceled by the Trustee and no Securities
shall be authenticated in lieu thereof.
If the sinking fund payment or payments (mandatory
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or optional) with respect to any series of Securities made in cash plus any
unused balance of any preceding sinking fund payments with respect to Securities
of such series made in cash shall exceed $50,000 (or a lesser, sum if the
Company shall so request), unless otherwise provided by the terms of such series
of Securities, that cash shall be applied by the Trustee on the sinking fund
Redemption Date with respect to Securities of such series next following the
date of such payment to the redemption of Securities of such series at the
applicable sinking fund Redemption Price with respect to Securities of such
series, together with accrued interest, if any, to the date fixed for
redemption, with the effect provided in Section 11.06. The Trustee shall select,
in the manner provided in Section 11.03, for redemption on such sinking fund
Redemption Date a sufficient principal amount of Securities of such series to
utilize that cash and shall thereupon cause notice of redemption of the
Securities of such series for the sinking fund to be given in the manner
provided in Section 11.04 (and with the effect provided in Section 11.06) for
the redemption of Securities in part at the option of the Company. Any sinking
fund moneys not so applied or allocated by the Trustee to the redemption of
Securities of such series shall be added to the next cash sinking fund payment
with respect to Securities of such series received by the Trustee and, together
with such payment, shall be applied in accordance with the provisions of this
Section 11.08. Any and all sinking fund moneys with respect to Securities of any
series held by the Trustee at the Maturity of Securities of such series, and not
held for the payment or redemption of particular Securities of such series,
shall be applied by the Trustee, together with other moneys, if necessary, to be
deposited sufficient for the purpose, to the payment of the principal of the
Securities of such series at Maturity.
On or before each sinking fund Redemption Date provided with respect
to Securities of any series, the Company shall pay to the Trustee in cash a sum
equal to all accrued interest, if any, to the date fixed for redemption on
Securities to be redeemed on such sinking fund Redemption Date pursuant to this
Section 11.08.
SECTION 11.09. Rescission of Redemption. In the event that this
Section 11.09 is specified to be applicable to a series of Securities pursuant
to Section 3.01 and a Redemption Rescission Event shall occur following any day
on which a notice of redemption shall have been given pursuant to Section 11.04
hereof but at or prior to the time and date fixed for redemption as set forth in
such notice of
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redemption, the Company may, at its sole option, at any time prior to the
earlier of (a) the close of business on that day which is two Trading Days
following such Redemption Rescission Event and (b) the time and date fixed for
redemption as set forth in such notice, rescind the redemption to which such
notice of redemption shall have related by making a public announcement of such
rescission (the date on which such public announcement shall have been made
being hereinafter referred to as the "Rescission Date"). The Company shall be
deemed to have made such announcement if it shall issue a release to the Dow
Jones News Service, Reuters Information Services or any successor news wire
service. From and after the making of such announcement, the Company shall have
no obligation to redeem Securities called for redemption pursuant to such notice
of redemption or to pay the Redemption Price therefor and all rights of Holders
of Securities shall be restored as if such notice of redemption had not been
given. As promptly as practicable following the making of such announcement, the
company shall telephonically notify the Trustee and the paying Agent of such
rescission. The Company shall give notice of any such rescission by first-class
mail, postage prepaid, mailed as promptly as practicable but in no event later
than the close of business on that day which is five Trading Days following the
Rescission Date to each Holder of Securities at the close of business on the
Rescission Date, to any other Person that was a Holder of Securities and that
shall have surrendered Securities for conversion following the giving of notice
of the subsequently rescinded redemption and to the Trustee and the Paying
Agent. Each notice of rescission shall (i) state that the redemption described
in the notice of redemption has been rescinded, (ii) state that any Converting
Holder shall be entitled to rescind the conversion of Securities surrendered for
conversion following the day on which notice of redemption was given but on or
prior to the date of the mailing of the Company's notice of rescission, (iii) be
accompanied by a form prescribed by the Company to be used by any Converting
Holder rescinding the conversion of Securities so surrendered for conversion
(and instructions for the completion and delivery of such form, including
instructions with respect to any payment that may be required to accompany such
delivery) and (iv) state that such form must be properly completed and received
by the Company no later than the close of business on a date that shall be 15
Trading Days following the date of the mailing of such notice of rescission.
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ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege. If so provided in a Board
Resolution with respect to the Securities of any series, the Holder of a
Security of such series shall have the right, at such Holder's option, to
convert, in accordance with the terms of such series of Securities and this
Article XII, all or any part (in a denomination of, unless otherwise specified
in a Board Resolution or supplemental indenture with respect to Securities of
such series, $1,000 in principal amount or any integral multiple thereof) of
such Security into shares of Common Stock or other Marketable Securities
specified in such Board Resolution at any time or, as to any Securities called
for redemption, at any time prior to the time and date fixed for such redemption
(unless the Company shall default in the payment of the Redemption Price, in
which case such right shall not terminate at such time and date). The provisions
of this Article XII shall not be applicable to the Securities of a series unless
otherwise specified in a Board Resolution with respect to the Securities of such
series.
SECTION 12.02. Conversion Procedure; Rescission of Conversion;
Conversion Price; Fractional Shares. (a) Each Security to which this Article is
applicable shall be convertible at the office of the Conversion Agent, and at
such other place or places, if any, specified in a Board Resolution with respect
to the Securities of such series, into fully paid and nonassessable shares
(calculated to the nearest one-hundredth of a share) of Common Stock or other
Marketable Securities. The Securities will be converted into shares of Common
Stock or such other Marketable Securities at the Conversion Price therefor. No
payment or adjustment shall be made in respect of dividends on the Common Stock
or such other Marketable Securities or accrued interest on a converted Security
except as described in Section 12.09. The Company may, but shall not be required
to, in connection with any conversion of Securities, issue a fraction of a share
of Common Stock or of such other Marketable Security, and, if the Company shall
determine not to issue any such fraction, the Company shall, subject to Section
12.03(d), make a cash payment (calculated to the nearest cent) equal to such
fraction multiplied by the Closing Price of the Common Stock or such other
Marketable Security on the last Trading Day prior to the date of conversion.
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(b) Before any Holder of a Security shall be entitled to convert the
same into Common Stock or other Marketable Securities, such Holder shall
surrender such Security duly endorsed to the Company or in blank, at the office
of the Conversion Agent or at such other place or places, if any, specified in a
Board Resolution with respect to the Securities of such series, and shall give
written notice to the Company at said office or place that he elects to convert
the same and shall state in writing therein the principal amount of Securities
to be converted and the name or names (with addresses) in which he wishes the
certificate or certificates for Common Stock or for such other marketable
Securities to be issued; provided, however, that no Security or portion thereof
shall be accepted for conversion unless the principal amount of such Security or
such portion, when added to the principal amount of all other Securities or
portions thereof then being surrendered by the Holder thereof for conversion,
exceeds the then effective Conversion Price with respect thereto. If more than
one Security shall be surrendered for conversion at one time by the same Holder,
the number of full shares of Common Stock or such other Marketable Securities
which shall be deliverable upon conversion shall be computed on the basis of the
aggregate principal amount of the Securities (or specified portions thereof to
the extent permitted thereby) so surrendered. Subject to the next succeeding
sentence, the Company will, as soon as practicable thereafter, issue and deliver
at said office or place to such Holder of a Security, or to his nominee or
nominees, certificates for the number of full shares of Common Stock or other
Marketable Securities to which he shall be entitled as aforesaid, together,
subject to the last sentence of paragraph (a) above, with cash in lieu of any
fraction of a share to which he would otherwise be entitled. The Company shall
not be required to deliver certificates for shares of Common Stock or other
Marketable Securities while the stock transfer books for such stock or the
transfer books for such Marketable Securities, as the case may be, or the
Security Register are duly closed for any purpose, but certificates for shares
of Common Stock or other Marketable Securities shall be issued and delivered as
soon as practicable after the opening of such books or Security Register. A
Security shall be deemed to have been converted as of the close of business on
the date of the surrender of such Security for conversion as provided above, and
the person or persons entitled to receive the Common Stock or other Marketable
Securities issuable upon such conversion shall be treated for all purposes as
the record Holder or Holders of such Common Stock or other Marketable Securities
as of the close
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of business on such date. In case any Security shall be surrendered for partial
conversion, the Company shall execute and the Trustee shall authenticate and
deliver to or upon the written order of the Holder of the Securities so
surrendered, without charge to such Holder (subject to the provisions of Section
12.08), a new Security or Securities in authorized denominations in an aggregate
principal amount equal to the unconverted portion of the surrendered Security.
(c) Notwithstanding anything to the contrary contained herein, in
the event the Company shall have rescinded a redemption of Securities Pursuant
to Section 11.09 hereof, any Holder of Securities that shall have surrendered
Securities for conversion following the day on which notice of the subsequently
rescinded redemption shall have been given but prior to the later of (i) the
close of business on the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (ii)
the date of the mailing of the notice of rescission required by Section 11.09
hereof (a "Converting Holder") may rescind the conversion of such Securities
surrendered for conversion by (A) properly completing a form prescribed by the
Company and mailed to Holders of Securities (including Converting Holders) with
the Company's notice of rescission, which form shall provide for the
certification by any Converting Holder rescinding a conversion on behalf of any
beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934) of Securities that the beneficial ownership (within the meaning of
such Rule) of such Securities shall not have changed from the date on which such
Securities were surrendered for conversion to the date of such certification,
and (B) delivering such form to the Company no later than the close of business
on the date which is 15 Trading Days following the date of the mailing of the
Company's notice of rescission. The delivery of such form by a Converting Holder
shall be accompanied by (I) any certificates representing shares Of Common Stock
or other securities issued to such Converting Holder upon a conversion of
Securities that shall be rescinded by the proper delivery of such form (the
"Surrendered Securities"),(II) any securities, evidences of indebtedness or
assets (other than cash) distributed by the Company to such Converting Holder by
reason of such Converting Holder being a record holder of Surrendered Securities
and (III) payment in New York Clearing House funds or other funds acceptable to
the Company of an amount equal to the sum of (1) any cash such Converting Holder
may have received
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in lieu of the issuance of fractional Surrendered Securities and (2) any cash
paid or payable by the Company to such Converting Holder by reason of such
Converting Holder being a record holder of Surrendered Securities. Upon receipt
by the Company of any such form properly completed by a Converting Holder and
any certificates, securities, evidences of indebtedness, assets or cash payments
required to be returned by such Converting Holder to the Company as set forth
above, the Company shall instruct the transfer agent or agents for shares of
Common Stock or other securities to cancel any certificates representing
Surrendered Securities (which Surrendered Securities shall be deposited in the
treasury of the Company) and shall instruct the Registrar to reissue
certificates representing Securities to such Converting Holder (which Securities
shall be deemed to have been Outstanding at all times during the period
following their surrender for conversion). The Company shall, as promptly as
practicable, and in no event more than five Trading Days following the receipt
of any such properly completed form and any such certificates, securities,
evidences of indebtedness, assets or cash payments required to be so returned,
pay to the Holder of Securities surrendered to the Company pursuant to a
rescinded conversion or as otherwise directed by such Holder any interest paid
or other payment made to Holders of Securities during the period from the time
such Securities shall have been surrendered for conversion to the rescission of
such conversion. All questions as to the validity, form, eligibility (including
time of receipt) and acceptance of any form submitted to the Company to rescind
the conversion of Securities, including questions as to the proper completion or
execution of any such form or any certification contained therein, shall be
resolved by the Company, whose determination shall be final and binding.
SECTION 12.03. Adjustment of Conversion Price for Common Stock or
Other Marketable Securities. The Conversion Price with respect to any Security
which is convertible into Common Stock or other Marketable Securities shall be
adjusted from time to time as follows:
(a) In case the Company shall, at any time or from time to time
while any of such Securities are outstanding, (i) pay a dividend in shares
of its Common Stock or other Marketable Securities, (ii) combine its
outstanding shares of Common Stock or other Marketable Securities into a
smaller number of shares or securities, (iii) subdivide its outstanding
shares of Common Stock or other Marketable Securities or
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(iv) issue by reclassification of its shares of Common stock or other
Marketable Securities any shares of stock or other Marketable Securities
of the Company, the Conversion Price in effect immediately before such
action shall be adjusted so that the Holders of such Securities, upon
conversion thereof into Common Stock or other Marketable Securities
immediately following such event, shall be entitled to receive the kind
and amount of shares of capital stock of the Company or other Marketable
Securities which they would have owned or been entitled to receive upon or
by reason of such event if such Securities had been converted immediately
before the record date (or, if no record date, the effective date) for
such event. An adjustment made pursuant to this Section 12.03(a) 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 or reclassification. For the purposes of this
Section 12.03(a), each Holder of Securities shall be deemed to have failed
to exercise any right to elect the kind or amount of securities receivable
upon the payment of any such dividend, subdivision, combination or
reclassification (provided that, if the kind or amount of securities
receivable upon such dividend, subdivision, combination or
reclassification is not the same for each nonelecting share, the kind and
amount of securities or other property receivable upon such dividend,
subdivision, combination or reclassification for each nonelecting share
shall be deemed to be the kind and amount so receivable per share by a
plurality of the nonelecting shares).
(b) In case the Company shall, at any time or from time to time
while any of such Securities are outstanding, issue rights or warrants to
all holders of shares of its Common Stock or other Marketable Securities
entitling them (for a period expiring within 45 days after the record date
for such issuance) to subscribe for or purchase shares of Common Stock or
other Marketable Securities (or securities convertible into shares of
Common Stock or other Marketable Securities) at a price per share less
than the Current Market Price of the Common Stock or other Marketable
Securities at such record date (treating the price per share of the
securities convertible into Common Stock or other Marketable Securities as
equal to (i) the sum of (A) the price for a unit of the security
convertible
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into Common Stock or other Marketable Securities plus (B) any additional
consideration initially payable upon the conversion of such security into
Common Stock or other Marketable Securities divided by (ii) the number of
shares of Common Stock or other Marketable Securities initially underlying
such convertible security), the Conversion Price with respect to such
Securities shall be adjusted so that it shall equal the price determined
by dividing the Conversion Price in effect immediately prior to the date
of issuance of such rights or warrants by a fraction, the numerator of
which shall be the number of shares of Common Stock or other Marketable
Securities outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock or other Marketable
securities offered for subscription or purchase (or into which the
convertible securities so offered are initially convertible) and the
denominator of which shall be the number of shares of Common Stock or
other Marketable Securities outstanding on the date of issuance of such
rights or warrants plus the number of shares or securities which the
aggregate offering price of the total number of shares or securities so
offered for subscription or purchase (or the aggregate purchase price of
the convertible securities so offered plus the aggregate amount of any
additional consideration initially payable upon conversion of such
Securities into Common Stock or other Marketable Securities) would
purchase at such Current Market Price of the Common Stock or other
Marketable Securities. Such adjustment shall become effective
retroactively immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants.
(c) In case the Company shall, at any time or from time to time
while any of such Securities are outstanding, distribute to all holders of
shares of its Common Stock or other Marketable Securities (including any
such distribution made in connection with a consolidation or merger in
which the Company is the continuing corporation and the Common Stock or
other Marketable Securities are not changed or exchanged) cash, evidences
of its indebtedness, securities or assets (excluding (i) regular periodic
cash dividends in amounts, if any, determined from time to time by the
Board of Directors, (ii) dividends payable in shares of Common Stock or
other Marketable Securities for which adjustment is made under Section
12.03(a) or (iii) rights or warrants to subscribe for or purchase
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96
securities of the Company (excluding those referred to in Section
12.03(b)), the Conversion Price with respect to such Securities shall be
adjusted so that it shall equal the price determined by dividing the
Conversion Price in effect immediately prior to the date of such
distribution by a fraction, the numerator of which shall be the Current
Market Price of the Common Stock or other Marketable securities on the
record date referred to below and the denominator of which shall be such
Current Market Price of the Common Stock or other Marketable Securities
less the then fair market value (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) of the portion of
the cash or assets or evidences of indebtedness or securities so
distributed or of such subscription rights or warrants applicable to one
share of Common Stock or one other Marketable Security (provided that such
denominator shall never be less than one); provided, however, that no
adjustment shall be made with respect to any distribution of rights to
purchase securities of the Company if a Holder of Securities would
otherwise be entitled to receive such rights upon conversion at any time
of such Securities into Common Stock or other Marketable Securities unless
such rights are subsequently redeemed by the Company, in which case such
redemption shall be treated for purposes of this Section as a dividend on
the Common Stock or other Marketable Securities. Such adjustment shall
become effective retroactively immediately after the record date for the
determination of stockholders or holders of Marketable Securities entitled
to receive such distribution; and, in the event that such distribution is
not so made, the Conversion Price shall again be adjusted to the
Conversion Price which would then be in effect if such record date had not
been fixed.
(d) The Company shall be entitled to make such additional
adjustments in the Conversion Price, in addition to those required by
Sections 12.03(a), 12.03(b) and 12.03(c), as shall be necessary in order
that any dividend or distribution of Common Stock or other Marketable
Securities, any subdivision, reclassification or combination of shares of
Common Stock or other Marketable Securities or any issuance of rights or
warrants referred to above shall not be taxable to the holders of Common
Stock or other Marketable Securities for United States Federal income tax
purposes.
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(e) In any case in which this Section 12.03 shall require that any
adjustment be made effective as of or retroactively immediately following
a record date, the Company may elect to defer (but only for five Trading
Days following the filing of the statement referred to in Section 12.05)
issuing to the Holder of any Securities converted after such record date
the shares of Common Stock or other Marketable Securities and other
capital stock of the Company issuable upon such conversion over and above
the shares of Common Stock or other Marketable Securities and other
capital stock of the Company issuable upon such conversion on the basis of
the Conversion Price prior to adjustment; provided, however, that the
Company shall deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(f) All calculations under this Section 12.03 shall be made to the
nearest cent or one-hundredth of a share or security, with one-half cent
and .005 of a share, respectively, being rounded upward. Notwithstanding
any other provision of this Section 12.03, the Company shall not be
required to make any adjustment of the Conversion Price unless such
adjustment would require an increase or decrease of at least 1% of such
price. Any lesser adjustment shall be carried forward and shall be made at
the time of and together with the next subsequent adjustment which,
together with any adjustment or adjustments so carried forward, shall
amount to an increase or decrease of at least 1% in such price. Any
adjustments under this Section 12.03 shall be made successively whenever
an event requiring such an adjustment occurs.
(g) In the event that at any time, as a result of an adjustment made
pursuant to this Section 12.03, the Holder of any Security thereafter
surrendered for conversion shall become entitled to receive any shares of
stock of or other Marketable Securities of the Company other than shares
of Common Stock or Marketable Securities into which the Securities
originally were convertible, the Conversion Price of such other shares or
Marketable Securities so receivable upon conversion of any such Security
shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to
Common Stock and Marketable Securities
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contained in subparagraphs (a) through (f) of this Section 12.03, and the
provisions of Sections 12.01, 12.02 and 12.04 through 12.09 with respect
to the Common Stock or other Marketable Securities shall apply on like or
similar terms to any such other shares or Marketable Securities and the
determination of the Board of Directors as to any such adjustment shall be
conclusive.
(h) No adjustment shall be made pursuant to this Section (i) if the
effect thereof would be to reduce the Conversion Price below the par value
(if any) of the Common Stock or other Marketable Security, if any, or (ii)
subject to Section 12.03(e) hereof, with respect to any Security that is
converted prior to the time such adjustment otherwise would be made.
SECTION 12.04. Consolidation or Merger of the Company. In case of
either (a) any consolidation or merger to which the Company is a party, other
than a merger or consolidation in which the Company is the surviving or
continuing corporation and which does not result in a reclassification of, or
change (other than a change in par value or from par value to no par value or
from no par value to par value, as a result of a subdivision or combination) in,
outstanding shares of Common Stock or other Marketable Securities or (b) any
sale or conveyance of all or substantially all the property and assets of the
Company to another Person, each Security then Outstanding shall be convertible
from and after such merger, consolidation, sale or conveyance of property and
assets into the kind and amount of shares of stock or other securities and
property (including cash) receivable upon such consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock or other
Marketable Securities into which such Securities would have been converted
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article XII (and assuming such holder of Common
Stock or other Marketable Securities failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash or other property
(including cash) receivable upon such consolidation, merger, sale or conveyance
(provided that, if the kind or amount of securities, cash or other property
(including cash) receivable upon such consolidation, merger, sale or conveyance
is not the same for each nonelecting share, the kind and amount of securities,
cash or other property (including cash) receivable upon such
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99
consolidation, merger, sale or conveyance for each nonelecting share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
nonelecting shares or securities)). The Company shall not enter into any of the
transactions referred to in clause (a) or (b) of the preceding sentence unless
effective provision shall be made so as to give effect to the provisions set
forth in this Section 12.04. The provisions of this Section 12.04 shall apply
similarly to successive consolidations, mergers, sales or conveyances.
SECTION 12.05. Notice of Adjustment. Whenever an adjustment in the
Conversion Price with respect to a series of Securities is required:
(a) the Company shall forthwith place on file with the Trustee and
any Conversion Agent for such Securities a certificate of the Treasurer of
the Company, stating the adjusted Conversion Price determined as provided
herein and setting forth in reasonable detail such facts as shall be
necessary to show the reason for and the manner of computing such
adjustment, such certificate to be conclusive evidence that the adjustment
is correct; and
(b) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall forthwith be mailed,
first-class postage prepaid, by the Company to the Holders of record of
such Outstanding Securities.
SECTION 12.06. Notice in Certain Events. In case:
(a) of a consolidation or merger to which the Company is a party and
for which approval of any stockholders of the Company is required or of
the sale or conveyance to another person or entity or group of persons or
entities acting in concert as a partnership, limited partnership,
syndicate or other group (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934) of all or substantially all the property
and assets of the Company;
(b) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(c) of any action triggering an adjustment of the Conversion Price
pursuant to this Article XII;
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the Company shall cause to be filed with the Trustee and the Conversion Agent
for the applicable securities, and shall cause to be mailed, first-class postage
prepaid, to the Holders of record of applicable Securities, at least 15 days
prior to the applicable date hereinafter specified, a notice stating (i) the
date on which a record is to be taken for the purpose of any distribution or
grant of rights or warrants triggering an adjustment to the Conversion Price
pursuant to this Article XII or, if a record is not to be taken, the date as of
which the holders of record of Common Stock or other Marketable Securities
entitled to such distribution, rights or warrants are to be determined or (ii)
the date on which any reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up triggering an adjustment to the
Conversion Price pursuant to this Article XII is expected to become effective,
and the date as of which it is expected that holders of Common Stock or other
Marketable Securities of record shall be entitled to exchange their Common Stock
or other Marketable Securities for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up.
Failure to give such notice or any defect therein shall not affect
the legality or validity of the proceedings described in clause (a), (b) or (c)
of this Section.
SECTION 12.07. Company To Reserve Stock or Other Marketable
Securities; Registration; Listing. (a) The Company shall at all times reserve
and keep available, free from preemptive rights, out of its authorized but
unissued shares of Common Stock or other Marketable Securities, for the purpose
of effecting the conversion of the Securities, such number of its duly
authorized shares of Common Stock or number or principal amount of other
Marketable Securities as shall from time to time be sufficient to effect the
conversion of all applicable outstanding Securities into such Common Stock or
other Marketable Securities at any time (assuming that, at the time of the
computation of such number of shares or securities, all such Securities would be
held by a single Holder); provided, however, that nothing contained herein shall
preclude the Company from satisfying its obligations in respect of the
conversion of the Securities by delivery of purchased shares of Common Stock or
other Marketable Securities which are held in the treasury of the Company. The
Company shall from time to time, in accordance with the laws of the State of
Delaware, use its best efforts to cause the authorized amount of the Common
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Stock or other Marketable Securities to be increased if the aggregate of the
authorized amount of the Common Stock or other Marketable Securities remaining
unissued and the issued shares of such Common Stock or other Marketable
Securities in its treasury (other than any such shares reserved for issuance in
any other connection) shall not be sufficient to permit the conversion of all
Securities.
(b) If any shares of Common Stock or other Marketable Securities
which would be issuable upon conversion of Securities hereunder require
registration with or approval of any governmental authority before such shares
or securities may be issued upon such conversion, the Company will in good faith
and as expeditiously as possible endeavor to cause such shares or securities to
be duly registered or approved, as the case may be. The Company will endeavor to
list the shares of Common Stock or other Marketable Securities required to be
delivered upon conversion of the Securities prior to such delivery upon the
principal national securities exchange upon which the outstanding Common Stock
or other Marketable Securities are listed at the time of such delivery.
SECTION 12.08. Taxes on Conversion. The Company shall pay any and
all documentary, stamp or similar issue or transfer taxes that may be payable in
respect of the issue or delivery of shares of Common Stock or other Marketable
Securities on conversion of Securities pursuant hereto. The Company shall not,
however, be required to pay any such tax which may be payable in respect of any
transfer involved in the issue or delivery of shares of Common Stock or other
Marketable Securities or the portion, if any, of the Securities which is not so
converted in a name other than that in which the Securities so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Company the amount of such tax or
has established to the satisfaction of the Company that such tax has been paid.
SECTION 12.09. Conversion After Record Date. If any Securities are
surrendered for conversion subsequent to the record date preceding an Interest
Payment Date but on or prior to such Interest Payment Date (except Securities
called for redemption on a Redemption Date between such record date and Interest
Payment Date), the Holder of such Securities at the close of business on such
record date shall be entitled to receive the interest payable on such Securities
on such Interest Payment Date notwithstanding the conversion thereof. Securities
surrendered for conversion
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during the period from the close of business on any record date next preceding
any Interest Payment Date to the opening of business on such Interest Payment
Date shall (except in the case of Securities which have been called for
redemption on a Redemption Date within such period) be accompanied by payment in
New York Clearing House funds or other funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date on the
Securities being surrendered for conversion. Except as provided in this Section
12.09, no adjustments in respect of payments of interest on Securities
surrendered for conversion or any dividends or distributions or interest on the
Common Stock or other Marketable Securities issued upon conversion shall be made
upon the conversion of any Securities.
SECTION 12.10. Corporate Action Regarding Par Value of Common Stock.
Before taking any action which would cause an adjustment reducing the applicable
Conversion Price below the then par value (if any) of the shares of Common Stock
or other Marketable Securities deliverable upon conversion of the Securities,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock or other Marketable
Securities at such adjusted Conversion Price.
SECTION 12.11. Company Determination Final. Any determination that
the Company or the Board of Directors must make pursuant to this Article is
conclusive.
SECTION 12.12. Trustee's Disclaimer. The Trustee has no duty to
determine when an adjustment under this Article should be made, how it should be
made or what it should be. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of
Securities. The Trustee shall not be responsible for the Company's failure to
comply with this Article. Each Conversion Agent other than the Company shall
have the same protection under this Section as the Trustee.
ARTICLE XIII
Subordination
SECTION 13.01. Agreement To Subordinate. The Company agrees, and
each Securityholder by accepting a Security agrees, that the indebtedness
evidenced by the
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Securities and the payment of the principal of (and premium, if any) and
interest on each and all of the Securities is hereby expressly subordinated in
right of payment, to the extent and in the manner provided in this Article, to
the prior payment in full in cash or cash equivalents of all Senior Indebtedness
and that such subordination is for the benefit of the holders of Senior
Indebtedness.
SECTION 13.02. Liquidation, Dissolution, Bankruptcy. Upon any
payment or distribution of all or substantially all the assets of the Company,
whether voluntary or involuntary, or upon any reorganization, readjustment,
arrangement or similar proceeding relating to the Company or its property,
whether or not the Company is a party thereto and whether in bankruptcy,
insolvency, receivership or similar proceedings, or upon any assignment by the
Company for the benefit of creditors or upon any other marshaling of the assets
and liabilities of the Company:
(a) all Senior Indebtedness shall first be paid in full in cash or
cash equivalents, or provisions made for such payment by deposit thereof
in trust with a bank or banks (either theretofore acting as trustees under
indentures pursuant to which Senior Indebtedness shall have been issued or
duly appointed paying agents for the purpose), before any payment or
distribution, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted, or securities of
the Company 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 with respect to the
Securities, to the payment of all indebtedness of the nature of Senior
Indebtedness, so long as the rights of the holders of the Senior
Indebtedness are not altered adversely by such reorganization or
readjustment ("Equivalent Securities")), is made on account of the
principal of or interest on the indebtedness evidenced by the Securities;
(b) any payment or distribution of any kind or character in respect
of the principal of or interest on the Securities, whether in cash,
property or securities (other than Equivalent Securities), to which the
Holders of the Securities would be entitled except for the provisions of
this Article shall be paid or delivered by the Company or the liquidating
trustee or agent or other person making such payment or distribution,
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whether a trustee in bankruptcy, a receiver or liquidating trustee or
other trustee or agent, directly and ratably to the holders of Senior
Indebtedness or their Representatives (subject to any subordination of any
class of Senior Indebtedness, by the provisions thereof, to any other
class or classes of Senior Indebtedness), ratably according to the
aggregate amounts remaining unpaid on account of the principal of, and the
premium, if any, and interest on, the Senior Indebtedness held or
represented by each, to the extent necessary to make payment in full of
all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to the holders
of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of any kind or character in respect of the principal of or
interest on the Securities, whether in cash, property or securities (other
than Equivalent Securities), shall be received by the Trustee or the
holders of the Securities before all Senior Indebtedness is paid in full,
or provision made as aforesaid for its payment, such payment or
distribution shall be held in trust for the ratable benefit of and shall
be ratably paid over or delivered to the holders of Senior Indebtedness
remaining unpaid or unprovided for or their Representatives, as provided
in the foregoing subparagraph (b), for application to the payment of all
principal of, and premium, if any, and interest on, such Senior
Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment or
distribution, or provision therefor, to the holders of such Senior
Indebtedness.
Subject to the payment in full of all Senior Indebtedness or
provisions being made as aforesaid for its payment, the Holders of the
Securities shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company payable or distributable to the holders of the Senior
Indebtedness, until the principal of and interest on the Securities shall be
paid in full. No payment or distribution to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holders of the
Securities would be entitled except for the provisions of this Article, and no
payment over or delivery pursuant to the provisions of this Article to the
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holders of the Senior Indebtedness or their Representatives by the Trustee or
the Holders of the Securities, shall, as between the Company, its creditors
other than the holders of Senior Indebtedness and the Holders of the Securities,
be deemed to be a payment by the Company to or on account of the Senior
Indebtedness, and no payments or distributions to the Trustee or the Holders of
the Securities of cash, property or securities payable or distributable to the
holders of Senior Indebtedness, to which the Trustee or the Holders of the
Securities shall become entitled pursuant to the provisions of the preceding
sentence, shall, as between the Company, its creditors other than the holders of
Senior Indebtedness, and the Holders of the Securities, be deemed to be a
payment by the Company to the Holders of or on account of the Securities. Upon
any distribution of assets or securities of the Company referred to in this
Article, the Trustee, subject to the provisions of Article VI, and the Holders
of the Securities 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 Securities for the purpose of
ascertaining the persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article.
SECTION 13.03. Default on Senior Indebtedness. Subject to the
provisions of Section 13.04 hereof, in the event and during the continuation of
any default in the payment of principal of, or premium, if any, or interest on,
or other monetary obligation with respect to, any Senior indebtedness beyond any
applicable period of grace, or in the event that any event of default with
respect to any Senior Indebtedness shall have occurred and be continuing, unless
and until such default or event of default shall have been cured or waived or
shall have ceased to exist, no payment of principal or interest shall be made by
the Company on the Securities. Nothing contained in this Article or elsewhere in
this Indenture, or in any of the Securities, shall, however, (a) prevent the
Company from setting aside in trust as provided in Section 10.03 or depositing
with the Trustee, 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
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106
Section 13.02 or during the continuation of any such default or event of default
(not cured or waived), moneys for the payment of principal of or interest on the
Securities or (b) prevent the application by the Trustee of any moneys deposited
with it hereunder by the Company to the payment of or on account of the
principal of or interest on the Securities, if, at the time of such deposit, the
Trustee did not have written notice of any event prohibiting the making of such
deposit by the Company.
The Company 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 Company within the meaning of this Article. Anything in this Article or
elsewhere in this Indenture contained to the contrary notwithstanding, the
Trustee shall not be charged with knowledge of the existence of any Senior
Indebtedness or of any default or event of default with respect to any Senior
Indebtedness or of any other facts which would prohibit the making of any
payment of moneys to or by the Trustee, unless and until the Trustee shall have
received notice in writing to that effect signed by an officer of the Company or
by a holder of Senior Indebtedness 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 Indebtedness.
SECTION 13.04. Disputes with Holders of Certain Senior Indebtedness.
Any failure by the Company to make any payment on or perform any other
obligation under Senior Indebtedness, other than any indebtedness incurred by
the Company or assumed or guaranteed, directly or indirectly, by the Company for
money borrowed (or any deferral, renewal, extension or refunding thereof) or any
indebtedness or obligation in which the provisions of this Section shall have
been waived by the Company in the instrument or instruments by which the Company
incurred, assumed, guaranteed or otherwise created such indebtedness or
obligation, shall not be deemed a default or event of default under Section
13.03 hereof for so long as (a) the Company shall be disputing its obligation to
make such payment or perform such obligation and (b) either (i) such dispute
shall not have resulted in a judgment against the Company or the applicable
Subsidiary that shall have remained undischarged or unbonded and have remained
in force for more than the applicable appeal period or (ii) in the event of such
a judgment, the Company or the applicable Subsidiary shall in good faith be
prosecuting an appeal or
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107
other proceeding for review and which a stay of execution shall have been
obtained pending such appeal or review.
SECTION 13.05. Acceleration of Notes. If an Event of Default, other
than an Event of Default under paragraph (e) or (f) of Section 5.01, shall have
occurred and be continuing, the Trustee or the Holder of Securities electing to
accelerate the Securities pursuant to Section 5.02 shall give the
Representatives of the Senior Indebtedness five days' prior written notice
before accelerating the Securities, which notice shall state that it is a
"Notice of Intent to Accelerate"; provided, however, that the Trustee or such
Holders may so accelerate the Securities immediately without such notice if at
such time payment of any Senior Indebtedness shall have been accelerated. If
payment of the Securities is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Indebtedness (or their
Representatives) of the acceleration.
SECTION 13.06. When Distribution Must Be Paid Over. If a
distribution is made to Securityholders that because of this Article should not
have been made to them, the Securityholders who receive the distribution shall
hold it in trust for holders of Senior Indebtedness and pay it over to them as
their interests may appear.
SECTION 13.07. Relative Rights. This Article defines the relative
rights of Securityholders and holders of Senior Indebtedness. Nothing in this
Indenture shall:
(a) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms;
(b) affect the relative rights of Securityholders and creditors of
the Company other than holders of Senior Indebtedness; or
(c) prevent the Trustee or any Securityholder from exercising its
available remedies upon an Event of Default, subject to the rights of
holders of Senior Indebtedness to receive distributions otherwise payable
to Securityholders.
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108
If the Company fails because of this Article to pay principal of or
interest on a Security on the due date, the failure is still an Event of
Default.
SECTION 13.08. Subordination May Not Be Impaired by Company. No
right of any holder of Senior Indebtedness to enforce the subordination of the
indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
SECTION 13.09. Distribution or Notice to Representative. Whenever a
distribution is to be made or a notice given to holders of Senior Indebtedness,
the distribution may be made and the notice given to their Representative.
SECTION 13.10. Rights of Trustee and Paying Agent. The Trustee or
Paying Agent may continue to make payments on the Securities until it receives
notice satisfactory to it that payments may not be made under this Article. The
Company, a Representative or a holder of Senior Indebtedness who shall have been
certified by the Company or otherwise established to the reasonable satisfaction
of the Trustee to be such holder may give the notice; provided, however, that if
an issue of Senior Indebtedness has a Representative, only the Representative
may give the notice on behalf of the holders of Senior Indebtedness.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. The
Security Registrar, the Paying Agent and the Conversion Agent may do the same
with like rights.
SECTION 13.11. Notice to Trustee. The Company shall give prompt
written notice to a Trust Officer at the address of the Trustee determined
pursuant to Section 1.05 of any fact known to the Company which would prohibit
the making of any payment to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article XIII 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 Securities, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior
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109
Indebtedness or from any Representative therefor, and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Section 6.01,
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 by the close of business on the Business Day immediately prior to
the date upon which by the terms hereof any money may become payable for any
purpose (including, without limitation, the payment of principal or interest),
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 the close
of business on such immediately prior Business Day.
SECTION 13.12. Trustee Not a Fiduciary. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness, but
shall have only such obligations to such holders as are expressly set forth in
this Article XIII.
SECTION 13.13. Effectuation of Subordination by Trustee. Each Holder
of Securities, by his acceptance thereof, authorizes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to effectuate
the subordination provided in this Article and appoints the Trustee his
attorney-in-fact for any and all such purposes.
SECTION 13.14. Article Applicable to Paying Agents. In case at any
time any Paying Agent other than the Trustee and the Company shall have been
appointed by the Company and be then acting hereunder, the term "Trustee" as
used in this Article shall in such case (unless the context shall require
otherwise) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article in addition to or in place of the Trustee.
SECTION 13.15. Trustee; Compensation Not Prejudiced. Nothing in this
Article shall apply to claims of, or payments to, the Trustee pursuant to
Section 6.07.
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110
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
TIME WARNER INC.,
by
---------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
by
--------------------
Name:
Title:
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111
CHEMICAL BANK,
as Trustee,
by
-------------------------
Name: Richard Lorenzen
Title: Senior Trust Officer
Attest:
by
--------------------
Name:
Title:
<PAGE>
<PAGE>
================================================================================
TIME WARNER INC.
$592,783,525
8-7/8% Subordinated Debentures due 2025
FIRST SUPPLEMENTAL INDENTURE
Dated as of December 5, 1995
Chemical Bank,
a New York banking corporation,
Trustee
================================================================================
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<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions .................................................. 2
SECTION 1.02. Other Definitions ............................................ 3
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act .............................................. 4
SECTION 1.04. Rules of Construction ........................................ 4
ARTICLE II
General Terms and Conditions of the Debentures
SECTION 2.01. Designation and Principal Amount ............................. 5
SECTION 2.02. Maturity ..................................................... 5
SECTION 2.03. Form and Payment ............................................. 5
SECTION 2.04. Global Debenture ............................................. 6
SECTION 2.05. Interest ..................................................... 7
ARTICLE III
Redemption; Distribution
SECTION 3.01. Optional Redemption .......................................... 9
SECTION 3.02. Special Event Redemption
or Distribution ............................................ 9
SECTION 3.03. No Sinking Fund .............................................. 11
ARTICLE IV
Extension of Interest Payment Period
SECTION 4.01. Extension of Interest Payment
Period ..................................................... 11
SECTION 4.02. Notice of Extension .......................................... 12
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2
ARTICLE V
Expenses
SECTION 5.01. Payment of Expenses .......................................... 13
ARTICLE VI
Covenants
SECTION 6.01. Listing on an Exchange ....................................... 13
SECTION 6.02. Limitation on Dividends;
Transactions with Affiliates ............................... 14
SECTION 6.03. Covenants as to Trust ........................................ 15
ARTICLE VII
Original Issue of Debentures
SECTION 7.01. Original Issue of Debentures ................................. 15
ARTICLE VIII
Miscellaneous
SECTION 8.01. Ratification of Indenture .................................... 15
SECTION 8.02. Trustee Not Responsible for
Recitals ................................................... 16
SECTION 8.03. Governing Law ................................................ 16
SECTION 8.04. Separability ................................................. 16
SECTION 8.05. Counterparts ................................................. 16
SECTION 8.06. Successors ................................................... 16
SECTION 8.07. Assignment ................................................... 16
SECTION 8.08. Tax Characterization ......................................... 17
<PAGE>
<PAGE>
FIRST SUPPLEMENTAL INDENTURE dated as of December 5,
1995, between TIME WARNER INC., a Delaware corporation (the
"Company"), and Chemical Bank, a New York banking corporation,
as trustee (the "Trustee") under the Indenture dated as of
December 5, 1995 between the Company and the Trustee (the
"Indenture").
WHEREAS, the Company executed and delivered the Indenture to the
Trustee to provide for the future issuance of the Company's unsecured
subordinated debt securities to be issued from time to time in one or more
series as might be determined by the Company under the Indenture, in an
unlimited aggregate principal amount which may be authenticated and delivered as
provided in the Indenture;
WHEREAS, pursuant to the terms of the Indenture, the Company desires
to provide for the establishment of a new series of its securities to be known
as its 8-7/8% Subordinated Debentures due December 31, 2025, the form and
substance of such Debentures and the terms, provisions and conditions thereof to
be set forth as provided in the Indenture and this First Supplemental Indenture;
WHEREAS, Time Warner Capital I, a Delaware statutory business trust
(the "Trust"), has offered to the public $575,000,000 aggregate liquidation
amount of its 8-7/8% Preferred Trust Securities (the "Preferred Securities"),
representing undivided beneficial interests in the assets of the Trust and
proposes to invest the proceeds from such offering along with the proceeds of
the sale of Common Securities to the Company in $592,783,525 aggregate principal
amount of the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and
deliver this First Supplemental Indenture and all requirements necessary to make
this First Supplemental Indenture a valid instrument in accordance with its
terms and to make the Debentures, when executed by the Company and authenticated
and delivered by the Trustee, the valid obligations of the Company have been
performed, and the execution and delivery of this First Supplemental Indenture
has been duly authorized in all respects;
NOW THEREFORE, in consideration of the purchase and acceptance of
the Debentures by the Holders thereof, and
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2
for the purpose of setting forth, as provided in the Indenture, the form and
substance of the Debentures and the terms, provisions and conditions thereof,
the Company covenants and agrees with the Trustee as follows:
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions. Capitalized terms used but not defined
herein have the meanings assigned to them in the Indenture. The following terms
have the following meanings.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in New York, New York, are permitted or
required by any applicable law to close.
"Common Securities" means the securities issued by the Trust
representing undivided beneficial interests in the assets of the Trust, having
the terms set forth in Exhibit C to the Declaration.
"Company" means the party named as such in this First Supplemental
Indenture until a successor replaces it pursuant to the applicable provisions of
the Indenture, and thereafter means the successor.
"Debentures" means the Debentures issued under this First
Supplemental Indenture substantially in the form of Exhibit A hereto as amended
or supplemented from time to time.
"Declaration" means the Amended and Restated Declaration of Trust,
dated as of December 5, 1995, among the trustees of the Trust named therein, the
Company as Sponsor, and the holders from time to time of the Preferred
Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Holder" or "Debentureholder" means the Person in whose name a
Debenture is registered on the Registrar's books. All references to Holders of a
particular principal amount of the Debentures mean Holders of the relevant
principal amount of the Debentures at the time outstanding.
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3
"Nasdaq" means The Nasdaq Stock Market.
"NYSE" means the New York Stock Exchange, Inc.
"Officer" means the Chairman of the Board or any Co-Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer or any
Co-Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, any
Assistant Controller, the Secretary or any Assistant Secretary of the Company.
"PERCS" means the $1.24 Preferred Exchangeable Redemption Cumulative
Securities issued by Time Warner Financing Trust.
"Subordinated Notes" means 4% Subordinated Notes due December 23,
1997, issued by the Company.
"Trust Officer" means any officer or assistant officer of the
Trustee with direct responsibility for the administration of this First
Supplemental Indenture and the Indenture.
"Trust Securities" means the Common Securities and the Preferred
Securities.
"Underwriting Agreement" means the underwriting agreement entered
into among the Company, the Trust, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated and Bear, Stearns & Co. Inc., as
co-representatives, with respect to, among other things, the Preferred
Securities.
SECTION 1.02. Other Definitions. The following terms have the
meanings given to them in the Declaration (including the Exhibits thereto) as in
effect on the date hereof: (i) Delaware Trustee; (ii) Distribution; (iii) Global
Certificate; (iv) Guarantee; (v) Property Trustee; (vi) Preferred Security
Certificate; (vii) Regular Trustees; (viii) Special Event; and (iv) Tax Event.
The following terms are defined in the relevant Section of this
First Supplemental Indenture as set forth below.
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4
Defined in
Term Section
---- -------
"Additional Interest"............................................ 2.05
"Compounded Interest"............................................ 4.01
"Coupon Rate" ................................................... 2.05
"Deferred Interest".............................................. 4.01
"Extension Period"............................................... 4.01
"Global Debenture"............................................... 2.04
"Interest Payment Date".......................................... 2.05
"Ministerial Action"............................................. 3.02
"Non-Book-Entry Preferred
Securities"...................................................... 2.04
"No Recognition Opinion"......................................... 3.02
"Optional Redemption Date"....................................... 3.01
"Special Redemption Date"........................................ 3.02
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this First Supplemental Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this First
Supplemental Indenture. The following TIA terms used in this First Supplemental
Indenture have the following meanings:
"indenture securities" means the Debentures.
"indenture security holder" means a Holder or Debentureholder.
"indenture to be qualified" means this First Supplemental Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company.
All other TIA terms used in this First Supplemental Indenture that
are defined by the TIA, defined by TIA reference to another statute or defined
by Commission 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;
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5
(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.
(6) a reference to a Section or Article is to a Section or Article
of this First Supplemental Indenture.
ARTICLE II
General Terms and Conditions of the Debentures
SECTION 2.01. Designation and Principal Amount. There is hereby
authorized a series of Securities designated as "8-7/8% Subordinated Debentures
due December 31, 2025". The Debentures shall be limited to an aggregate
principal amount for all Debentures equal to $592,783,525, such amount being the
sum of (i) the aggregate liquidation amount of the Preferred Securities and (ii)
the proceeds received by the Trust upon issuance of the Common Securities to the
Company. The aggregate principal amount of Debentures outstanding at any time
may not exceed such amount except as provided in Section 3.06 of the Indenture.
SECTION 2.02. Maturity. The Debentures shall mature on December 31,
2025 (the "Maturity Date").
SECTION 2.03. Form and Payment. Except as provided in Section 2.04,
the Debentures shall be issued in fully-registered certificated form without
interest coupons. Principal and interest on the Debentures issued in
certificated form will be payable, the transfer of such Debentures will be
registrable and such Debentures will be exchangeable for Debentures bearing
identical terms and provisions at the office or agency of the Trustee; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Holder at such address as shall appear in the Security
Register. Notwithstanding the foregoing, so long as the Holder of any Debentures
is the Property Trustee, the payment of the principal of and
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6
interest (including Compounded Interest and Additional Interest, if any) on such
Debentures held by the Property Trustee will be made at such place and to such
account as may be designated by the Property Trustee.
SECTION 2.04. Global Debenture. (a) In the event the Company causes,
pursuant to Section 3.02 or otherwise, the Debentures held by the Property
Trustee to be distributed to holders of the Trust Securities;
(i) if all the Preferred Securities are held in book-entry-only
form in the form of one or more Global Certificates, the
Debentures in certificated form shall be presented to the
Trustee by the Property Trustee in exchange for one or more
global Debentures in an aggregate principal amount equal to
the aggregate principal amount of the outstanding Debentures
(each, a "Global Debenture"), to be registered in the name of
the Depository, or its nominee, and delivered by the Trustee
to the Depository in exchange for one or more Global
Certificate or Certificates held by 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 Debenture in such
aggregate principal amount and deliver the same to the Trustee
for authentication and delivery in accordance with the
Indenture and this First Supplemental Indenture. Payments on
the Debentures issued as a Global Debenture will be made to
the Depository; and
(ii) if any Preferred Securities are held in non- book-entry
certificated form, (A) the Debentures in certificated form and
(B) the register of holders of the Preferred Securities shall
be presented to the Trustee by the Property Trustee and each
Preferred Security Certificate which represents Preferred
Securities (including Preferred Securities registered in the
name of the Depository or its nominee) ("Non-Book-Entry
Preferred Securities") will be deemed to represent Debentures
presented to the Trustee by the Property Trustee having an
aggregate principal amount equal to the aggregate
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7
liquidation amount of the Non-Book-Entry Preferred Securities
(and the Trustee shall register such holders of such Preferred
Securities as the registered holders of such Debentures) until
such Preferred Security Certificate is presented to the
Trustee for registration of transfer or exchange at which time
such Preferred Security Certificate will be canceled and a
Debenture registered in the name of the holder (or the
transferee thereof) of such Preferred Security Certificate
with an aggregate principal amount equal to the aggregate
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 the
Indenture and this First Supplemental Indenture. Upon
surrender of such Preferred Security Certificate and the
concurrent issue of such Debentures, Debentures represented by
such Preferred Security Certificate that were presented by the
Property Trustee to the Trustee will be deemed to have been
canceled.
(b) A Global Debenture shall be exchangeable for Debentures
registered in the names of Persons other than the Depository or its nominee only
if (i) the Depository notifies the Company that it is unwilling or unable to
continue as a depository for such Global Debenture and no successor depository
shall have been appointed, (ii) the Depository, at any time, ceases to be a
clearing agency registered under the Exchange Act at any time the Depository is
required to be so registered to act as such Depository and no successor
depository shall have been appointed, or (iii) the Company in its sole
discretion determines that such Global Debenture shall be so exchangeable. Any
Global Debenture that is exchangeable pursuant to the preceding sentence shall
be exchangeable for Debentures registered in such names as the Depository shall
direct.
SECTION 2.05. Interest. (a) Each Debenture will bear interest at the
rate of 8-7/8% per annum (the "Coupon Rate") from and including the original
date of issuance to but excluding the date the principal thereof becomes due and
payable, and on any overdue principal and (to the extent that payment of such
interest is enforceable under applicable law) on any overdue installment of
interest at the Coupon Rate, compounded quarterly, payable (subject to
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8
the provisions of Article 4) quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year (each, an "Interest Payment Date"),
commencing on December 31, 1995, to the Person in whose name such Debenture or
any predecessor Debenture is registered, at the close of business on the regular
record date for such interest installment, which, in respect of any Debenture of
which the Property Trustee is the Holder or a Global Debenture, shall be the
close of business on the Business Day next preceding that Interest Payment Date.
Notwithstanding the foregoing sentence, if the Preferred Securities are no
longer in book-entry only form or if pursuant to the Indenture and this First
Supplemental Indenture the Debentures have been distributed to holders of Trust
Securities and are not represented by a Global Debenture, the record date for
such interest installment shall be March 15, June 15, September 15 and December
15, as the case may be, next preceding the applicable Interest Payment Date.
(b) The amount of interest payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months and will include the
first day but exclude the last day of such period. Except as provided in the
following sentence, the amount of interest payable for any period shorter than a
full quarterly period for which interest is computed, will be computed on the
basis of the actual number of days elapsed in such 30-day month and will include
the first day but exclude the last day of such period. In the event that any
date on which interest or principal is payable on the Debentures is not a
Business Day, then payment of interest or principal payable on such date will be
made on the next succeeding day which is a 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.
(c) If at any time while the Property Trustee is the Holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company will pay as additional interest ("Additional
Interest") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee
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9
after paying such taxes, duties, assessments or other governmental charges will
be equal to the amounts the Trust and the Property Trustee would have received
had no such taxes, duties, assessments or other government charges been imposed.
ARTICLE III
Redemption; Distribution
SECTION 3.01. Optional Redemption. The Company, subject to the
provisions of Article XIII of the Indenture, shall have the right to redeem the
Debentures, in whole or in part, from time to time, on or after December 31,
2000, upon not less than 20 nor more than 45 Business Days' written notice to
the Holders (such date of redemption an "Optional Redemption Date"), at a
redemption price equal to 100% of the principal amount of Debentures to be
redeemed, plus an amount equal to all accrued and unpaid interest thereon, if
any, to but excluding the Optional Redemption Date.
If a partial redemption of the Debentures would result in the
delisting of the Preferred Securities from any national securities exchange or
other self-regulatory organization (including Nasdaq) on which the Preferred
Securities are then listed, the Company shall not effect such partial redemption
and may only redeem the Debentures in whole.
SECTION 3.02. Special Event Redemption or Distribution. (a) If, at
any time, a Special Event shall occur and be continuing, the Company shall elect
to either:
(A) direct the Regular Trustees to dissolve the Trust and cause
Debentures having an aggregate principal amount equal to the aggregate
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 Trust Securities outstanding at such time, to be distributed by
the Regular Trustees to the holders of the Trust Securities pro rata
according to the aggregate liquidation amount of the Trust Securities held
by such holder in relation to the aggregate liquidation amount of all
Trust Securities outstanding in liquidation of such holders' interests in
the Trust, within 90 days following the occurrence of such Special Event,
provided, however,
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10
that in the case of the occurrence of a Tax Event, as a condition of any
such dissolution and distribution, the Regular Trustees shall have
received an opinion of nationally recognized independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion
may rely on any then applicable published revenue ruling of the Internal
Revenue Service, to the effect that the holders of the Preferred
Securities will not recognize any gain or loss for United States Federal
income tax purposes as a result of the dissolution of the Trust and
distribution of Debentures;
(B) redeem the Debentures 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 (except as provided below), at a
redemption price equal to 100% of the principal amount of Debentures to be
redeemed, plus an amount equal to all accrued and unpaid interest thereon,
if any, to but excluding the redemption date, in which case the Trust
shall redeem pro rata in cash all Trust Securities at a price per Trust
Security of $25, plus an amount equal to all accrued and unpaid
distributions on such Trust Security to but excluding the date of such
redemption (the "Special Redemption Date"); or
(C) in the case of a Tax Event, allow the Debentures and the Trust
Securities to remain outstanding and indemnify the Trust for all taxes
payable by it as a result of such Tax Event;
provided that, if at the time there is available to the Trust the opportunity to
eliminate such Special Event, within 90 days following the occurrence of such
Special Event (the "90-Day Period"), 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 Company or the holders of
the Trust Securities (a "Ministerial Action"), the Trust will pursue such
Ministerial Action in lieu of dissolution or redemption; provided further, that
the Company shall have no right to redeem the Debentures or direct the Regular
Trustees to dissolve the Trust while the Regular Trustees are pursuing such
Ministerial Action unless the Special Event shall not have been so eliminated by
the 85th day following the occurrence thereof, in which case the Company shall
be permitted to direct the Regular Trustees or to provide notice to the Holders
of the redemption of the
<PAGE>
<PAGE>
11
Debentures; and provided further, that if dissolution of the Trust and
distribution of the Debentures to the holders of the Trust Securities would
eliminate the condition causing the Special Event and all other conditions to
such dissolution and distribution have been satisfied, the Company will not be
permitted to redeem the Debentures. References herein and in the Indenture to
"Redemption Date" shall refer to the Optional Redemption Date or the Special
Redemption Date, as the case may be.
(b) Upon the distribution of Debentures to holders of Preferred
Securities as a result of the occurrence of a Special Event, subject to
applicable law (including, without limitation, United States Federal securities
laws), the Company or any of its Affiliates may at any time and from time to
time purchase outstanding Debentures by tender, in the open market or by private
agreement.
SECTION 3.03. No Sinking Fund. The Debentures are not entitled to
the benefits of any sinking fund.
ARTICLE IV
Extension of Interest Payment Period
SECTION 4.01. Extension of Interest Payment Period. The Company
shall have the right, at any time, and from time to time, during the term of the
Debentures, to defer payments of interest by extending the interest payment
period for a period not exceeding 20 consecutive quarters (an "Extension
Period"), at the end of which Extension Period the Company shall calculate and
pay all interest then accrued and unpaid together with interest thereon
compounded quarterly at the rate specified for the Debentures to the extent
permitted by applicable law ("Compound Interest"); provided that, during any
such Extension Period or an extension period or other deferral of interest
feature under any debt security of the Company that ranks pari passu with the
Debentures, (a) the Company shall not declare or pay dividends on, make any
distribution with respect to, or redeem, purchase, acquire or make a liquidation
payment with respect to an of its capital stock and (b) the Company shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem the Debentures or any debt securities issued by the Company
that rank pari passu with or junior to the Debentures; provided, however, that
the foregoing restrictions do not apply to (i) any interest
<PAGE>
<PAGE>
12
or dividend payment by the Company, where the interest or dividend is paid by
way of the issuance of securities that rank junior to the Debentures, (ii) any
payments of interest, principal or premium, if any, on, or repayment, repurchase
or redemption of, the Subordinated Notes and (iii) any payments or distributions
with respect to, or redemptions, purchases or acquisitions of, or any payments
in liquidation of, the PERCS (including any of the foregoing with respect to the
guarantee agreement entered into by the Company for the benefit of the holders
of the PERCS). Prior to the termination of any such Extension Period, the
Company may further defer payments of interest by extending the interest payment
period; provided, however, that such Extension Period, including all such
previous and further extensions, may not exceed 20 consecutive quarters. Upon
the termination of any Extension Period and the payment of all amounts then due,
the Company may commence a new Extension Period for up to 20 consecutive
quarters, subject to the terms set forth in this Section 4.01. No interest shall
be due and payable during an Extension Period, except at the end thereof.
SECTION 4.02. Notice of Extension. (a) If the Property Trustee is
the only registered Holder of the Debentures at the time the Company selects an
Extension Period, the Company shall give written notice to the Regular Trustees,
the Property Trustee and the Trustee of its selection of such Extension Period
one Business Day before the earlier of (i) the next succeeding date on which
Distributions on the Trust Securities issued by the Trust are payable or (ii)
the date the Regular Trustees are required to give notice to the NYSE (or other
applicable self-regulatory organization).
(b) If the Property Trustee is not the only Holder of the Debentures
at the time the Company selects an Extension Period, the Company shall give the
Holders of the Debentures and the Trustee written notice of its selection of
such Extension Period 10 Business Days before the earlier of (i) the next
succeeding Interest Payment Date, or (ii) the date the Company is required to
give notice of the record or payment date of such interest payment to the NYSE
or other applicable self-regulatory organization or to Holders of the
Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs
(a) or (b) of this Section 4.02 shall be counted as one of the 20 quarters
permitted in the maximum Extension Period permitted under Section 4.01.
<PAGE>
<PAGE>
13
ARTICLE V
Expenses
SECTION 5.01. Payment of Expenses. In connection with the offering,
sale and issuance of the Debentures to the Property Trustee in connection with
the sale of the Trust Securities by the Trust, the Company shall:
(a) pay for all costs and expenses relating to the offering, sale
and issuance of the Debentures, including commissions to the underwriters
payable pursuant to the Underwriting Agreement and compensation of the
Trustee under the Indenture in accordance with the provisions of Section
6.07 of the Indenture;
(b) pay for all debts, obligations, costs and expenses of the Trust
(including, but not limited to, costs and expenses relating to the
organization of the Trust, the offering, sale and issuance of the Trust
Securities (including commissions to the underwriters in connection
therewith), the fees and expenses of the Property Trustee, the Regular
Trustees and the Delaware Trustee, the costs and expenses relating to the
operation, maintenance and dissolution of the Trust and the enforcement by
the Property Trustee of the rights of the holders of Preferred Securities,
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 acquisition, financing and disposition of Trust
assets); and
(c) pay any and all taxes and all liabilities, costs and expenses
with respect to such taxes of the Trust.
ARTICLE VI
Covenants
SECTION 6.01. Listing on an Exchange. If the Debentures are to be
issued as a Global Debenture in connection with the distribution of the
Debentures to the
<PAGE>
<PAGE>
14
holders of the Preferred Securities issued by the Trust upon a Special Event,
the Company will use its reasonable best efforts to list such Debentures on the
NYSE or on such other national securities exchange (or other self-regulatory
organization (including Nasdaq)) as the Preferred Securities are then listed.
SECTION 6.02. Limitation on Dividends; Transactions with Affiliates.
(a) If (i) there shall have occurred any event that would constitute an Event of
Default or (ii) the Company shall be in default in respect of its payment or any
other obligations under the Guarantee, then (A) the Company shall not declare or
pay any dividend on, make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock, and (B) the Company shall not make any payment of interest,
principal or premium, if any, on, or repay, repurchase or redeem, any debt
securities issued by the Company which rank pari passu with or junior to the
Debentures; provided, however, that foregoing restrictions shall not apply to
(i) any interest or dividend payments by the Company, where the interest or
dividend is paid by way of the issuance of securities that rank junior to the
Debentures, (ii) any payments of interest, principal or premium, if any, on, or
repayment, repurchase or redemption of, the Subordinated Notes and (iii) any
payments or distributions with respect to, or redemptions, purchases or
acquisitions of, or any payments in liquidation of, the PERCS (including any of
the foregoing with respect to the guarantee agreement entered into by the
Company for the benefit of the holders of the PERCS).
(b) If the Company shall have given notice of an Extension Period,
or any extension thereof shall be continuing, then (A) the Company shall not
declare or pay any dividend, or make any distributions with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock, and (B) the Company shall not make any payment of interest,
principal or premium, if any, on, or repay, repurchase or redeem, the Debentures
or any debt securities issued by the Company which rank pari passu with or
junior to the Debentures; provided, however, that foregoing restrictions shall
not apply to (i) any interest or dividend payments by the Company, where the
interest or dividend is paid by way of the issuance of securities that rank
junior to the Debentures, (ii) any payments of interest, principal or premium,
if any, on, or repayment, repurchase or redemption of, the Subordinated Notes
and (iii) any payments or
<PAGE>
<PAGE>
15
distributions with respect to, or redemptions, purchases or acquisitions of, or
any payments in liquidation of, the PERCS (including any of the foregoing with
respect to the guarantee agreement entered into by the Company for the benefit
of the holders of the PERCS).
SECTION 6.03. Covenants as to Trust. For so long as the Preferred
Securities remain outstanding, the Company will (i) maintain 100% direct or
indirect ownership of the Common Securities; provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of the Common Securities, and (ii) use its reasonable best
efforts to cause the Trust (a) to remain a statutory business trust, except in
connection with a distribution of Securities as provided in the Declaration, the
redemption of all of the Trust Securities and in connection with certain
mergers, consolidations or amalgamation permitted by the Declaration, and (b)
otherwise continue to be treated as a grantor trust for United States Federal
income tax purposes.
ARTICLE VII
Original Issue of Debentures
SECTION 7.01. Original Issue of Debentures. Debentures in the
aggregate principal amount of $592,783,525 may, upon execution of this First
Supplemental Indenture, be executed by the Company and delivered to the Trustee
for authentication, and the Trustee shall thereupon authenticate and deliver
said Debentures to or upon the written order of the Company, signed by its
Chairman, its President, or any Vice President and its Treasurer or an Assistant
Treasurer, without any further action by the Company.
ARTICLE VIII
Miscellaneous
SECTION 8.01. Ratification of Indenture. The Indenture, as
supplemented by this First Supplemental Indenture, is in all respects ratified
and confirmed, and this First Supplemental Indenture shall be deemed part of the
Indenture in the manner and to the extent herein and therein provided.
<PAGE>
<PAGE>
16
SECTION 8.02. Trustee Not Responsible for Recitals. The recitals
herein contained are made by the Company and not by the Trustee, and the Trustee
assumes no responsibility for the correctness thereof. The Trustee makes no
representation as to the validity or sufficiency of this First Supplemental
Indenture.
SECTION 8.03. Governing Law. This First Supplemental Indenture and
each Debenture shall be deemed to be a contract made under the internal laws of
the State of New York, and for all purposes shall be construed in accordance
with the laws of said State.
SECTION 8.04. Separability. In case any one or more of the
provisions contained in this First Supplemental Indenture or in the Debentures
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this First Supplemental Indenture or of the Debentures, but
this First Supplemental Indenture and the Debentures shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
SECTION 8.05. Counterparts. This First Supplemental Indenture may be
executed in any number of counterparts each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
SECTION 8.06. Successors. All agreements of the Company in this
First Supplemental Indenture and the Debentures shall bind its successor. All
agreements of the Trustee in this First Supplemental Indenture shall bind its
successor.
SECTION 8.07. Assignment. The Company will have the right at all
times to assign any of its rights or obligations under this First Supplemental
Indenture and the Debentures to a direct or indirect wholly owned subsidiary of
the Company, provided that, in the event of any such assignment, the Company
will remain jointly and severally liable for all such obligations. Subject to
the foregoing, this First Supplemental Indenture will be binding upon and inure
to the benefit of the parties thereto and their respective successors and
assigns. This First Supplemental Indenture may not otherwise be assigned by the
parties hereto.
<PAGE>
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17
SECTION 8.08. Tax Characterization. The Company, the Trustee and
each Holder of a Debenture (by acceptance thereof) agrees to treat the
Debentures as debt instruments for United States Federal, state and local income
and franchise tax purposes and agrees not to take any contrary position before
any taxing authority or on any tax return.
<PAGE>
<PAGE>
18
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the day and year first above
written.
TIME WARNER INC.,
by
-----------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
- ----------------------------
Name:
Title:
CHEMICAL BANK,
by
-----------------------------
Name: Richard Lorenzen
Title: Senior Trust
Officer
Attest:
- ----------------------------
Name:
Title:
<PAGE>
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the ___ day of __________, 1995, before me personally came
__________________ to be known, who, being by me duly sworn, did depose and say
that he is the __________________ of Time Warner Inc., one of the corporations
described in and which executed the above instrument; that he knows the
corporate seal of said corporation; that the seal affixed to the said instrument
is such corporation seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
---------------------------------
Notary Public
[Notarial Seal] Commission Expires
<PAGE>
<PAGE>
STATE OF )
) ss.:
COUNTY OF )
On the ___ day of _______________, 1995, before me personally came
____________________ to be known, who, being by me duly sworn, did depose and
say that he is the __________________ of Chemical Bank, one of the corporations
described in and which executed the above instrument; that he knows the
corporate seal of said corporation; that the seal affixed to the said instrument
is such corporation seal; that it was so affixed by authority of the Board of
Directors of said corporation, and that he signed his name thereto by like
authority.
---------------------------------
Notary Public
[Notarial Seal] Commission Expires
<PAGE>
<PAGE>
EXHIBIT A
(FORM OF FACE OF DEBENTURE)
No. ___________
TIME WARNER INC.
8-7/8% SUBORDINATED DEBENTURE DUE DECEMBER 31, 2025
TIME WARNER INC., a Delaware corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to , or registered assigns, the
principal sum of DOLLARS on December 31, 2025, and to pay interest on said
principal sum from December 5, 1995, or from the most recent interest payment
date (each such date, an "Interest Payment Date") to which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth herein)
in arrears on March 31, June 30, September 30 and December 31 of each year
commencing December 31, 1995, at the rate of 8- 7/8% per annum until the
principal hereof shall have become due and payable, and on any overdue principal
and premium, if any, and (without duplication and to the extent that payment of
such interest is enforceable under law) on any overdue installment of interest
at the same rate per annum compounded quarterly. The amount of interest payable
on any Interest Payment Date shall be computed on the basis of a 360-day year of
twelve 30-day months and include the first day but exclude the last day of such
period. In the event that any date on which interest or principal is payable on
this Debenture is not a Business Day, then payment of interest or principal
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. The interest installment
so payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Indenture, be paid to the Person in whose name
this Debenture (or one or more Predecessor Securities) is registered at the
close of business on the regular record date for such interest installment,
which, if this Debenture is a Global Security or is registered in the name of
the Property Trustee, shall be the close of business on the Business Day next
preceding
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<PAGE>
2
such Interest Payment Date, or otherwise shall be the close of business on March
15, June 15, September 15 and December 15, as the case may be, next preceding
the applicable Interest Payment Date. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
registered Holders on such regular record date and may be paid to the Person in
whose name this Debenture (or one or more Predecessor Securities) is registered
at the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered Holders of this series of Debentures not less than 10 days prior to
such special record date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture. The principal of (and
premium, if any) and the interest on this Debenture shall be payable at the
office or agency of the Trustee maintained for that purpose in any coin or
currency of the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
registered Holder at such address as shall appear in the Security Register.
Notwithstanding the foregoing, so long as the Holder of this Debenture is the
Property Trustee, the payment of the principal of (and premium, if any) and
interest on this Debenture will be made at such place and to such account as may
be designated by the Property Trustee.
The indebtedness evidenced by this Debenture is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Debenture is issued
subject to the provisions of the Indenture with respect thereto. Each Holder of
this Debenture, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his or her behalf to take
such actions as may be necessary or appropriate to acknowledge or effectuate the
subordination so provided and (c) appoints the Trustee his or her
attorney-in-fact for any and all such purposes. Each Holder hereof, by his or
her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained in the Indenture by each holder of Senior
Indebtedness, whether now outstanding or hereafter incurred, and waives reliance
by each such holder upon said provisions.
<PAGE>
<PAGE>
3
This Debenture shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any purpose
until the Certificate of Authentication hereon shall have been signed by or on
behalf of the Trustee.
The provisions of this Debenture are continued on the reverse side
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated
---------------
TIME WARNER INC.
by
----------------------------
Name:
Title:
Attest:
By
--------------------
Secretary
<PAGE>
<PAGE>
4
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures of the series of Debentures
described in the within-mentioned Indenture.
CHEMICAL BANK
- ---------------------- -----------------------
as Trustee or as Authentication Agent
By By
-------------------- ---------------------
Authorized Signatory Authorized Signatory
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Debentures
(designated as the 8-7/8% Subordinated Debentures due December 31, 2025) of the
Company (herein sometimes referred to as the "Debentures"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of December 5, 1995, duly executed and delivered
between the Company and Chemical Bank, as Trustee (the "Trustee"), as
supplemented by the First Supplemental Indenture dated as of December 5, 1995,
between the Company and the Trustee (the Indenture as so supplemented, the
"Indenture"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the Holders of the Debentures. By the terms of the Indenture, the Debentures are
issuable in series that may vary as to amount, date of maturity, rate of
interest and in other respects as provided in the Indenture. This series of
Debentures is limited in aggregate principal amount as specified in said First
Supplemental Indenture.
Upon the occurrence and continuation of a Special Event, the Company
will have the right to elect under certain circumstances to (a) dissolve the
Trust and cause the Debentures to be distributed pro rata to holders of the
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<PAGE>
5
Trust Securities, (b) redeem the Debentures at a redemption price equal to 100%
of their principal amount together with any accrued and unpaid interest thereon
(the "Redemption Price") or (c) in the case of a Tax Event, allow the Debentures
to remain outstanding and indemnify the Trust for any taxes payable by it as a
result of such Tax Event. The Redemption Price shall be paid on the date of such
redemption or at such earlier date as the Company determines.
The Company shall have the right to redeem this Debenture at the
option of the Company, without premium or penalty, in whole or in part from time
to time on or after December 31, 2000 (an "Optional Redemption"), at a
redemption price equal to 100% of the principal amount plus any accrued and
unpaid interest to but excluding the date of such redemption (the "Optional
Redemption Price"). Any redemption pursuant to this paragraph will be made upon
not less than 20 nor more than 45 Business Days notice, at the Optional
Redemption Price. If the Debentures are only partially redeemed by the Company
pursuant to an Optional Redemption, the Debentures will be redeemed pro rata or
by lot or by any other method utilized by the Trustee.
In the event of redemption of this Debenture in part only, a new
Debenture or Debentures of this series for the unredeemed portion hereof will be
issued in the name of the Holder hereof upon the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Debentures of each series affected at the time
outstanding to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or of modifying in any manner the
rights of the Holders of the Debentures; provided, however, that no such
supplemental indenture shall (i) extend the fixed maturity of any Debentures of
any series, or reduce the principal amount thereof, or reduce
<PAGE>
<PAGE>
6
the rate or extend the time of payment of interest thereon, without the consent
of the Holder of each Debenture so affected, or (ii) reduce the aforesaid
percentage of Debentures, the Holders of which are required to consent to any
such supplemental indenture, without the consent of the Holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Debentures of any series at the time outstanding affected thereby, on behalf
of all of the Holders of the Debentures of such series, to waive any past
default in the performance of any of the covenants contained in the Indenture,
or established pursuant to the Indenture with respect to such series, and its
consequences, except a default in the payment of the principal of or premium, if
any, or interest on any of the Debentures of such series. Any such consent or
waiver by the registered Holder of this Debenture (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Debenture and of any Debenture issued in
exchange hereof or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Debenture at the time and place and at the
rate and in the money herein prescribed.
The Company shall have the right at any time, and from time to time,
during the term of the Debentures to defer payments of interest by extending the
interest payment period for a period not exceeding 20 consecutive quarters (the
"Extension Period"), at the end of which Extension Period, the Company shall pay
all interest then accrued and unpaid together with interest thereon compounded
quarterly at the rate specified for the Debentures to the extent permitted by
law ("Compound Interest"); provided that, during any such Extension Period or an
extension period or other deferral of interest feature under any debt security
of the Company that ranks pari passu with the Debentures, (a) the Company shall
not declare or pay dividends on, make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to any of
its capital stock and (b) the Company shall not make any
<PAGE>
<PAGE>
7
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem the Debentures or any debt securities issued by the Company that rank
pari passu with or junior to the Debentures; provided, however, that, the
foregoing restrictions do not apply to (i) any interest or dividend payment by
the Company, where the interest or dividend is paid by way of the issuance of
securities that rank junior to the Debentures, (ii) any payments of interest,
principal or premium, if any, on, or repayment, repurchase or redemption of, the
Company's 4% Subordinated Notes due December 23, 1997 and (iii) any payments or
distributions with respect to, or redemptions, purchases or acquisitions of, or
any payments in liquidation of, the $1.24 Preferred Exchangeable Redemption
Cumulative Securities ("PERCS") issued by Time Warner Financing Trust (including
any of the foregoing with respect to the guarantee agreement entered into by the
Company for the benefit of the holders of the PERCS). Prior to the termination
of any such Extension Period, the Company may further defer payments of interest
by extending the interest payment period; provided, however, that such Extension
Period, including all such previous and further extensions, may not exceed 20
consecutive quarters. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension Period
for up to 20 consecutive quarters, subject to the terms set forth in this
section. No interest shall be due and payable during an Extension Period, except
at the end thereof.
As provided in the Indenture and subject to certain limitations
therein set forth, this Debenture is transferable by the registered Holder
hereof on the Security Register of the Company, upon surrender of this Debenture
for registration of transfer at the office or agency of the Company in the City
and State of New York accompanied by a written instrument or instruments of
transfer in form satisfactory to the Company or the Trustee duly executed by the
registered Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Debentures of authorized denominations and for the
same aggregate principal amount and series will be issued to the designated
transferee or transferees. No service charge will be made for any such transfer,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in relation thereto.
<PAGE>
<PAGE>
8
Prior to due presentment for registration of transfer of this
Debenture, the Company, the Trustee, any paying agent and any Security Registrar
may deem and treat the registered holder hereof as the absolute owner hereof
(whether or not this Debenture shall be overdue and notwithstanding any notice
of ownership or writing hereon made by anyone other than the Debenture
Registrar) for the purpose of receiving payment of or on account of the
principal hereof and premium, if any, and interest due hereon and for all other
purposes, and neither the Company nor the Trustee nor any paying agent nor any
Debenture Registrar shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
The Debentures are issuable only in registered form without coupons
in denominations of $25 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Debentures of
this series are exchangeable for a like aggregate principal amount of Debentures
of this series of a different authorized denomination, as requested by the
Holder surrendering the same.
All terms used in this Debenture that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
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This GUARANTEE AGREEMENT dated as of December 5, 1995,
executed and delivered by TIME WARNER INC., a Delaware
corporation (the "Guarantor"), and The First National Bank of
Chicago, as the initial Guarantee Trustee (as defined herein
for the benefit of the holders from time to time of the
Preferred Securities of Time Warner Capital I, a Delaware
statutory business trust (the "Trust")).
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of December 5, 1995, among the trustees of the
Trust, the Guarantor, as Sponsor, and the Holders of the Trust Securities, the
Trust is issuing as of the date hereof $575,000,000 aggregate liquidation amount
of its 8-7/8% Preferred Trust Securities (the "Preferred Securities")
representing undivided beneficial interests in the assets of the Trust, having
the terms set forth in Exhibit B to the Declaration;
WHEREAS the Preferred Securities will be issued by the Trust upon
deposit of the Subordinated Debentures 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 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,
which purchase the Guarantor hereby agrees shall benefit the Guarantor, the
Guarantor executes and delivers this Guarantee Agreement for the benefit of the
Holders.
ARTICLE I
Definitions
SECTION 1.01. Terms Generally. (a) The definitions in Section 1.02
shall apply equally to both the
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2
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 the
Guarantor, (ii) any duly authorized committee of such board, (iii) any committee
of officers of the Guarantor or (iv) any officer of the Guarantor acting, in the
case of (iii) or (iv), pursuant to authority granted by the board of directors
of the Guarantor or any committee of such board.
"Business Day" means any day other than a Saturday, Sunday or any
other day on which banking institutions in New York, New York, are permitted or
required by any applicable law to close.
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3
"Commission" means the Securities and Exchange Commission.
"Common Securities" means the common securities of the Trust
representing undivided beneficial interests in the assets of the Trust, directly
or indirectly initially owned by the Guarantor.
"Covered Person" means any Holder.
"Event of Default" means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement.
"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 (as defined in the Declaration) that are required to be paid on
the Preferred Securities and (b) the Redemption Price with respect to any
Preferred Securities subject to mandatory redemption or call for redemption by
the Trust, but if and only if to the extent that in each case the Guarantor has
made a payment to the Property Trustee of interest or principal on the
Subordinated Debentures and (ii) upon a Liquidation Event (other than in
connection with the distribution of Subordinated Debentures to the holders of
Trust Securities in exchange for Preferred Securities or the redemption of all
of the Trust Securities upon the maturity or redemption of the Subordinated
Debentures as provided in the Declaration), the lesser of (a) the Liquidation
Distribution to the extent the Trust has funds available therefor, and (b) the
amount of assets of the Trust remaining available for distribution to Holders
upon such Liquidation Event.
"Guarantee Trustee" means The First National Bank of Chicago until a
Successor Guarantee Trustee has been appointed and accepted such appointment
pursuant to the terms of this Guarantee Agreement and thereafter means each such
Successor Guarantee Trustee.
"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
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4
entity directly or indirectly controlling or controlled by or under direct or
indirect common control with the Guarantor.
"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 December 5, 1995 between
the Guarantor and Chemical Bank, as trustee, and any indenture supplemental
thereto pursuant to which the Subordinated Debentures are to be issued.
"Liquidation Distribution" means, in respect of any Liquidation
Event, the sum of (a) $25 per Trust Security plus (b) the amount of accrued and
unpaid distributions on such Trust Security to but excluding the date of
payment.
"Liquidation Event" means any liquidation, dissolution, winding-up
or termination of the Trust.
"Majority in aggregate liquidation amount of the Preferred
Securities" means, except as otherwise required by the Trust Indenture Act,
Holders of outstanding Preferred Securities voting together as a single class,
who are the record owners of Preferred Securities whose aggregate liquidation
amount represents more than 50% of the aggregate liquidation amount of all
outstanding Preferred Securities.
"PERCS" means the $1.24 Preferred Exchangeable Redemption Cumulative
Securities issued by Time Warner Financing Trust on August 9, 1995.
"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 Securities" mean the 8-7/8% Preferred Trust Securities of
the Trust.
"Property Trustee" means the Person acting as Property Trustee under
the Declaration.
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5
"Redemption Price" means, on any date of redemption, an amount equal
to (i) $25 per Trust Security plus (ii) accrued and unpaid distributions to but
excluding the date of redemption.
"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.
"Subordinated Debentures" means the 8-7/8% Subordinated Debentures
due December 31, 2025 issued by the Guarantor.
"Subordinated Notes" means the 4% Subordinated Notes due December
23, 1997 issued by the Guarantor.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as a Guarantee Trustee under Section 4.01.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
"Trust Securities" mean the Common Securities and the Preferred
Securities.
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.
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6
(b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by ss.ss. 310
to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(c) The application of the Trust Indenture Act to this Guarantee
Agreement shall not affect the nature of the Preferred Securities as equity
securities representing undivided beneficial interests in the assets of the
Trust.
SECTION 2.02. Lists of Holders of Preferred Securities. (a) The
Guarantor shall provide the Guarantee Trustee with such information as is
required under ss. 312(a) of the Trust Indenture Act at the times and in the
manner provided in ss. 312(a).
(b) The Guarantee Trustee shall comply with its obligations under
ss.ss. 310(b), 311 and 312(b) of the Trust Indenture Act.
SECTION 2.03. Reports by the Guarantee Trustee. Within 60 days after
May 15 of each year, the Guarantee Trustee shall provide to the Holders 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 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, 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
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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 may by vote of at least a Majority in aggregate 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 the Guarantee Trustee or (ii) on
behalf of all of the Holders 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 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.
SECTION 2.07. Disclosure of Information. The disclosure of
information as to the names and addresses of the Holders 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.
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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. The Guarantee Trustee shall not transfer its right,
title and interest in this 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 exercising his or her
rights pursuant to Section 5.04. The right, title and interest of the Guarantee
Trustee to this 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.
(c) This Guarantee Agreement and all moneys received by the
Guarantee 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 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, 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. 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.
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(e) The Guarantee Trustee shall continue to serve until a Successor
Guarantee Trustee has been appointed and such appointment is in accordance with
Article IV.
SECTION 3.02. Certain Rights and Duties of the Guarantee Trustee.
(a) The Guarantee Trustee, before the occurrence of an Event of Default and
after the curing or waiving 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:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee Agreement,
and the Guarantee Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this
Guarantee Agreement, and no implied covenants or obligations shall be read
into this Guarantee Agreement against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and
conforming to the requirements of this Guarantee Agreement; but in the
case of any such certificates or opinions that by any provision hereof are
specifically required to be furnished to the
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10
Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements of
this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders 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
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
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11
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, unless such Holders shall have
offered to the Guarantee Trustee reasonable security and indemnity against
the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction; provided that nothing contained in this clause (iv) shall
relieve the Guarantee Trustee of the obligation, upon the occurrence of an
Event of Default (which has not been cured or waived) to exercise such of
the rights and powers vested in it by this Guarantee Agreement, and to use
the same degree of care and skill in this exercise as a prudent person
would exercise or use under the circumstances in the conduct of his or her
own affairs; and
(v) any action taken by the Guarantee Trustee or its agents
hereunder shall bind the Holders 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
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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. There shall at all times be a
Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Commission to act as an institutional trustee under the Trust Indenture
Act, authorized under such laws to exercise corporate trust powers, having
a combined capital and surplus of at least $50 million and subject to
supervision or examination by Federal, State, Territorial or District of
Columbia authority. If such corporation publishes reports of condition at
least annually, pursuant to law or to the requirements of the supervising
or examining authority referred to above, then for the purposes of this
Section 4.01(a)(ii), the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published.
If at any time the Guarantee Trustee shall cease to satisfy the
requirements of clauses (i) and (ii) above, the Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section 4.02. If
the Guarantee Trustee has or shall acquire any "conflicting interest" within the
meaning of ss. 310(b) of the Trust Indenture Act, the Guarantee Trustee and the
Guarantor shall
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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 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 its successor shall have been appointed or until its removal or
resignation.
(d) The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument (a "Resignation Request") in
writing signed by the Guarantee Trustee and delivered to the Guarantor, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that no such resignation of the Guarantee
Trustee shall be effective until a Successor Guarantee Trustee 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
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amounts theretofore paid by the Trust), as and when due, 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:
(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, Redemption 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 (other than an extension of time for payment of Distributions,
Redemption Price, Liquidation Distribution or other sum payable that
results from the extension of any interest payment period on the
Subordinated Debentures or any extension of the maturity date of the
Subordinated Debentures permitted by the Indenture);
(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
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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 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 aggregate 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; provided,
however, that, except for directing the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee, the Guarantee
Trustee shall not take any of the foregoing actions at the direction of the
Holders unless the Guarantee Trustee shall have received, at the expense of the
Guarantor, an opinion of nationally recognized independent tax counsel
experienced in such matters to the effect that
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such action will not result in the Trust being treated as an association taxable
as a corporation or a partnership for United States Federal income tax purposes
and that, following such action, each holder of Trust Securities will be treated
for United States Federal income tax purposes as owning an undivided beneficial
interest in the Subordinated Debentures; and (iv) if the Guarantee Trustee fails
to enforce this Guarantee Agreement for any reason, any Holder may, at its own
expense, 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
referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof.
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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, (a) 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 and (b) the Guarantor shall not make any payment of interest,
principal or premium, if any, on, or repay, repurchase or redeem, any debt
securities issued by the Guarantor which rank pari passu with or junior to the
Subordinated Debentures; provided, however, that the foregoing restrictions do
not apply to (i) any interest or dividend payments by the Guarantor where the
interest or dividend is paid by way of the issuance of securities that rank
junior to the Subordinated Debentures, (ii) any payments of interest, principal
or premium, if any, on, or repayment, repurchase or redemption of, the
Subordinated Notes and (iii) any payments or distributions with respect to, or
redemptions, purchases or acquisitions of, or any payments in liquidation of,
the PERCS (including any of the foregoing with respect to the guarantee
agreement entered into by the Guarantor for the benefit of the holders of the
PERCS).
SECTION 6.02. Subordination. This Guarantee Agreement constitutes an
unsecured obligation of the Guarantor that ranks (i) subordinate and junior in
right of payment to all other liabilities of the Guarantor, (ii) pari passu with
the guarantee delivered by the Guarantor in connection with the issuance of the
PERCS, (iii) pari passu with the most senior preferred or preference stock of
the Guarantor 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 (iv) senior to the Guarantor's common stock.
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18
ARTICLE VII
Termination
SECTION 7.01. Termination. This Guarantee Agreement shall terminate
and be of no further force and effect upon (i) full payment of the Redemption
Price, of all of the Preferred Securities (ii) the distribution of the
Subordinated Debentures to all of the Holders or (iii) 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 under the Preferred Securities or
under this Guarantee.
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 gross negligence
(or, in the case of the Guarantee Trustee, except as otherwise set forth in
Section 3.02 hereof) or wilful misconduct with respect to such acts or
omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Guarantor and upon such information,
opinions, reports or statements presented to the Guarantor by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Guarantor, including information,
opinions, reports or statements as to the value and amount of the assets,
liabilities, profits, losses or any other facts pertinent to the existence and
amount of assets from which Distributions to Holders might properly be paid.
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19
SECTION 8.02. Indemnification. (a) To the fullest extent permitted
by applicable law, the Guarantor shall indemnify and hold harmless each
Indemnified Person from and against any loss, damage or claim incurred by such
Indemnified Person by reason of any act or omission performed or omitted by such
Indemnified Person in good faith and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Guarantee Agreement, except that no Indemnified
Person shall be entitled to be indemnified in respect of any loss, damage or
claim incurred by such Indemnified Person by reason of gross negligence (or, in
the case of the Guarantee Trustee, except as otherwise set forth in Section 3.02
hereof) or wilful misconduct with respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, expenses
(including reasonable legal fees) incurred by an Indemnified Person in defending
any claim, demand, action, suit or proceeding shall, from time to time, be
advanced by the Guarantor prior to the final disposition of such claim, demand,
action, suit or proceeding upon receipt by the Guarantor of an undertaking by or
on behalf of the Indemnified Person to repay such amount if it shall be
determined that the Indemnified Person is not entitled to be indemnified as
authorized in Section 8.02(a).
ARTICLE IX
Miscellaneous
SECTION 9.01. Successors and Assigns. All guarantees and agreements
contained in this Guarantee Agreement shall bind the successors, assigns,
receivers, trustees and representatives of the Guarantor, including any
successors permitted under Article Five of the Indenture, and shall inure to the
benefit of the Holders then outstanding. Except in connection with a
consolidation, merger or sale involving the Guarantor that is permitted under
Article Five of the Indenture, the Guarantor shall not assign its obligations
hereunder.
SECTION 9.02. Amendments. Except with respect to any changes which
do not adversely affect the rights of Holders (in which case no consent of
Holders will be required), this Guarantee Agreement may be amended only with the
prior approval of the Holders of not less than a
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20
Majority in aggregate liquidation amount of the Preferred Securities and in
either case only if the Guarantee Trustee shall have obtained 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 Subordinated Debentures. The provisions of Section 12.2 of the
Declaration concerning meetings of Holders shall apply to the giving of such
approval.
SECTION 9.03. Notices. Any notice, request or other communication
required or permitted to be given hereunder shall be in writing, duly signed by
the party giving such notice, and delivered, telecopied or mailed by first class
mail as follows:
(a) if given to the Guarantor, to the address set forth below or
such other address as the Guarantor may give notice of to the Holders:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Facsimile No.: (212) 956-7281
Attention: General Counsel
(b) if given to the Guarantee Trustee, to the address set forth
below or such other address as the Guarantee Trustee may give notice of to the
Holders:
Corporate Trust Securities Division
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Facsimile No.: (312) 407-1708
(c) if given to any Holder, 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 three Business Days
after mailed by first
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21
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.
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22
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
TIME WARNER INC.,
By
------------------------------
Name: Thomas W. McEnerney
Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO,
as Guarantee Trustee,
By
-------------------------------
Name: Melissa G. Weisman
Title: Assistant Vice President
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TIME WARNER
DEFERRED COMPENSATION PLAN
(AMENDED AND RESTATED AS OF NOVEMBER 1, 1995)
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.1 ESTABLISHMENT OF PLAN. Time Warner Inc. (the "Company") has
established this plan for certain Employees effective as of September 15, 1993,
known as the Time Warner Deferred Compensation Plan (the "Plan").
The purposes of the Plan are to provide Eligible Employees a means of
irrevocably deferring to a future year the receipt of certain compensation and
to enable Employing Companies that participate in certain qualified defined
contribution plans to provide benefits under this Plan to certain Employees with
respect to certain compensation in excess of the Compensation Limit.
1.2 APPLICABILITY OF PLAN. The provisions of the Plan are applicable
only to Employees of Employing Companies employed on or after the effective date
of the Plan.
The Plan is intended to be an unfunded, non-qualified deferred
compensation plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees.
ARTICLE II
DEFINITIONS
2.1 DEFINITIONS. Whenever used in the Plan, the following terms shall
have the respective meanings set forth below unless otherwise expressly
provided, and when the defined meaning is intended, the term is capitalized.
2.2 "CODE" means the Internal Revenue Code of 1986, as amended.
2.3 "COMMITTEE" means the committee appointed by the Company as provided
in Section 7.1.
2.4 "COMPANY" means Time Warner Inc.
2.5 "COMPENSATION LIMIT" means the compensation limit of Section
401(a)(17) of the Code, as adjusted under Section 401(a)(17)(B) of the Code for
increases in the cost of living.
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2.6 "DEFERRED COMPENSATION ACCOUNT" means the separate account
established under Article V of the Plan for each Participant representing
amounts deferred by a Participant pursuant to Article III and Employing Company
Allocations credited to a Participant pursuant to Article IV.
2.7 "DISABILITY" means permanent and total disability as determined by
the Social Security Administration or any disability which qualifies a
Participant for benefits under the provisions of the Time Warner Inc. Long Term
Disability Plan or, in the case of an employee covered by a long term disability
plan of TWE or a Related Company, under the provisions of such plan, whichever
shall occur first.
2.8 "ELIGIBLE EMPLOYEE" means an individual who meets the eligibility
requirements of Section 3.1.
2.9 "EMPLOYEE" means an individual employed by an Employing Company.
2.10 "EMPLOYING COMPANY" means: (a) the Company, (b) TWE and (c) each
Related Company which has been authorized by the Committee to participate in the
Plan and has adopted the Plan.
2.11 "EMPLOYING COMPANY ALLOCATIONS" means the allocations made under
the Plan pursuant to Article IV.
2.12 "INACTIVE PARTICIPANT" means a Participant whose employment has
terminated and whose Deferred Compensation Account has not been fully
distributed.
2.13 "PARTICIPANT" means each Employee who participates in the Plan in
accordance with the terms and conditions of the Plan.
2.14 "PLAN" means this plan, the Time Warner Deferred Compensation Plan
as set forth herein and as it may be amended from time to time.
2.15 "RELATED COMPANY" means any entity of which, as of the time of
computation, at least 50% of the outstanding voting stock or ownership interest
is owned, either directly or indirectly, by the Company or TWE.
2.16 "RETIREMENT" means that a Participant, as of the date his or her
employment terminates, is eligible for retirement under the then current
qualified defined benefit plan of the Company, TWE or the Related Company from
which he or she is terminating employment. If such company does not have a
qualified defined benefit plan, eligibility for retirement shall be determined
by the applicable provision in the qualified defined contribution plan of such
company for which the Participant is eligible, and, if more than one, the plan
which would result in the earliest distribution under this Plan.
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2.17 "TWE" means Time Warner Entertainment Company, L.P.
2.18 "VALUATION DATE" means the last day of each calendar month. On and
after December 1, 1994, Valuation Date means each day of each calendar month.
ARTICLE III
PARTICIPANT DEFERRALS
3.1 ELIGIBILITY. The Employees who shall be eligible to make deferral
elections under the Plan are those salaried officers and other key employees of
an Employing Company who at the time of a deferral election pursuant to Section
3.3 below:
(i) are on the U.S. payroll of the Employing Company; and
(ii) have a current base salary plus bonus in excess of
the Compensation Limit or are otherwise designated
as eligible by the Committee. For purposes of this
subsection 3.1(ii), "bonus" means any annual bonus
(paid or deferred) pursuant to a regular program
(but excluding long-term cash incentive plan
payments other than those specified in Section 3.5
and commission, spot and similar bonuses) for the
year preceding the current calendar year, except
that, in the case of a deferral election to be made
by a newly hired Employee (which election shall be
made available at the sole discretion of the
Employing Company), with respect to a bonus to be
earned in (A) the current year, "bonus" means the
target or otherwise estimated bonus for that
portion of the current calendar year after the date
of his or her hire, and (B) the year following
hire, "bonus" means the target or otherwise
estimated bonus for the current calendar year.
The Committee may from time to time, in its sole and absolute
discretion, modify the above eligibility requirements and make such additional
or other requirements for eligibility as it may determine.
3.2 COMPENSATION ELIGIBLE FOR DEFERRAL. An Eligible Employee may elect
to defer receipt of all or a specified portion of any bonus, but only to the
extent the receipt thereof would cause the Eligible Employee's compensation to
exceed the Compensation Limit. Each such deferral shall be expressed as a
percentage, in 10% increments only, but in no event shall any election result in
a deferral of less than $5,000. In the case of a deferral election made on or
after November 1, 1994, the Eligible Employee may elect to have the designated
percentage apply only to that portion of the bonus in excess of a certain dollar
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amount that he or she specifies when making the election. In the case of a
deferral election made on or after January 1, 1995, the Eligible Employee may
elect to have a specific dollar amount of the bonus deferred. For purposes of
this Section 3.2, "bonus" means any annual bonus paid pursuant to a regular
program (but excluding long-term cash incentive plan payments other than those
specified in Section 3.5 and commission, spot and similar bonuses) and which
would otherwise be payable in cash to an Eligible Employee for services as an
Employee.
3.3 DEFERRAL ELECTIONS. An Eligible Employee with the consent of the
Committee may annually make an irrevocable election to defer certain
compensation described in Section 3.2 and participate herein by timely
delivering a properly executed election to the Committee on a form prescribed by
the Committee. The election form shall specify with respect to the compensation
to be deferred for the year, pursuant to the provisions of Section 3.2 and
Article VI:
(i) the percentage of the regular bonus to be deferred,
or, for elections made on or after November 1,
1994, the certain dollar amount of such bonus in
excess of which the deferral has been elected, if
applicable or, for elections made on or after
January 1, 1995, the specific dollar amount to be
deferred; and
(ii) the time for the commencement of payment of the
deferred compensation, which must be either on
account of retirement or at an in-service year to
be specified by the Eligible Employee. Compensation
which is to be deferred to an in- service payment
date must be deferred for no fewer than three
calendar years following the year in which it was
earned.
3.4 EFFECTIVE DATE OF ELECTION. (a) An election to defer compensation
must be received by the Committee prior to the beginning of the calendar year in
which such compensation is earned. Such an election shall become irrevocable as
of the last day of the calendar year prior to the calendar year in which such
compensation is earned.
(b) Notwithstanding the date specified in subsection (a) above,
the Committee may prescribe an earlier or later date by which time an Eligible
Employee must elect to defer such compensation.
(c) Under no circumstances may an Eligible Employee at any time
defer compensation to which he or she has attained a legally enforceable right
to receive currently.
3.5 CERTAIN INCENTIVE PLANS. Notwithstanding anything to the contrary
herein, the term "bonus" wherever used in this Article III shall include any
amounts paid to eligible employees of (i) the following divisions of TWE: Home
Box Office and Home Box Office
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Communications, who participate in the 1993-1995 Cash Flow Incentive Plan, the
1996-1999 Cash Flow Incentive Plan, and any successor plan, with respect to
amounts they may earn under such incentive plans, provided, however, that any
such elections shall be made irrevocably either before the beginning of the term
of the applicable plan or within 30 days after the signing of an eligible
employee's renegotiated or newly negotiated employment contract, or (ii) Time
Inc. and its subsidiaries and affiliates, who participate in a Phantom Equity
Plan ("PEP"), provided, however, that any such elections shall be made
irrevocably during the third year of a four year PEP cycle.
ARTICLE IV
EMPLOYING COMPANY ALLOCATIONS
4.1 EMPLOYING COMPANY ALLOCATIONS. (a) Subject to the right of the
Company or the Committee to modify, amend or terminate the Plan, and to modify,
suspend or discontinue the respective Employing Company Allocations under the
Plan, each Employing Company may make Employing Company Allocations with respect
to a designated year, on behalf of the employees of such Employing Company who
are eligible as provided in this Article IV to have Employing Company
Allocations allocated to their Deferred Compensation Accounts under the Plan for
such year.
(b) All Employing Company Allocations shall be allocated and credited to
each such Deferred Compensation Account as provided in Section 5.3(a) in an
amount equal to the allocation under such qualified defined contribution plan
the Employee would have received if his or her Compensation in excess of the
Compensation Limit were included, or such other amount determined by the
Committee, in its sole and absolute discretion, under the applicable provisions
of this Plan.
(c) An Employee is eligible to have an Employing Company Allocation
credited to his or her Deferred Compensation Account under the Plan for any year
only if the Employee's Compensation exceeds the Compensation Limit in effect for
such plan year.
(d) Employing Company Allocations shall be credited only with respect to
an Employee's Compensation in excess of the Compensation Limit in effect for the
year for which such allocations are credited, up to a maximum Compensation of
$250,000 for 1994. The maximum Compensation shall be increased by 5% annually
for each year after 1994, but shall in no event exceed $350,000.
(e) All Employing Company Allocations shall be distributed in accordance
with the provisions of Article VI, provided however, that the provisions in
Sections 6.1(e) and 6.3 for in-service payments shall not apply to such amounts.
4.2 COMPENSATION. For purposes of this Article, "Compensation" for any
Employee shall have the same meaning as defined in the qualified defined
contribution plan
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of the Employing Company with respect to which it is making an Employing Company
Allocation on behalf of the Employee, provided however, that the Compensation
Limit in such qualified defined contribution plan's definition shall be
disregarded and any bonuses deferred under this Plan shall be included in this
definition of Compensation unless any such bonus would be excluded under the
definition of compensation in such qualified defined contribution plan,
regardless of the Compensation Limit. The Committee, in its sole and absolute
discretion, may make such modifications to such definition with respect to the
Plan as it considers necessary or desirable.
4.3 ELIGIBILITY, PARTICIPATION AND VESTING. As to any Employee, the
rules regarding eligibility, participation and vesting of the qualified defined
contribution plan of the Employing Company with respect to which it is making an
Employing Company Allocation on behalf of the Employee shall also apply to this
Plan, but only as to such Employing Company Allocation. The Committee, in its
sole and absolute discretion, may make such modifications to such rules with
respect to the Plan as it considers necessary or desirable. Any such Employing
Company Allocations for (i) eligible employees participating in the Time Warner
Employees' Savings Plan (the "Savings Plan"), (ii) eligible employees
participating in the Time Warner Employees' Stock Ownership Plan ("TESOP"),
(iii) eligible employees participating in the Time Warner Thrift Plan (the
"Thrift Plan"), and (iv) eligible employees participating in the Warner Music
Group Inc. Profit Sharing Plan (the "Profit Sharing Plan"), shall become vested,
in the case of the (i) Savings Plan or TESOP participants, only after four
Periods of Service or Years of Service, (ii) Thrift Plan participants, only
after five Periods of Service or Years of Service, and (iii) Profit Sharing Plan
participants, only after five Years of Service. "Period of Service" or "Year of
Service" shall be as determined under each such respective qualified plan.
ARTICLE V
DEFERRED COMPENSATION ACCOUNT
5.1 DEFERRED COMPENSATION ACCOUNT. (a) A Deferred Compensation Account
shall be established for each Participant who makes a deferral election pursuant
to Article III or for whom an Employing Company Allocation is credited pursuant
to Article IV. Compensation deferred by a Participant in any year under the Plan
and Employing Company Allocations, along with the hypothetical income on such
amounts, shall be credited to the Participant's Deferred Compensation Account.
(b) The Company shall maintain the Deferred Compensation Accounts
of all Participants who are employed, at the time a deferred amount would
otherwise be payable or an Employing Company Allocation is credited, by an
Employing Company other than TWE or an Employing Company owned primarily through
TWE. TWE shall maintain the Deferred Compensation Accounts of all Participants
who are employed, at such times, by TWE or any Employing Company owned primarily
through TWE.
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(c) All payments made under the Plan shall be made directly by
the Company or TWE, as applicable pursuant to subsection (b) above, from the
respective company's general assets and no deferred compensation or Employing
Company Allocations shall be segregated or earmarked or held in trust.
5.2 HYPOTHETICAL INVESTMENT. (a) Amounts credited to a Participant's
Deferred Compensation Account shall be deemed to be invested in the following
deemed investment vehicle: A hypothetical fixed income fund which shall be
deemed to accrue interest, compounded monthly on each Valuation Date, for each
month of the deferral period, at a deemed rate which shall be equal to the
long-term applicable federal rate for each such month as announced by the
Internal Revenue Service. On and after December 1, 1994, such interest shall be
compounded daily on each Valuation Date.
(b) If the Committee shall determine in good faith that it is
impossible or impractical to maintain the deemed investment vehicle described in
subsection (a) above, the Committee may, in its sole and absolute discretion,
replace such investment vehicle with a deemed investment vehicle which the
Committee has determined, in its sole and absolute discretion, to be
substantially similar thereto.
5.3 MANNER OF HYPOTHETICAL INVESTMENT. (a) For purposes of the
hypothetical investment under Section 5.2, deferred compensation, including any
Employing Company Allocations, shall be considered to be invested on the date
the recordkeeper of the Plan records the deferral amount. For amounts deferred
pursuant to deferral elections made prior to November 1, 1994, deferred
compensation shall be considered to be invested as of the first day of the month
in which the compensation would otherwise have been payable.
(b) Distributions from Deferred Compensation Accounts pursuant to
Article VI shall accrue interest only through the Valuation Date immediately
prior to the commencement of processing of any such distribution.
(c) As of each Valuation Date, the value of a Participant's or
Inactive Participant's Deferred Compensation Account shall be equal to the sum
of:
(i) the amounts, if any, deferred by the Participant
pursuant to Article III;
(ii) the amounts, if any, of Employing Company
Allocations credited pursuant to Article IV; and
(iii) interest which has accrued pursuant to this Article
V; reduced by:
(iv) any amounts distributed pursuant to Article VI.
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5.4 STATEMENT OF ACCOUNT. As soon as practicable after the end of
each calendar quarter, a statement shall be sent to each Participant and
Inactive Participant with respect to the value of his or her Deferred
Compensation Account as of the end of such quarter.
ARTICLE VI
PAYMENT OF DEFERRED COMPENSATION ACCOUNT
6.1 PAYMENT ON ACCOUNT OF RETIREMENT. (a) In the event of the
termination of the Participant's employment with the Company, TWE or a Related
Company on account of his or her Retirement, the Participant's Deferred
Compensation Account shall be distributed to him or her in five annual
installment payments.
(b) Notwithstanding subsection (a) above, if the value of the
Participant's Deferred Compensation Account is less than $50,000 as of the
Valuation Date immediately prior to the date of Retirement, payment shall be
made in a lump sum.
(c) Notwithstanding subsection (a) above, if the value of the
Participant's Deferred Compensation Account is $50,000 or more and such
Participant has requested a lump sum payment, by delivering written notice to
the Committee on a form prescribed by it, at least one calendar year prior to
his or her Retirement date, the Committee may, in its sole and absolute
discretion, make payment in a lump sum.
(d) The first installment, or lump sum, as the case may be, shall
be distributed as soon as practicable after the January 1 immediately following
the date of Retirement. Subsequent annual installment payments shall be
distributed as soon as practicable after each following January 1.
(e) Notwithstanding the payment provisions in subsections (a),
(b), (c) and (d) above, the Committee may instead, in its sole and absolute
discretion, prior to a Participant's actual Retirement date, make one special
in-service payment in a lump sum of all or any portion of the Participant's
Deferred Compensation Account (but not less than $5,000), to be distributed as
soon as practicable after the expiration of 36 months following the month in
which the Participant has requested such special in-service payment by
delivering written notice to the Committee on a form prescribed by it.
(i) The value of any such special in-service payment
shall not include amounts payable under existing
in-service payment elections or amounts
attributable to Employing Company Allocations.
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(ii) Interest which has accrued with respect to any
special in-service payment shall be payable at the
time of such payment and shall be calculated
pursuant to Section 5.2.
(iii) In the event of the termination of the
Participant's employment with the Company, TWE or a
Related Company for any reason, prior to the
payment of any such special in-service payment, any
such amount shall be paid in the same manner and at
the same time or times as any other payments of the
Participant's account due under this Article.
Interest on such in-service payment shall be paid
at the time of such payment and shall be calculated
pursuant to Section 5.2. In the event of death,
payment shall be made as provided for in Section
6.5.
6.2 PAYMENT ON ACCOUNT OF DISABILITY. (a) In the event a Participant
meets the definition of Disability, the value of the Participant's Deferred
Compensation Account shall be distributed to him or her in five annual
installment payments.
(b) Notwithstanding subsection (a) above, if the value of the
Participant's Deferred Compensation Account is less than $50,000 as of the
Valuation Date immediately prior to the date the definition of Disability is
met, payment shall be made in a lump sum.
(c) The first installment, or lump sum, as the case may be, shall
be distributed as soon as practicable after the January 1 immediately following
the date the Participant has met the definition of Disability. Subsequent annual
installment payments shall be distributed as soon as practicable after each
following January 1.
(d) If a Participant or Inactive Participant no longer meets the
definition of Disability and returns to work with the Company, TWE or a Related
Company, no further payments shall be made on account of the prior Disability
and distribution of his or her remaining Deferred Compensation Account shall be
made as otherwise provided in this Article VI.
6.3 IN-SERVICE PAYMENTS (a) An in-service payment elected by a
Participant pursuant to Section 3.3(ii) shall be distributed in a lump sum as
soon as practicable after January 1 in the year specified by the Participant.
(b) Notwithstanding subsection (a) above, if the Participant has
requested, by delivering written notice to the Committee prior to January 1 of
the year preceding that in which the in-service payment is to be made, the
Committee may, in its sole and absolute discretion, defer such payment until
such later year as the Participant may request. Any such additional deferral (i)
must be for full calendar years, and for no fewer than three calendar years
following the year in which payment would have been made but for the additional
deferral, (ii) must be for the whole amount originally deferred, (iii) can only
be
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made once with respect to any in-service payment, and (iv) shall be distributed
in a lump sum as soon as practicable after January 1 in the year specified by
the Participant. In lieu of specifying the year in which the payment is to be
made, the Participant may specify that payment of the deferral shall be made on
account of retirement, in which case it shall be distributed in a lump sum as
soon as practicable after the January 1 immediately following the date of
Retirement.
(c) Interest which has accrued with respect to the amount of any
in-service payment shall be payable at the time of such payment and shall be
calculated pursuant to Section 5.2.
(d) In the event of the termination of a Participant's employment
for any reason prior to the time any in-service payment under this Section 6.3
would have been made, distribution of such payment shall be made according to
the manner of payment specified in Section 6.1, 6.2, 6.4 or 6.5, based on the
Participant's actual reason for termination of employment.
(e) The Committee may, in its sole and absolute discretion, defer
any in- service payment previously elected by any officer of the Company or TWE
who at the time of the designated in-service payment date is at or above the
level of a senior vice president. In the event of any such deferral by the
Committee, payment shall be made under this Article VI as if such officer had
made a deferral election for payment on account of Retirement.
6.4 PAYMENT ON ACCOUNT OF TERMINATION OF EMPLOYMENT OTHER THAN ON
ACCOUNT OF DEATH, DISABILITY OR RETIREMENT. (a) In the event of the termination
of employment with the Company, TWE or a Related Company for reasons other than
death, Disability or Retirement, the value of the Participant's Deferred
Compensation Account shall be distributed to him or her in five annual
installment payments. A Participant shall not be considered to have terminated
employment for purposes of the Plan if he or she transfers directly to the
Company, TWE or a Related Company.
(b) Notwithstanding subsection (a) above, if the value of the
Participant's Deferred Compensation Account is less than $50,000 as of the
Valuation Date immediately prior to the date of such termination, payment shall
be made in a lump sum.
(c) The first installment, or lump sum, as the case may be, shall
be distributed as soon as practicable after the January 1 immediately following
the date the Participant has terminated employment. Subsequent annual
installment payments shall be distributed as soon as practicable after each
following January 1.
6.5 PAYMENT TO BENEFICIARY OR ESTATE IN THE EVENT OF DEATH.
Notwithstanding the provisions for payment described in Sections 6.1, 6.2, 6.3
and 6.4 above, in the event of the death of a Participant or Inactive
Participant before the distribution of his or her Deferred
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Compensation Account has commenced, or before such account has been fully
distributed, such account shall be determined as of the Valuation Date
coincident with or immediately prior to the date that the Committee commences
the processing of the distribution, after both a written notice of his or her
death and a death certificate have been received by the Committee. Such account
shall be distributed in a lump sum to the person or persons designated from time
to time by a Participant or Inactive Participant by written notice to the
Committee as beneficiary or beneficiaries to receive payments under the Plan
after his or her death, which designation has not been revoked by notice to the
Committee at the date of such death. Any such notice shall be in such form as
required by the Committee or acceptable to it which is properly completed and
delivered to the Committee, any member thereof or its designee and shall be
deemed to have been given when it is actually received by any such individual.
If no person has been designated as beneficiary, or if no person so designated
survives the Participant or Inactive Participant, such account shall be
distributed in a lump sum as soon as practicable thereafter to his or her
estate.
6.6 SEVERE UNFORESEEABLE FINANCIAL EMERGENCY PAYMENTS. Notwithstanding
any other provisions of the Plan, if the Committee determines, after
consideration of an application of a Participant or Inactive Participant, that
such individual has a severe unforeseeable financial emergency of such a
substantial nature and beyond the individual's control that a payment of
compensation previously deferred under the Plan or recision of a deferral
election is warranted, the Committee may, in its sole and absolute discretion,
direct that all or a portion of the balance of his or her Deferred Compensation
Account be paid to such individual in such manner and at such time as the
Committee shall specify, or may rescind, in whole or in part, a deferral
election with respect to a bonus deferred but not yet payable, but only to the
extent reasonably required to satisfy the emergency need.
6.7 INCAPACITY. The Committee may direct that any amounts distributable
under the Plan to a person under a legal disability be made to (and be withheld
until the appointment of) a representative qualified pursuant to law to receive
such payment on such person's behalf.
6.8 VALUATION OF DISTRIBUTIONS. For purposes of distribution pursuant to
this Article VI, the balance of each Deferred Compensation Account shall be
valued as of the Valuation Date immediately preceding the date that the
Committee commences the processing of the distribution of the balance of such
account, or the particular installment thereof.
6.9 METHOD OF PAYING INSTALLMENTS. Installment payments as provided for
in this Article VI shall be paid as follows: 20% of the value of the Deferred
Compensation Account subject to installment payments shall be paid in the first
installment; 25% of the remaining value shall be paid in the second installment;
33.3% of the remaining value shall be paid in the third installment; 50% of the
remaining value shall be paid in the fourth installment; and all of the
remaining value in the account shall be paid in the fifth and final installment.
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ARTICLE VII
ADMINISTRATION
7.1 THE COMMITTEE. The Plan shall be administered by a Committee,
consisting of not less than three members to be appointed by the Company and to
serve at the pleasure of the Company. Any member of the Committee may resign at
any time by giving notice to the Company. Any such resignation shall take effect
at the date of receipt of such notice or at any later date specified therein;
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. No member of the Committee shall
receive any compensation for his or her services as such. Participants and
Inactive Participants may be members of the Committee but may not participate in
any decision affecting their own account in any case where the Committee may
take discretionary action under Article VI.
A majority of the members of the Committee shall constitute a quorum for
the transaction of business. All resolutions or other action taken by the
Committee shall be by a vote of a majority of its members present at any meeting
or, without a meeting, by instrument in writing signed by all its members.
Members of the Committee may participate in a meeting of such Committee by means
of a conference telephone or similar communications equipment that enables all
persons participating in the meeting to hear each other, and such participation
in a meeting shall constitute presence in person at the meeting.
The Committee shall be the administrator of the Plan and shall have all
powers necessary to administer the Plan, including discretionary authority to
determine eligibility for benefits and to decide claims under the terms of the
Plan, except to the extent that any such powers are vested in any other
fiduciary by the Plan or by the Committee. The Committee may from time to time
establish rules for the administration of the Plan, and it shall have the
exclusive right to interpret the Plan to decide any matters arising in
connection with the administration and operation of the Plan. All its rules,
interpretations and decisions shall be conclusive and binding on the Employing
Companies and on Eligible Employees, Participants and Inactive Participants.
The Committee may delegate any of its powers or duties to others as it
shall determine and may retain counsel, agents and such clerical and accounting
services as it may require in carrying out the provisions of the Plan.
The Committee may rely conclusively upon all tables, valuations,
certificates, opinions and reports furnished by any actuary, accountant,
controller, counsel or other person who is employed or engaged for any purpose
in connection with the administration of the Plan.
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Neither the Committee nor a member of the board of directors of the
Company or the board of directors (or governing body) of TWE or a Related
Company and no employee of the Company, TWE or any Related Company shall be
liable for any act or action hereunder, whether of omission or commission, by
any other member or employee or by any agent to whom duties in connection with
the administration of the Plan have been delegated or for anything done or
omitted to be done in connection with the Plan.
The Committee shall keep a record of all its proceedings and of all
payments directed by it to be made to Participants or Inactive Participants or
payments made by it for expenses or otherwise.
7.2 INDEMNIFICATION. The Company and TWE shall, to the fullest extent
permitted by law, indemnify each director, officer or employee of the Company,
TWE or any Related Company (including the heirs, executors, administrators and
other personal representatives of such person) and each member of the Committee
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement, actually and reasonably incurred by such person in connection
with any threatened, pending or actual suit, action or proceeding (whether
civil, criminal, administrative or investigative in nature or otherwise) in
which such person may be involved by reason of the fact that he or she is or was
serving any employee benefit plans of the Company, TWE or any Related Company in
any capacity at the request of such company.
7.3 EXPENSES OF ADMINISTRATION. Any expense incurred by the Company or
the Committee relative to the administration of the Plan shall be paid by the
Employing Companies in such proportions as the Company may direct.
7.4 BENEFIT CLAIMS. All claims for benefits under the Plan by a
Participant or beneficiary shall be made in writing to a person designated by
the Committee for such purpose. If the designated person receiving a claim for
benefits believes that the claim should be denied, he or she shall notify the
claimant in writing of the denial of the claim within ninety (90) days after his
or her receipt thereof. Such notice shall (a) set forth the specific reason or
reasons for the denial, making reference to the pertinent provisions of the Plan
or the Plan documents, if applicable, on which the denial is based, (b) describe
any additional material or information that should be received before the claim
request may be acted upon favorably, and explain why such material or
information, if any, is needed and (c) inform the person making the claim of his
or her right pursuant to this Article to request review of the decision by the
Committee. Any such person who believes that he or she has submitted all
available and relevant information may appeal the denial of a claim to the
Committee by submitting a written request for review to the Committee within
sixty (60) days after the date on which such denial is received. Such period may
be extended by the Committee for good cause shown. The person making the request
for review may examine pertinent Plan documents. The request for review may
discuss any issues relevant to the claim. The Committee shall decide whether or
not to grant the claim within sixty (60) days after receipt of the request for
review, but this period may be extended by the Committee
13
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for up to an additional sixty (60) days in special circumstances. If such an
extension of time for review is required because of special circumstances,
written notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. The Committee's decision shall be in writing,
shall include specific reasons for the decision and shall refer to pertinent
provisions of the Plan or of Plan documents, if applicable, on which the
decision is based.
ARTICLE VIII
AMENDMENT AND TERMINATION
8.1 AMENDMENTS. The Company (by action of its board of directors) or the
Committee (for the Company, TWE and the other Employing Companies) may at any
time amend the Plan by an instrument in writing.
8.2 TERMINATION OR SUSPENSION. The continuance of the Plan and the
ability of an Eligible Employee to make a deferral for any year are not assumed
as contractual obligations of the Company, TWE or any other Employing Company.
The Company reserves the right (for itself, TWE and the other Employing
Companies) by action of its board of directors or the Committee, to terminate or
suspend the Plan, or to terminate or suspend the Plan with respect to itself,
TWE or an Employing Company. TWE or any Employing Company may terminate or
suspend the Plan with respect to itself by executing and delivering to the
Company or the Committee such documents as the Company or Committee shall deem
necessary or desirable.
8.3 PARTICIPANTS' RIGHTS TO PAYMENT. No termination of the Plan or
amendment thereto shall deprive a Participant or Inactive Participant of the
right to payment of deferred compensation credited as of the date of termination
or amendment, in accordance with the terms of the Plan as of the date of such
termination or amendment; provided, however, that in the event of termination of
the Plan, or termination of the Plan with respect to the Company, TWE or one or
more other Employing Companies, the Committee may, in its sole and absolute
discretion, accelerate the payment of all such credited deferred compensation on
a uniform basis for all Participants and Inactive Participants or, in the case
of termination of the Plan with respect to TWE or one or more other Employing
Companies, for all Participants and Inactive Participants of TWE or such other
Employing Companies only.
ARTICLE IX
PARTICIPATING COMPANIES
9.1 ADOPTION BY OTHER ENTITIES. Upon the approval of the Company or the
Committee, the Plan may be adopted by TWE or any Related Company by executing
and delivering to the Company or the Committee such documents as the Company or
14
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Committee shall deem necessary or desirable. The provisions of the Plan shall be
fully applicable to such entity except as may otherwise be agreed to by such
adopting company and the Company or Committee.
ARTICLE X
GENERAL PROVISIONS
10.1 PARTICIPANTS' RIGHTS UNSECURED. The right of any Participant or
Inactive Participant to receive future payments under the provisions of the Plan
shall be an unsecured claim against the general assets of the Employing Company
employing the Participant at the time that his or her compensation is deferred.
The Company, TWE (except for their respective obligations under Section 5.1(b)
and (c)) and any other Employing Company or former Employing Company shall not
guarantee or be liable for payment of benefits to the employees of any other
Employing Company or former Employing Company under the Plan.
10.2 NON-ASSIGNABILITY. No right to receive any payment hereunder shall
be transferrable or assignable by a Participant or Inactive Participant other
than by will or by the laws of descent and distribution or by a court of
competent jurisdiction. Any other attempted assignment or alienation of any
payment hereunder shall be void and of no force or effect.
10.3 RELATED COMPANY CEASING TO BE SUCH. (a) In the event that a
corporation or unincorporated entity ceases at any time to meet the definition
of a Related Company, such corporation or entity shall cease as of such time to
be an Employing Company, if it had been such, and those of its Employees who
would have been Eligible Employees under the Plan shall cease to be such.
(b) Payments to Participants employed by any Related Company
which ceases to be such shall be made pursuant to Article VI unless prior to the
end of the year in which such company ceases to be a Related Company, it adopts
a non-qualified deferred compensation plan and agrees to the transfer of the
Deferred Compensation Accounts of all such Participants to its plan and to
assume all obligations accrued under the Plan as of the date of such transfer
with respect to such accounts and subsequent distributions thereof.
10.4 LEGAL FEES. All expenses (including legal fees, court costs and
fees of experts) incurred or expected to be incurred by a Participant or
Inactive Participant in connection with any actual, threatened or contemplated
legal, administrative or other proceeding (whether brought against the Company,
TWE, any Employing Company or former Employing Company or Related Company by a
Participant or Inactive Participant or otherwise)with respect to the
individual's rights (i) to payment, as provided for in Article VI, for all
compensation deferred hereunder pursuant to Articles III or IV, (ii) to the
appropriate investment of all such deferred compensation as provided for in
Article V, or
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(iii) otherwise relating to Participants' or Inactive Participants' rights
hereunder shall be paid or reimbursed to such Participant or Inactive
Participant by the Company, TWE, Employing Company or former Employing Company
or Related Company within 20 days after the receipt by the Company, TWE or
Related Company, as the case may be, of a statement or statements from such
Participant or Inactive Participant requesting such payment or reimbursement or
such payment from time to time, whether prior to, delivering or after final
disposition thereof. Such statement or statements shall evidence the expenses
incurred by such Participant or Inactive Participant and shall include or be
accompanied by an undertaking by such Participant or Inactive Participant to
repay the amounts paid or reimbursed, without interest, if ultimately such
Participant or Inactive Participant shall wholly fail on his or her claim, but
in no other case.
10.5 NO RIGHTS AGAINST THE COMPANY. The establishment of the Plan, any
amendment or other modification thereof, or any payments hereunder, shall not be
construed as giving to any Employee, Eligible Employee, Participant or Inactive
Participant any legal or equitable rights against the Company, TWE or any other
Employing Company or former Employing Company, its shareholders, directors,
officers or other employees, except as may be contemplated by or under the Plan
including, without limitation, the right of any Participant or Inactive
Participant to be paid as provided under the Plan. Participation in the Plan
does not give rise to any actual or implied contract of employment. A
Participant may be terminated at any time for any reason in accordance with the
procedures of the Employing Company.
10.6 WITHHOLDING. Each Employing Company or former Employing Company
shall withhold any federal, state and local income or employment tax (including
F.I.C.A. obligations for both social security and medicare) which by any present
or future law it is, or may be, required to withhold with respect to any
deferral of compensation pursuant to the Plan, any Employing Company Allocation,
any income deemed accrued or any distribution under the Plan, with respect to
any of its former or present Employees. The Committee shall provide or direct
the provision of information necessary or appropriate to enable each such
company to so withhold.
10.7 NO GUARANTEE OF TAX CONSEQUENCES. The Committee, the Company, TWE
and any Employing Company or former Employing Company do not make any commitment
or guarantee that any amounts deferred for the benefit of a Participant or
Inactive Participant will be excludible from the gross income of the Participant
or Inactive Participant in the year of deferral for federal, state or local
income or employment tax purposes, or that any other federal, state or local tax
treatment will apply to or be available to any Participant or Inactive
Participant. It shall be the obligation of each Eligible Employee, Participant
or Inactive Participant to determine whether any deferral under the Plan is
excludible from his or her gross income for federal, state and local income or
employment tax purposes, and to take appropriate action if he or she has reason
to believe that any such deferral is not so excludible.
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10.8 SEVERABILITY. If a provision of the Plan shall be held illegal or
invalid, the illegality or invalidity shall not affect the remaining parts of
the Plan, and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included in the Plan.
10.9 GOVERNING LAW. The provisions of the Plan shall be governed by
and construed in accordance with the laws of the State of New York.
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EXHIBIT 21
SUBSIDIARIES OF TIME WARNER INC.
Set forth below are the names of certain subsidiaries, at least 50% owned,
directly or indirectly, of Time Warner and TWE as of December 31, 1995, unless
otherwise indicated. Certain subsidiaries which when considered in the aggregate
would not constitute a significant subsidiary, are omitted from the list below.
Indented subsidiaries are direct subsidiaries of the company under which they
are indented.
<TABLE>
<CAPTION>
PERCENTAGE STATE OR OTHER
OWNED BY JURISDICTION OF
IMMEDIATE INCORPORATION OR
NAME PARENT ORGANIZATION
- -------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
TIME WARNER INC. (Registrant): Delaware
Asiaweek Limited.............................................................. 80 Hong Kong
Sunset Publishing Corporation................................................. 100 Delaware
Time International Inc........................................................ 100 Delaware
Time Inc.(1).................................................................. 100 Delaware
American Family Publishers (partnership)................................... 50 New York
Book-of-the-Month Club, Inc................................................ 100 New York
Entertainment Weekly, Inc.................................................. 100 Delaware
Little, Brown and Company (Inc.)........................................... 100 Massachusetts
TDS Ventures, Inc.......................................................... 100 Delaware
Time Distribution Services (partnership)................................... 63 New York
Time Customer Serivce, Inc................................................. 100 Delaware
Time Publishing Ventures, Inc.............................................. 100 Delaware
Southern Progress Corporation(2)......................................... 100 Delaware
Time Inc. Ventures......................................................... 100 Delaware
Health Publications, Inc................................................. 100 Delaware
Hippocrates Partners (partnership).................................... 50 California
TWC Ventures............................................................... 100 Delaware
Time Life Inc.............................................................. 100 Delaware
Time-Life Customer Service, Inc.......................................... 100 Delaware
Warner Books, Inc.......................................................... 100 New York
Warner Publisher Services Inc.............................................. 100 New York
Time TBS Holdings, Inc........................................................ 100 Delaware
TW Service Holding I, L.P. (partnership)...................................... (3) Delaware
TW Service Holding II, L.P. (partnership)..................................... (3) Delaware
TW Programming Co. (partnership)........................................... (4) New York
TW Cable Service Co. (partnership)......................................... (5) New York
TW/Three D Holding Co. (partnership)....................................... (5) New York
Time Warner Connect (partnership).......................................... (5) New York
WCI Record Club Inc........................................................... 100(6) Delaware
The Columbia House Company (partnership)................................... 50 New York
Warner Communications Inc..................................................... 100 Delaware
Time Warner Interactive Inc................................................ 100 Delaware
Atari Games Corporation.................................................... 100 California
DC Comics (partnership).................................................... 50(7) New York
Warner Bros. Music International Inc....................................... 100 Delaware
Warner-Tamerlane Publishing Corp........................................... 100 California
WB Music Corp.............................................................. 100 California
W Cinemas Holding Inc...................................................... 100 Delaware
W Cinemas Inc............................................................ 100 Delaware
</TABLE>
1
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<TABLE>
<CAPTION>
PERCENTAGE STATE OR OTHER
OWNED BY JURISDICTION OF
IMMEDIATE INCORPORATION OR
NAME PARENT ORGANIZATION
- -------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
Alpha Theatres Inc....................................................... 100 Delaware
NPP Music Corp............................................................. 100 Delaware
Warner/Chappell Music, Inc................................................. 100 Delaware
New Chappell Music, Inc(8)............................................... 100 Delaware
Super Hype Publishing, Inc............................................... 100 New York
Cotillion Music, Inc..................................................... 100 Delaware
Walden Music, Inc........................................................ 100 New York
Summy-Birchard, Inc...................................................... 100 Wyoming
Warner Bros. Publications Inc............................................ 100 New York
CPP/Belwin, Inc.......................................................... 100 Delaware
Lorimar Motion Picture Management, Inc..................................... 100 California
E.C. Publications, Inc..................................................... 100 New York
WCI/Am Law Inc............................................................. 100 Delaware
American Lawyer Media, L.P............................................... 83.25 Delaware
Warner Music Group Inc................................................... 100 Delaware
Warner Latin Music Television Inc........................................ 100 Delaware
Warner Bros. Records Inc................................................. 100 Delaware
Atlantic Recording Corporation........................................... 100 Delaware
Warner-Elektra-Atlantic Corporation...................................... 100 New York
WEA International Inc.(9).................................................. 100 Delaware
Warner Music Canada Ltd.................................................. 100 Canada
The Columbia House Company (Canada) (partnership)..................... 50 Canada
Warner Special Products Inc................................................ 100 Delaware
Warner Custom Music Corp................................................. 100 California
WEA Manufacturing Inc...................................................... 100 Delaware
Allied Record Company.................................................... 100 California
Time Warner Limited........................................................ 100 U.K.
Warner Music International Services Ltd.................................. 100 U.K.
Time Warner UK Limited................................................ 100 U.K.
Warner Chappell Music Group (UK) Ltd.................................. 100 U.K.
Warner Chappell Music Limited....................................... 100 U.K.
Magnet Music Ltd................................................. 100 U.K.
Warner Music (U.K.) Limited........................................... 100 U.K.
Ivy Hill Corporation....................................................... 100 Delaware
Warner Cable Communications Inc.(10)....................................... 100 Delaware
TWI Ventures Ltd........................................................... 100 Delaware
American Television and Communications Corporation............................ 100(11) Delaware
American Communications Corporation........................................ 100 Indiana
American Digital Communications, Inc....................................... 100 Delaware
ATC Cablevision of San Marino, Inc......................................... 100 California
ATC Cablevision of South Pasadena, Inc..................................... 100 California
ATC Holdings II, Inc....................................................... 100 Delaware
ARP 113, Inc............................................................. 100 Delaware
Paragon Communications (partnership)..................................... 50(12) Colorado
ATC/PPV, Inc............................................................... 100 Delaware
Carolina Network Corporation............................................... 100 Delaware
Philadelphia Community Antenna Television Company.......................... 100 Pennsylvania
Lower Bucks Cablevision, Inc............................................. 100 Pennsylvania
</TABLE>
2
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<TABLE>
<CAPTION>
PERCENTAGE STATE OR OTHER
OWNED BY JURISDICTION OF
IMMEDIATE INCORPORATION OR
NAME PARENT ORGANIZATION
- -------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
Tri-County Cable Television Company...................................... 100 New Jersey
Public Cable Company....................................................... 100 Maine
Public Cable Company (partnership)....................................... 77 Maine
TWI Cable Inc.(13)............................................................ 100 Delaware
KBL Communications, Inc.................................................... 100 Delaware
Paragon Communications (partnership)..................................... 50(12) Colorado
Cablevision Industries Corporation (14)....................................... 100 Delaware
Summit Communications Group, Inc.............................................. 100 Delaware
Summit Cable Inc........................................................... 100 Delaware
Summit Cable Services of Georgia, Inc.................................... 100 Delaware
Summit Cable Services of Forsyth County, Inc............................. 100 Delaware
Summit Cable Services of Thom-A-Lex, Inc................................. 100 Delaware
Time Warner Operations Inc.................................................... 100(15) Delaware
HBO Film Management, Inc................................................. 100 Delaware
Home Box Office Asia Inc................................................. 100 Delaware
TW/TAE Holding, Inc........................................................... 100 Delaware
TW/TAE, Inc................................................................ 100 Delaware
SUBSIDIARIES OF TIME WARNER ENTERTAINMENT COMPANY, L.P.
Time Warner Entertainment-Advance/Newhouse Partnership.......................... 66.67 New York
CV of Viera Joint Venture (partnership)....................................... 50 Florida
Time Warner Communications Holdings Inc.(16).................................... 100 Delaware
Century Venture Corporation..................................................... 50 Delaware
Erie Telecommunications, Inc.................................................... 54.19 Pennsylvania
Kansas City Cable Partners...................................................... 50 Colorado
Time Warner Cable New Zealand Holdings Ltd...................................... 100(17) New Zealand
Queens Inner Unity Cable System................................................. 50 New York
Comedy Partners, L.P. (partnership)............................................. 50 New York
Warner Cable of New Jersey Inc.................................................. 100 Delaware
Warner Cable of Vermont Inc..................................................... 100 Delaware
HBO Direct, Inc................................................................. 100 Delaware
TW Buffer Inc................................................................. 100 Delaware
Warner Bros. (F.E.) Inc.................................................... 100 Delaware
Warner Bros. (Japan) Inc................................................... 100 Delaware
Warner Bros. (South) Inc................................................... 100 Delaware
Warner Bros. (Transatlantic) Inc........................................... 100 Delaware
Bethel Productions Inc................................................... 100 Delaware
Warner Films Consolidated Inc.............................................. 100 Delaware
Exeter Distributing Inc.................................................. 100 Delaware
Riverside Avenue Distributing Inc........................................ 100 Delaware
HBO Asia Holdings, L.P. (partnership)........................................... 100(18) Delaware
HBO Pacific Partners, C.V..................................................... 83.33 Neth. Antiles
Home Box Office (Singapore) Pty. Ltd....................................... 100 Singapore
Turner/HBO Ltd. Purpose Joint Venture (partnership)............................. 50 New York
Acapulco 37 S.A. de C.V......................................................... 100 Mexico
Warner Bros. Gesellschaft mbH................................................... 100 Austria
Time Warner Entertainment Limited............................................... 100 U.K.
The Bountiful Company Limited................................................. 50 U.K.
</TABLE>
3
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE STATE OR OTHER
OWNED BY JURISDICTION OF
IMMEDIATE INCORPORATION OR
NAME PARENT ORGANIZATION
- -------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
Warner Bros. Studio Stores Ltd................................................ 100 U.K.
Warner Bros. Consumer Products (UK) Ltd....................................... 100 U.K.
TWE Finance Limited........................................................... 100 U.K.
Warner Bros. Theatres Ltd..................................................... 100 U.K.
Warner Bros. Distributors Ltd................................................. 100 U.K.
Lorimar Telepictures International Ltd..................................... 100 U.K.
Warner Bros. International Television Distribution Italia S.p.A.......... 100 Italy
Torremodo Ltd............................................................ 100 U.K.
Victory Film Production, Ltd............................................. 100 U.K.
Warner Bros. Theatres (U.K.) Limited.......................................... 100 U.K.
Warner Bros. Theatres Advertising Agency Limited........................... 100 U.K.
Warner Bros. Productions Limited.............................................. 100 U.K.
Warner Home Video (U.K.) Limited.............................................. 100 U.K.
Metro Color Laboratories (U.K.) Ltd............................................. 100 U.K.
Kay Holdings Ltd.............................................................. 100 U.K.
Metrocolor (London) Limited................................................ 100 U.K.
Lorimar Distribution International (Canada) Corp................................ 100 Canada
Lorimar Canada Inc.............................................................. 100 Canada
Productions et Editions Cinematographiques Francaises SARL (PECF)............... 100 France
Warner Home Video France S.A.................................................. 100 France
Time Warner Entertainment Australia Pty. Ltd.................................... 100 Australia
Lorimar Telepictures Pty. Limited............................................. 100 Australia
Warner Bros. (Australia) Pty. Ltd............................................. 100 Australia
Warner Holdings Australia Pty. Limited........................................ 100 Australia
Warner Bros. Properties (Australia) Pty. Ltd............................... 100 Australia
Warner Bros. Theatres (Australia) Pty. Limited............................. 100 Australia
Warner World Australia Pty. Limited........................................ 100 Australia
Movie World Enterprises Partnership (partnership)........................ 50 Australia
Warner Home Video Pty. Limited............................................. 100 Australia
Warner Bros. Video Pty. Ltd.............................................. 100 Australia
Warner Sea World Aviation Pty. Ltd......................................... 100 Australia
Sea World Aviation Partnership (partnership)............................. 50 Australia
Warner Sea World Investments Pty. Limited.................................. 100 Australia
Sari Lodge Pty. Limited.................................................. 50 Australia
Sea World Management Pty. Ltd......................................... 100 Australia
Warner Sea World Operations Pty. Ltd....................................... 100 Australia
Sea World Enterprises Partnership (partnership).......................... 50 Australia
Warner Sea World Units Pty. Ltd............................................ 100 Australia
Time Warner Germany Holding GmbH................................................ 100(19) Germany
Time Warner Entertainment Germany GmbH........................................ 100 Germany
Time Warner Entertainment Germany GmbH and Co. OHG......................... 100(20) Germany
Warner Bros. Movie World GmbH & Co. KG................................... 60 Germany
Warner Bros. Deutschland Pay TV GmbH....................................... 100 Germany
Warner Home Video GmbH..................................................... 100 Germany
Warner Home Video Spol SRO............................................... 100 Czech Republic
GWHS Grundstrucks Verwaltungs GmbH......................................... 100 Germany
Warner Bros. Film GmbH..................................................... 100 Germany
Warner Bros. Film GmbH Kinobetriebe...................................... 100 Germany
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE STATE OR OTHER
OWNED BY JURISDICTION OF
IMMEDIATE INCORPORATION OR
NAME PARENT ORGANIZATION
- -------------------------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
Warner Bros. Film GmbH Multiplex Cinemas Mulheim......................... 100 Germany
Time Warner Merchandising Canada Inc............................................ 100 Canada
Warner Bros. Canada Inc......................................................... 100 Canada
Warner Bros. Distributing (Canada) Limited...................................... 100 Canada
Warner Home Video (Canada) Ltd.................................................. 100 Canada
Warner Bros. (Africa) (Pty) Ltd................................................. 100 So. Africa
Warner Bros. Belgium SA/NV...................................................... 100 Belgium
Warner Bros. (D) A/S............................................................ 100 Denmark
Warner & Metronome Films A/S.................................................. 50 Denmark
Warner Bros. Theatres Denmark A/S............................................. 100 Denmark
Scala Biografome I/S (partnership)......................................... 50 Denmark
Dagmar Teatret I/S (partnership)........................................... 50 Denmark
Warner Bros. Film Ve Video Sanayi Ve Ticaret A.S................................ 100 Turkey
Warner Bros. Finland OY......................................................... 100 Finland
Warner Bros. (Holland) B.V...................................................... 100 Netherlands
Warner Home Video (Nederland) B.V............................................. 100 Netherlands
Warner Bros. Theatres (Holland) B.V........................................... 100 Netherlands
Warner Bros. Holdings Sweden AB................................................. 100 Sweden
Warner Bros. (Sweden) AB...................................................... 100 Sweden
Warner Home Video (Sweden) AB................................................. 100 Sweden
Warner Bros. Italia S.p.A....................................................... 100 Italy
Warner Entertainment Italia S.r.L............................................. 100 Italy
Warner Bros. (Korea) Inc........................................................ 100 Korea
Warner Bros. (Mexico) S.A....................................................... 100 Mexico
Warner Bros. (N.Z.) Limited..................................................... 100 New Zealand
Warner Home Video (N.Z.) Limited.............................................. 100 New Zealand
Warner Bros. Norway A/S......................................................... 100 Norway
Warner Bros. Singapore Pte. Ltd................................................. 100 Singapore
Warner Home Video (Ireland) Ltd................................................. 100 Ireland
Warner Home Video Portugal Lda.................................................. 100 Portugal
Warner-Lusomundo Sociedade Iberica de Cinemas Lda............................... 50 Portugal
Warner Home Video Espanola S.A.................................................. 100 Spain
Warner Bros. Consumer Products S.A............................................ 100 Spain
Warner Mycal Corporation........................................................ 50 Japan
Kabelkom Management Co. (partnership)(21)....................................... 50 Delaware
Hungary Holding Co.............................................................. 100(19) New York
Kabelkom Holding Co. (partnership)(21)........................................ 50 Delaware
Quincy Jones Entertainment Company L.P. (partnership)........................... 50 Delaware
DC Comics (partnership)......................................................... 50(7) New York
HBO Cesha Republika, S.R.O....................................................... 100 Czech Republic
</TABLE>
- ------------
(1) The names of five subsidiaries of Time Inc. carrying on the magazine
publishing business are omitted.
(2) The names of nine subsidiaries of Southern Progress Corporation carrying on
the magazine or book publishing business are omitted.
(3) The General Partners of TWE own 87.5% and TW/TAE, Inc. and Time Warner Inc.
each own 6.25% as limited partners.
(footnotes continued on next page)
5
<PAGE>
<PAGE>
(footnotes continued from previous page)
(4) TWE owns 99% and TW Service Holding II, L.P. owns 1%.
(5) TW Service Holding I, L.P. owns 99% and TW Service Holding II, L.P. owns 1%.
(6) Time Warner Inc. owns 80% and Warner Communications Inc. owns 20%.
(7) Warner Communications Inc. owns 50% and TWE owns 50%.
(8) The names of 16 subsidiaries of New Chappell Inc. carrying on substantially
the same music publishing operations in foreign countries are omitted.
(9) The names of 34 subsidiaries of WEA International Inc. carrying on
substantially the same record, tape and video cassette distribution
operations in foreign countries are omitted.
(10) The names of four subsidiaries of Warner Cable Communications Inc. carrying
on the cable television business are omitted.
(11) Time Warner Inc. owns 86.34%, Warner Communications Inc. owns 7.8% and Time
TBS Holdings, Inc. owns 5.86%.
(12) American Television and Communications Corporation indirectly owns 50% of
Paragon Communications and the remaining 50% is owned indirectly by TWI
Cable Inc.
(13) The names of 21 subsidiaries of TWI Cable Inc. carrying on the cable
television business are omitted.
(14) The names of 42 subsidiaries of Cablevision Industries Corporation
(acquired on January 4, 1996) carrying on the cable television business are
omitted.
(15) Time Warner Inc. owns 87.21% and Warner Communications Inc. owns 12.79%.
(16) The names of 21 subsidiaries of Time Warner Communications Holdings Inc.
carrying on the same alternate access operations are omitted.
(17) TWE owns 99% and Time Warner Inc. owns 1%.
(18) TWE owns 99% and Home Box Office Asia Inc. owns 1%.
(19) TWE owns 99% and HBO Direct, Inc. owns 1%.
(20) Time Warner Entertainment Germany GmbH owns 85% and Time Warner Germany
Holding GmbH owns 15%.
(21) The names of 13 subsidiaries of Kabelkom Management Co. and Kabelkom
Holding Co. carrying on substantially the same cable television operations
in Hungary are omitted.
6
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our reports dated February
6, 1996, with respect to the consolidated financial statements and schedules of
Time Warner Inc. and Time Warner Entertainment Company, L.P. ('TWE') included in
this Annual Report on Form 10-K for the year ended December 31, 1995, and our
report dated March 3, 1995, with respect to the combined financial statements of
the Time Warner Service Partnerships included in TWE's Annual Report on Form
10-K for the year ended December 31, 1994, incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 1995, in each of the
following:
1. Post-Effective Amendment No. 2 to Registration Statements No.
33-11031 and No. 2-76753 on Form S-8;
2. Post-Effective Amendment No. 4 on Form S-3 to Registration
Statement No. 2-75960 on Form S-16 and Post-Effective Amendment
No. 1 on Form S-3 to Registration Statement No. 33-58262 on Form
S-3;
3. Registration Statements No. 33-20883 and No. 33-35945 on Form S-8;
4. Post-Effective Amendment No. 8 to Registration Statements No.
2-62477 and No. 2-67216 on Form S-8;
5. Registration Statements No. 33-37929 and No. 33-47152 on Form S-8;
6. Post-Effective Amendment No. 2 to Registration Statement No.
33-16507 on Form S-8 and Registration Statement No. 33-48381 on
Form S-8;
7. Post-Effective Amendment No. 1 to Registration Statement No.
33-29247 on Form S-8;
8. Registration Statement No. 33-33076 (the Prospectus constituting a
part thereof also applies to Registration Statements No. 33-29029
and No. 33-29030) on Form S-8;
9. Amendment No. 1 to Registration Statement No. 33-33043 on Form S-8
and Registration Statement No. 33-51471 on Form S-8;
10. Pre-Effective Amendment No. 1 to Registration Statement No.
33-29031 on Form S-3;
11. Registration Statement No. 33-35317 on Form S-8;
12. Registration Statements No. 33-40859 and No. 33-48382 on Form S-8;
13. Registration Statement No. 33-47151 on Form S-8;
14. Post-Effective Amendment No. 2 to Registration Statement No.
33-57812 on Form S-3;
15. Registration Statements No. 33-62774 and No. 33-51015 on Form S-8;
16. Post-Effective Amendment No. 1 to Registration Statement No.
33-50237 on Form S-3;
17. Registration Statement No. 33-53213 on Form S-8 and Post-Effective
Amendment No. 1 to Registration Statement No. 33-57667 on Form
S-8;
18. Registration Statement No. 33-61497 on Form S-8;
19. Amendment No. 1 to Registration Statement No. 33-61579 on Form
S-3; and
20. Pre-Effective Amendment No. 2 to Registration Statement No.
33-62585 on Form S-3.
Ernst & Young LLP
New York, New York
March 21, 1996
<PAGE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
January 19, 1995, except as to Note 6, which is as of January 27, 1995, with
respect to the financial statements and schedule of Paragon Communications which
are incorporated by reference in this Annual Report on Form 10-K for the year
ended December 31, 1994, in each of the following:
1. Post-Effective Amendment No. 2 to Registration Statements No. 33-11031
and No. 2-76753 on Form S-8;
2. Post-Effective Amendment No. 4 on Form S-3 to Registration Statement No.
2-75960 on Form S-16 and Post-Effective Amendment No. 1 on Form S-3 to
Registration Statement No. 33-58262 on Form S-3;
3. Registration Statements No. 33-20883 and No. 33-35945 on Form S-8;
4. Post-Effective Amendment No. 8 to Registration Statements No. 2-62477
and No. 2-67216 on Form S-8;
5. Registration Statements No. 33-37929 and No. 33-47152 on Form S-8;
6. Post-Effective Amendment No. 2 to Registration Statement No. 33-16507 on
Form S-8 and Registration Statement No. 33-48381 on Form S-8;
7. Post-Effective Amendment No. 1 to Registration Statement No. 33-29247 on
Form S-8;
8. Registration Statement No. 33-33076 (the Prospectus constituting a part
thereof also applies to Registration Statements No. 33-29029 and No.
33-29030) on Form S-8;
9. Amendment No. 1 to Registration Statement No. 33-33043 on Form S-8 and
Registration Statement No. 33-51471 on Form S-8;
10. Pre-Effective Amendment No. 1 to Registration Statement No. 33-29031 on
Form S-3;
11. Registration Statement No. 33-35317 on Form S-8;
12. Registration Statements No. 33-40859 and No. 33-48382 on Form S-8;
13. Registration Statement No. 33-47151 on Form S-8;
14. Post-Effective Amendment No. 2 on Form S-8 to Registration Statement
No. 33-57812 on Form S-3;
15. Registration Statements No. 33-62774 and No. 33-51015 on Form S-8;
16. Post-Effective Amendment No. 1 to Registration Statement No. 33-50237
on Form S-3;
17. Registration Statement No. 33-53213 on Form S-8 and Post-Effective
Amendment No. 1 to Registration Statement No. 33-57667 on Form S-8;
18. Registration Statement No. 33-61497 on Form S-8;
19. Amendment No. 1 to Registration Statement No. 33-61579 on Form S-3; and
20. Pre-Effective Amendment No. 2 to Registration Statement No. 33-62585 on
Form S-3;
PRICE WATERHOUSE LLP
DENVER, COLORADO
MARCH 21, 1996
<PAGE>
<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, PHILIP R. LOCHNER, JR. and RICHARD D. PARSONS 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 the Corporation's Annual Report on Form 10-K for the
year ended December 31, 1995, pursuant to Section 13 of the Securities Exchange
Act of 1934, as amended (the 'Exchange Act'), and to sign any and all amendments
to said Annual Report on Form 10-K, and to file such Annual Report on Form
10-K, with all exhibits thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, under the provisions of
the Exchange Act, 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 21st day of March, 1996.
(i) Principal Executive Officer:
GERALD M. LEVIN
-----------------------------------
Gerald M. Levin
Director, Chairman of the Board
and Chief Executive Officer
(ii) Principal Financial Officer:
RICHARD J. BRESSLER
-----------------------------------
Richard J. Bressler
Senior Vice President and
Chief Financial Officer
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
JOHN A. LaBARCA
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
-----------------------------------
Merv Adelson
-----------------------------------
Lawrence B. Buttenwieser
-----------------------------------
Edward S. Finkelstein
-----------------------------------
Beverly Sills Greenough
-----------------------------------
Carla A. Hills
-----------------------------------
David T. Kearns
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
MERV ADELSON
-----------------------------------
Merv Adelson
-----------------------------------
Lawrence B. Buttenwieser
-----------------------------------
Edward S. Finkelstein
-----------------------------------
Beverly Sills Greenough
-----------------------------------
Carla A. Hills
-----------------------------------
David T. Kearns
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
-----------------------------------
Merv Adelson
LAWRENCE B. BUTTENWIESER
-----------------------------------
Lawrence B. Buttenwieser
-----------------------------------
Edward S. Finkelstein
-----------------------------------
Beverly Sills Greenough
-----------------------------------
Carla A. Hills
-----------------------------------
David T. Kearns
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
-----------------------------------
Merv Adelson
-----------------------------------
Lawrence B. Buttenwieser
EDWARD S. FINKELSTEIN
-----------------------------------
Edward S. Finkelstein
-----------------------------------
Beverly Sills Greenough
-----------------------------------
Carla A. Hills
-----------------------------------
David T. Kearns
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
-----------------------------------
Merv Adelson
-----------------------------------
Lawrence B. Buttenwieser
-----------------------------------
Edward S. Finkelstein
BEVERLY SILLS GREENOUGH
-----------------------------------
Beverly Sills Greenough
-----------------------------------
Carla A. Hills
-----------------------------------
David T. Kearns
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
-----------------------------------
Merv Adelson
-----------------------------------
Lawrence B. Buttenwieser
-----------------------------------
Edward S. Finkelstein
-----------------------------------
Beverly Sills Greenough
CARLA A. HILLS
-----------------------------------
Carla A. Hills
-----------------------------------
David T. Kearns
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
-----------------------------------
Merv Adelson
-----------------------------------
Lawrence B. Buttenwieser
-----------------------------------
Edward S. Finkelstein
-----------------------------------
Beverly Sills Greenough
-----------------------------------
Carla A. Hills
DAVID T. KEARNS
-----------------------------------
David T. Kearns
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
(iii) Principal Accounting Officer:
-----------------------------------
John A. LaBarca
Vice President and Controller
(iv) Directors:
-----------------------------------
Merv Adelson
-----------------------------------
Lawrence B. Buttenwieser
-----------------------------------
Edward S. Finkelstein
-----------------------------------
Beverly Sills Greenough
-----------------------------------
Carla A. Hills
-----------------------------------
David T. Kearns
HENRY LUCE III
-----------------------------------
Henry Luce III
-2-
<PAGE>
<PAGE>
REUBEN MARK
-----------------------------------
Reuben Mark
-----------------------------------
Michael A. Miles
-----------------------------------
J. Richard Munro
-----------------------------------
Richard D. Parsons
-----------------------------------
Donald S. Perkins
-----------------------------------
Raymond S. Troubh
-----------------------------------
Francis T. Vincent, Jr.
-3-
<PAGE>
<PAGE>
-----------------------------------
Reuben Mark
MICHAEL A. MILES
-----------------------------------
Michael A. Miles
-----------------------------------
J. Richard Munro
-----------------------------------
Richard D. Parsons
-----------------------------------
Donald S. Perkins
-----------------------------------
Raymond S. Troubh
-----------------------------------
Francis T. Vincent, Jr.
-3-
<PAGE>
<PAGE>
-----------------------------------
Reuben Mark
-----------------------------------
Michael A. Miles
J. RICHARD MUNRO
-----------------------------------
J. Richard Munro
-----------------------------------
Richard D. Parsons
-----------------------------------
Donald S. Perkins
-----------------------------------
Raymond S. Troubh
-----------------------------------
Francis T. Vincent, Jr.
-3-
<PAGE>
<PAGE>
-----------------------------------
Reuben Mark
-----------------------------------
Michael A. Miles
-----------------------------------
J. Richard Munro
RICHARD D. PARSONS
-----------------------------------
Richard D. Parsons
-----------------------------------
Donald S. Perkins
-----------------------------------
Raymond S. Troubh
-----------------------------------
Francis T. Vincent, Jr.
-3-
<PAGE>
<PAGE>
-----------------------------------
Reuben Mark
-----------------------------------
Michael A. Miles
-----------------------------------
J. Richard Munro
-----------------------------------
Richard D. Parsons
DONALD S. PERKINS
-----------------------------------
Donald S. Perkins
-----------------------------------
Raymond S. Troubh
-----------------------------------
Francis T. Vincent, Jr.
-3-
<PAGE>
<PAGE>
-----------------------------------
Reuben Mark
-----------------------------------
Michael A. Miles
-----------------------------------
J. Richard Munro
-----------------------------------
Richard D. Parsons
-----------------------------------
Donald S. Perkins
RAYMOND S. TROUBH
-----------------------------------
Raymond S. Troubh
-----------------------------------
Francis T. Vincent, Jr.
-3-
<PAGE>
<PAGE>
-----------------------------------
Reuben Mark
-----------------------------------
Michael A. Miles
-----------------------------------
J. Richard Munro
-----------------------------------
Richard D. Parsons
-----------------------------------
Donald S. Perkins
-----------------------------------
Raymond S. Troubh
FRANCIS T. VINCENT, JR.
-----------------------------------
Francis T. Vincent, Jr.
-3-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> TIME WARNER INC.
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from the
financial statements of Time Warner Inc. for the year ended December 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 628
<SECURITIES> 0
<RECEIVABLES> 2,541
<ALLOWANCES> 786
<INVENTORY> 443
<CURRENT-ASSETS> 3,720
<PP&E> 1,988
<DEPRECIATION> 869
<TOTAL-ASSETS> 22,132
<CURRENT-LIABILITIES> 3,027
<BONDS> 9,907
<COMMON> 388
0
30
<OTHER-SE> 3,249
<TOTAL-LIABILITY-AND-EQUITY> 22,132
<SALES> 8,067
<TOTAL-REVENUES> 8,067
<CGS> 4,682
<TOTAL-COSTS> 4,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 877
<INCOME-PRETAX> 2
<INCOME-TAX> 126
<INCOME-CONTINUING> (124)
<DISCONTINUED> 0
<EXTRAORDINARY> (42)
<CHANGES> 0
<NET-INCOME> (166)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
<PAGE>
<PAGE>
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
U S WEST, INC., et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 14555
)
TIME WARNER INC., et al., )
)
Defendants, )
)
and )
)
TIME WARNER ENTERTAINMENT COM- )
PANY, L.P., a Delaware limited )
partnership, )
)
Nominal Defendant. )
_______________________________ )
)
TIME WARNER INC., et al., )
)
Counterclaim )
Plaintiffs, )
)
v. )
)
U S WEST, INC., et al., )
)
Counterclaim )
Defendants. )
AMENDED AND SUPPLEMENTAL COMPLAINT
FOR INJUNCTIVE AND DECLARATORY RELIEF
Plaintiffs U S WEST, Inc. ("USWI") and U S WEST Multimedia
Communications, Inc. ("USWMCI"), suing both individually and derivatively
on behalf of Time Warner Entertainment Company, L.P. ("TWEC" or the
"Partnership"), by and through their attorneys, allege upon knowledge with
respect to themselves and their own actions and the
<PAGE>
<PAGE>
written agreements set forth herein, and upon information and belief with
respect to all other allegations, as follows:
NATURE OF THE ACTION
1. This action is brought by plaintiffs, suing both in their own
right and derivatively on behalf of Time Warner Entertainment Company,
L.P., for equitable relief, including injunctive and declaratory relief.
This action arises out of the wrongful actions being pursued and threatened
by defendants, Time Warner, Inc. and certain of its wholly-owned
subsidiaries, American Television and Communications Corporation, Time
Warner Operations, Inc., Warner Cable Communications Inc. and Warner
Communications Inc. This conduct is (i) in breach of fiduciary duties
owing by defendants to plaintiffs and TWEC pursuant to written limited
partnership agreements and the common law and statutory law of the State of
Delaware, and (ii) in violation of written agreements that defendants have
entered into with plaintiffs. The conduct contemplated by defendants
threatens to severely, immediately and irreparably injure the interests of
plaintiffs and TWEC.
2. In particular, plaintiffs seek to enjoin a proposed merger of
defendant Time Warner Inc. ("TWI"), directly or through any controlled
entity, with Turner Broadcasting Systems, Inc. ("TBS"), and a related
corporate restructuring, in derogation of TWEC's rights.
(a) TBS is one of the largest and most vigorous competitors of
TWEC. The conduct of defendants simply in pursuing the merger with TBS
constitutes a patent breach of the fiduciary duties they owe to TWEC and
plaintiff USWMCI, the sole limited partner of TWEC. TWEC was formed and
exists for the purpose of operating and
2
<PAGE>
<PAGE>
expanding, under a new entity and management team, a host of lucrative
entertainment businesses, involving broadcasting, cable television movies,
and related operations. TBS is engaged in precisely those businesses.
Nevertheless, rather than offering TWEC the opportunity to acquire TBS,
defendants usurped this business opportunity for themselves and have
selfishly (and exclusively) pursued it, without either offering this
opportunity to TWEC or permitting TWEC to pursue the opportunity on its
own. To the contrary, defendants appropriated the services of Joseph J.
Collins, the chairman and Chief Executive of Time Warner Cable, a division
of TWEC, for the purpose of having him negotiate on behalf of TWI in TWI's
effort to acquire TBS. Mr. Collins is not even a TWI employee.
(b) Moreover, the proposed merger is not permitted by the
Partnership Agreement pursuant to which TWEC was formed and related
agreements among the parties; indeed, it is expressly prohibited by non-
competition covenants in those agreements. Hence, the merger would violate
plaintiffs' individual contractual rights; and if TWI is permitted to
proceed with the merger, plaintiffs will suffer irreparable harm.
(c) Should TWI be successful in its acquisition of TBS, the
immediate and long-term interest of TWEC plainly will be materially
jeopardized: the entity, TWI, that solely controls TWEC's general partners
(and that has an approximately 75% interest in TWEC) will be the 100% owner
of one of TWEC's largest competitors. TWI thus will decide whether (and if
so, on what terms) business opportunities will be made available to TWEC,
as opposed to its wholly-owned but competing TBS subsidiary; the most
sensitive business and financial
3
<PAGE>
<PAGE>
information of TWEC will be in the possession of the very entity (TWI) that
owns TBS, TWEC's head-to-head competitor; and opportunities, business
ventures, etc.) will be the subject of TWI's divided loyalties -- in
violation not only of TWI's fiduciary duties to TWEC but the very business
premises on which TWEC was formed.
(d) The announced corporate restructuring of TWI (the
"Restructuring"), undertaken without TWI's consulting USWMCI or USWI,
exacerbates the problems inherent in TWI's ownership of TBS and essentially
dismantles the structure of TWEC. Under the Restructuring, TWI, in
derogation of plaintiffs' rights under the Partnership, created for itself
a "new strategic operating structure and management team." The
Restructuring established a new TWI entertainment division to manage "under
one management team" all of the entertainment assets of TWEC as well as
significant additional TWI entertainment assets, including TWI's recorded
music, music publishing and consumer products businesses. If TWI's
acquisition of TBS proceeds, all of TBS's film production, broadcast and
television production assets will also be a part of TWI's new entertainment
division. However, under the Restructuring, TWEC's cable assets -- the
assets which initially attracted USWI to the partnership -- will be managed
separately from the entertainment assets. Pursuant to the Restructuring,
TWI also reassigned two of the most respected executives in the
entertainment industry, who had previously been working only for TWEC-owned
businesses, to manage simultaneously both the entertainment assets owned by
TWEC and the entertainment assets owned and to be owned solely by TWI,
including businesses that will compete directly with each other. Moreover,
despite fiduciary duties owed to USWMCI, as a
4
<PAGE>
<PAGE>
limited partner in TWEC, and to TWEC itself, TWI directed these managers to
maximize value for TWI, not for TWEC.
THE PARTIES
3. Plaintiff USWI is a Delaware corporation with its principal place
of business in Denver, Colorado.
4. Plaintiff USWMCI is a Delaware corporation with its principal
place of business in Denver, Colorado. USWMCI owns an approximately 25%
limited partnership interest in TWEC.
5 . Defendant TWI is a Delaware corporation with its principal place
of business in New York, New York. TWI is engaged in a broad range of
media-related businesses, including publishing, production of movies and
television programming, and cable television production and operations.
6. Defendant American Television and Communications Corporation
("ATC") is a Delaware corporation and is a wholly-owned subsidiary of TWI.
7. Defendant Time Warner Operations Inc. is a Delaware corporation
and is a wholly-owned subsidiary of TWI.
8. Defendant Warner Communications, Inc. ("WCI") is a Delaware
corporation and is a wholly-owned subsidiary of TWI.
9. Defendant Warner Cable Communications Inc. is a Delaware
corporation and is a wholly-owned subsidiary of Warner Communications Inc.
10. Nominal Defendant TWEC is a Delaware limited partnership with its
principal place of business in New York and has a registered office in the
State of Delaware.
5
<PAGE>
<PAGE>
11. At all relevant times, TWI owned 100% of the outstanding common
stock of each of the managing general partners of TWEC -- WCI, and ATC.
FACTUAL ALLEGATIONS
THE 1991 LIMITED PARTNERSHIP AGREEMENT
12. In or about 1991, TWI determined to form a strategic global
limited partnership, Time Warner Entertainment Company, L.P., for the
purpose of creating and financing an international alliance that combined
market sophistication, industry leadership and technical innovation to
exploit film, television and other video entertainment and related evolving
businesses throughout the world. The business and operations of the
Partnership were to consist of TWI's cable television operations; the film
entertainment division of TWI (including world-wide theatrical, television,
video, pay television network, features and syndication operations of its
Warner Brothers Inc. subsidiary and Lorimar Telepictures Corporation); the
programming operations conducted by TWI's Home Box Office subsidiary,
including HBO, Cinemax and Time Warner Sports; and certain other, related
operations.
13. The initial partners of TWEC were certain wholly-owned
subsidiaries of two, Japanese corporations, Itochu Corporation and Toshiba
Corporation, and TWI and certain of its wholly-owned subsidiaries,
including other defendants herein.
14. TWI and certain of its subsidiaries contributed several billion
dollars of assets to the Partnership. Itochu and Toshiba contributed a
total of $1 billion in cash. Itochu and Toshiba
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recently converted their interest in TWEC to TWI stock, and thus no longer
are partners in TWEC.
15. The Partnership was formed pursuant to an Agreement of Limited
Partnership (the "Partnership Agreement") dated as of October 29, 1991.
16. Pursuant to the Partnership Agreement, certain wholly-owned
subsidiaries of TWI -- Defendants ATC, WCI, Time Warner Operations Inc.,
and Warner Cable Communications Inc. -- became the general partners of the
Partnership. Two of these wholly-owned subsidiaries, ATC and WCI, were
named the managing general partners, and remain the managing general
partners. TWI, through these wholly-owned subsidiaries, has managed and
directed the business of the Partnership since that time.
17. The fundamental premise and raison d'etre of the Partnership was
to operate and expand the various entertainment businesses of TWI and its
subsidiaries and to achieve synergy by combining the film and
entertainment, programming and cable assets of the Partnership. This
combination was intended to enhance the value of all of the Partnership
assets by producing and delivering interactive entertainment and
communications services over the Partnership's cable systems.
18. To protect the limited partners' economic stake, the Partnership
Agreement contained clear and express provisions limiting or precluding the
right of TWI -- directly or indirectly, including through subsidiaries or
affiliates -- to compete with the Partnership or to invest material sums in
competing entities. In particular, Section 5.5 (specifically entitled
"Covenants Against Competition")
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provides, in relevant part, that no party to the Agreement, or any
controlled affiliate thereof, shall "engage, directly or indirectly" (in
defined geographic areas) "in any business or businesses then being
conducted, directly or indirectly, by the Partnership" (each, a "Competing
Business"). Partnership Agreement Section 5.5(a). Furthermore, Section 5.5
prohibits any of the parties thereto, or their affiliates, from "becom(ing]
interested, directly or indirectly, in any Person engaged, directly or
indirectly, in a Competing Business" in specified geographic areas (a
"Competing Person"), whether "as a partner, shareholder, principal or in
any other capacity of ownership or control." Partnership Agreement Section
5.5(a) (emphasis added).
19. The Partnership Agreement did provide certain limited exceptions
to these broad non-competition provisions. In particular, it permitted
certain relatively immaterial, non-controlling investment interests in
securities of Competing Persons, and ownership of interests in businesses
generating de minimis revenues. Partnership Agreement Section 5.5(b)(i),
(iv).
20. The Partnership Agreement also excluded from the noncompetition
provision TWI's ownership or conduct of any Competing Business disclosed on
Schedule 5.5 thereto, or its ownership of "an interest in a Competing
Person disclosed on Schedule 5.5 or that owns or conducts any Competing
Business so disclosed." Partnership Agreement Section 5.5(b)(ii).
21. Schedule 5.5 to the Agreement provided an exception for "1. Any
of the Assets, or Rights of TWI and its Subsidiaries listed on Schedule
3.1-C and 3.1-D." Schedule 3.1-C provides that the term
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"Rights" of TWI and its subsidiaries shall be deemed to mean the assets of
TWI and its subsidiaries. The only Rights of TWI and its subsidiaries in
TBS at the time of this agreement consisted of TWI's approximately 18%
investment in TBS.
22. No provision in the Agreement permits TWI to obtain 100% or any
controlling interest in TBS or any other Competing Business.
23. upon information and belief and to the contrary, the original
parties to the Partnership Agreement, during the negotiations thereof,
discussed whether TWI could acquire TBS without the participation of the
other parties to the Partnership Agreement. They acknowledged that the
spirit of the parties was that, if TWI were to "acquire or otherwise
beneficially own, directly or indirectly, a Controlling interest in Turner
Broadcasting Systems, Inc.", the other partners would be offered an
opportunity to participate. An agreement to this effect was drafted (the
"TBS Participation Agreement").
24. The TBS Participation Agreement was never signed by the parties
because, upon information and belief, TWI did not want the agreement to
become public knowledge. Under an agreement dated June 3, 1987, among Time
Incorporated and certain of its affiliates (which were the predecessors of
TWI) and Tele-Communications, Inc. and certain of its affiliates, TWI's
predecessors had contracted not to "enter into any other agreement . . .
with any person with respect to any Disposition, holding or voting by it of
TBS Capital Stock." Execution of the TBS Participation Agreement would
have constituted a prohibited agreement with respect to such "holding or
voting" of TBS stock.
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25. Nevertheless, TWI orally agreed with Itochu and Toshiba that the
parties would follow the terms and conditions of the TBS Participation
Agreement if TWI acquired control of TBS.
26. In confirmation, Dennis S. Hersch, the attorney for the Itochu
and Toshiba, prepared and signed a memorandum ("Hersch Memorandum") dated
October 29, 1991, stating that the parties would follow the terms of the
TBS Participation Agreement. He then transmitted a signed copy of that
Memorandum to Robert Schumer, the attorney for TWI. A copy of the Hersch
Memorandum and the TBS Participation Agreement are attached as Exhibit A.
THE MAY 1993 "ADMISSION AGREEMENT" AND "AMENDMENT AGREEMENT"
27. In late 1992 or early 1993, USWI expressed its willingness to
become, through an affiliate, a limited partner in TWEC. TWI and TWEC
wanted USWI to become involved as a limited partner so that TWI and TWEC
could take advantage of USWI's vast expertise and resources in the areas of
telecommunications, telephony and information technology, as well as to
benefit from a substantial investment of funds by USWI into TWEC.
28. Initially, USWI wanted to invest in, and manage, only the cable
properties owned by TWEC, but TWI would not accept an investment on this
basis. Rather, TWI insisted that the Partnership could succeed only if the
interests of the partners were fully "aligned." As explained by TWI's
negotiators, this meant that the content, programming, telephony,
multimedia services and products and cable properties of the Partnership
had to be under common ownership and management so that the partners would
achieve the same economic benefit regardless of whether the revenues were
generated by the cable
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or content sides of the Partnership. Swayed by these arguments, USWI
invested in both the cable and content portions of TWE.
29. Similarly, during the negotiations, USWI repeatedly bargained for
exceptions to permit it to pursue content or cable ventures outside the
Partnership. TWI flatly rejected the concept of permitting USWI to compete
broadly with the Partnership. TWI insisted that the Partnership could only
work if the Partnership were the parties' exclusive vehicle for developing
content and cable business.
30. As a result of these negotiations, an Admission Agreement dated
as of May 16, 1993 between TWEC and USWI was executed; such Agreement was
acknowledged and agreed to by, inter alia, TWI, which executed it on behalf
of itself and its subsidiaries that were partners in TWEC. Pursuant to the
Admission Agreement, USWI caused a wholly-owned subsidiary (plaintiff
USWMCI) to make a $2.5 billion capital contribution; and such subsidiary
became a limited partner in the Partnership. Pursuant to the Admission
Agreement, as well, TWI and the other general and limited partners in TWEC
(including the defendants herein) executed an Amendment Agreement dated as
of September 14, 1993, amending the Partnership Agreement.
31. In connection with the negotiation and execution of the Admission
Agreement and the Amendment Agreement, the subject -- and requirement -- of
non-competition by TWI and its affiliates was raised, agreed to, and
reaffirmed in writing. Specifically, the Admission Agreement included, as
Annex 1, a document entitled "COVENANTS AGAINST COMPETITION." Pursuant to
Annex 1, Section 5.5 of the Partnership Agreement was "amended and restated
in its entirety." As so amended, Section 5.5(a) now provided, inter alia,
that TWI and
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its controlled affiliates: "shall not (and such party shall cause its
Controlled Affiliates not to), . . . engage, directly or indirectly
(whether by operation, investment or otherwise)" -- anywhere in "the entire
world" (Section 5.5(c) (viii) (B)) -- "in any Co-Managed Business or any
Programming and Filmed Entertainment Business (a 'Restricted Business')."
(Emphasis added.) The term "Co-Managed Business" was defined in Section 5.5
(c) (iii) as "the ownership and operation of the physical plant, transport
and switching activities of cable television systems"; the term
"Programming and Filmed Entertainment Business" was defined broadly to mean
"any business of the type now conducted by the Partnership's Filmed
Entertainment and Programming Divisions, as such businesses may evolve from
time to time and any logical extension of such business . . . " Section
5.5(c)(vi) (emphasis added).
32. The Admission Agreement, in Annex 1, like the original
Partnership Agreement, contained only limited exceptions to this broad non-
competition provision, such as permitting investments in securities of
companies involved in Competing Businesses, so long as such interest was
less than 5% of any class of such securities and was not a controlling
interest, or where the sales of such companies were de minimis. Section
5.5(b) (ii), (xii). Again, an exception was made to the extent of TWI or
its affiliates "owning or conducting any Restricted Business or Businesses
Disclosed on Schedule 5.5 (or any interest therein) or owning an interest
in a Restricted Business disclosed on Schedule 5.5 or an entity that owns
or conducts any Restricted Business so disclosed." Section 5.5(b)(iii).
33. Schedule 5.5 was not amended at that time. TWI's (non-
controlling) ownership interest in TBS at that time remained at
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approximately 18%. The Agreement contained no provision permitting TWI to
acquire all of, or a controlling interest in, the securities of TBS. To
the contrary, TWI represented to USWI and USWMCI that TWI intended to sell
its 18% interest in TBS or exchange such interest for specific assets of
TBS that then would be contributed to TWEC upon terms to be agreed upon.
TWI never indicated to USWI that it had ever considered acquiring control
of TBS.
34. Despite USWI's requests during its due diligence examination for
all documents relating to the Partnership Agreement, TWI failed to produce
any copies of the TBS Participation Agreement or the Hersch Memorandum or
to reveal the existence of this Agreement and Memorandum during the
negotiations or thereafter.
35. Absent explicit authorization in the Agreements or waiver of the
Covenants Against Competition by USWI and USWMCI TWI may not acquire
complete ownership of or a controlling interest in TBS because TBS competes
directly and substantially with the Partnership in the distribution and
production of film and television programming, cable television and related
businesses, including the Partnership's "Programming and Filmed
Entertainment Business."
TWI SEEKS TO ACQUIRE TBS AND
TO COMPETE WITH THE PARTNERSHIP
36. Notwithstanding the fiduciary duties owed by TWI and its
subsidiaries to TWEC and TWEC's limited partner, USWMCI, and the provisions
of the Agreements and the Covenants Against Competition, in August of 1995,
TWI began actively and aggressively pursuing a merger with TBS, pursuant to
which TWI would become the owner of 100% of TBS -- an entity directly
competing with TWEC and having billions
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of dollars of sales each year in the Programming and Filmed Entertainment
Business. These businesses include Turner Broadcasting Stations, TNT,
MGM's film library, TBS Productions, Turner Pictures, Tuner Home
Entertainment, New Line Cinema and Castle Rock Entertainment. The
acquisition of these businesses does not fall within any of the exceptions
to the Covenants Against Competition set forth in the agreements.
37. USWI advised TWI that the proposed merger with TBS would violate
the terms of the Partnership Agreement, as amended, and the Admission
Agreement. Merger talks between TBS and TWI nevertheless continued and a
merger agreement has been announced.
38. TWI has pursued the merger with TBS in its own right and on its
own behalf, despite the fact that TBS is engaged in precisely the same
kinds of businesses as TWEC -- and the acquisition by TWEC of TBS and its
business would provide obvious and significant benefits to TWEC. TWI has
not offered the Partnership the opportunity to acquire TBS, and TWI has not
directed, much less permitted, the general partners of TWEC to pursue such
opportunities on behalf of TWEC. In short, rather than giving TWEC the
opportunity to make a dramatic expansion of its business, operations and
revenues -- both at present and as a springboard to the future -- TWI has
usurped such opportunity for itself and has assured that TWEC does not seek
such opportunity. Indeed, the Chairman and Chief Executive Officer of Time
Warner Cable, a division of TWEC, Joseph J. Collins, at TWI's direction,
has been commandeered by TWI to conduct the negotiations for the merger on
behalf of TWI itself, presumably with the benefit
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of TWEC assets such as TWEC's information and knowledge concerning the
businesses in which TWEC and TBS compete.
39. Notwithstanding that plaintiffs have advised TWI that the merger
would violate the Partnership and Admission Agreements, TWI has said only
that "we understand your concern regarding the future operation of TBS
business that may compete with TWE operations or that do business with TWE,
11 but that TWI will do no more than "discuss such matters . . . once an
agreement regarding TBS is reached." That point in time, of course, is too
late.
40. On September 22, 1995, TWI and TBS announced their agreement to
merge. In that announcement, and highlighting the conflicts presented by
the merger, TWI and TBS stated that TWI and TBS would pursue a "shared
strategy" that included "creating and capitalizing on brands" and
"leveraging technological advantages" with the objective that "[b]y
bringing the growing cash flow of TBS' content business into Time Warner,
our balance sheet will strengthen and our financial ratios will improve."
41. Further highlighting the obvious conflicts, TWI also announced
that Ted Turner, TBS' chairman and president, "will become vice chairman of
[TWI] and head of the Time Warner video division which will consist of all
the businesses of TBS plus have supervisory responsibilities for the
businesses of Home Box office," a major TWEC business segment.
TWI ANNOUNCES ITS RESTRUCTURING
42. Consistent with its pattern of ignoring the rights and interest
of the TWEC Partnership and depriving USWI and USWMCI of their interest in
TWEC, TWI unilaterally decided to incorporate
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valuable assets of the Partnership into a newly created TWI entertainment
division under a new management structure.
43. On November 16, 1995, TWI announced the creation of a "new
strategic operating structure and management team" for TWI. The
announcement revealed that a new entertainment division will manage "under
one roof" and "one management team" all of the entertainment assets (but
not cable assets) of TWEC as well as significant" additional entertainment
assets, including TWI's recorded music, music publishing and consumer
products businesses. Apparently, TWI intends to place into this new
"entertainment division" additional film and programming assets, including
all or a substantial portion of the TBS assets that it is seeking to
acquire. In disregard of plaintiffs rights, TWI created this new strategic
operating structure and management team without consulting USWMCI or USWI.
A copy of TWI's November 16, 1995 press release is attached as Exhibit B.
44. Prior to the Restructuring, the Partnership managed TWEC's assets
consistent with fundamental principles of law and the terms of the
Partnership Agreement; that is, to benefit TWEC. As a result of the
Restructuring, TWI will manage TWEC's assets in combination with other
assets belonging solely to TWI to benefit TWI, not TWEC.
45. Under the Restructuring, TWI, without consulting USWMCI or USWI,
terminated the employment of Michael Fuchs, one of the most successful
managers in the entertainment industry. Fuchs had been employed by HBO for
the past eighteen years, most recently as Chairman. He developed HBO, a
TWEC business, into the industry's
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leading pay television provider. Fuchs' ouster may trigger significant
liability to TWEC under his employment contract.
46. Simultaneously, TWI announced that it had unilaterally
transferred Bob Daly and Terry Semel from their positions as co-Chairmen of
the Warner film business, which is wholly-owned by TWEC, to the new
entertainment division. In the announcement, TWI characterized Daly and
Semel as "two of the most respected people in the entertainment industry."
In their new positions, the two will have responsibility for such non-TWEC
assets as TWI's music division and presumably, a substantial portion of the
TBS assets if TWI acquires them. Moreover, despite fiduciary duties owed
to USWMCI as a limited partner in TWEC, TWI has directed Daly and Semel to
divide their loyalties between TWEC and TWI and to manage these assets to
maximize value for TWI, not for TWEC.
47. These structural and management changes are not in the best
interest of TWEC, as TWI conceded in its announcement. To the contrary,
TWI indicated that the purpose of the changes is maximizing TWI shareholder
value, not maximizing the value of TWEC. These changes, as TWI admits, are
intended to refocus TWI on ownership of entertainment programming. The
Restructuring directly repudiates the planned synergy of TWEC.
IRREPARABLE INJURY
48. In light of the foregoing facts, plaintiffs -- in their own right
and in the right of TWEC -- face the immediate threat of extraordinary
injury if the TWI-TBS merger and the Restructuring are not enjoined. The
merger immediately threatens the rights and protections to which plaintiffs
are entitled, as limited partners, in
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light of the fiduciary obligations that TWI and its affiliates, as general
partners (and controlling person of the general partners) voluntarily
undertook and assumed by entering into the Partnership Agreement, as
amended, and the Admission Agreement. The merger also violates the express
terms of the TWEC Partnership and related Agreements to which plaintiffs
are parties or beneficiaries; and the provisions that thereby would be
violated go to the heart of the Agreements and plaintiffs' multi-billion
dollar investment in TWEC.
49. Indeed, the Partnership faces immediate and irreparable injury,
not only from the potential entry of TWI into a merger agreement with TBS,
but from the very fact that TWI is pursuing such a merger at all; by
usurping such business opportunity for itself and not permitting the
general partners of the Partnership to pursue the merger on behalf of TWEC,
the Partnership is deprived of the opportunity to obtain such a significant
business interest. Every day that TWI pursues TBS -- and every day that
TWEC does not -- injures TWEC and the rights and interest thereof and of
TWEC's limited partner, USWMCI. Every day that goes past makes the
potential for TWEC ever obtaining such opportunity more remote.
50. The proposed merger would create a situation in which TWI would
own 75% of TWEC and 100% of a major competitor of TWEC. TWEC's filmed
entertainment and programming businesses, which account for nearly 75% ot
TWEC's revenues, compete with a significant portion of TBS' businesses.
TWEC's filmed entertainment businesses, which include Warner Bros. film
production and distribution divisions, compete directly with TBS's New Line
Cinema and Castle Rock Entertainment units and its MGM film library.
TWEC's programming businesses,
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HBO and Cinemax, compete with TBS, CNN, TNT, and WTBS cable channels. In
managing TWEC and TBS, TWI will face conflicts with respect to allocations
of resources and business opportunities between TWEC and TBS, including
opportunities relating to film and programming production and distribution
and other business opportunities. For virtually any business opportunity
that may come along, TWI will choose whether TBS, its wholly-owned
subsidiary, or TWEC, its 75% owned affiliate, should produce a film or
pursue a specific business opportunity. TWI also will choose whether to
distribute films and other programming of TBS and Warner Bros. on TWEC's or
TBS's cable channels. The Restructuring, which apparently will place all
of these assets under a unified "entertainment division," highlights the
conflicts that TWI will face in managing both TWEC and TBS.
51. In short, TWI will have the constant ability to benefit its
wholly-owned TBS subsidiary at the expense of TWEC and USWMCI, the limited
partners of TWEC.
52. Indeed, TWI already has demonstrated its willingness to misuse
its control over TWEC for its own corporate interests and without regard to
the risks or harm to TWEC: in connection with and to conduct TWI's
intensive negotiations with Tele-Communications, Inc. -- another large
shareholder of TBS, whose consent is a pre-condition to any TBS merger with
TWI -- TWI has called upon Joseph J. Collins, the Chairman and Chief
Executive officer of Time Warner Cable, a Division of TWEC. Mr. Collins is
not a TWI employee. Yet he has been pulled away from his work on behalf of
TWEC to work for TWI, and the inducements to be offered by him (on behalf
of TWI) to Tele-Communications, Inc. pose substantial risks to TWEC and its
business, and
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jeopardize its confidential business information and strategies. Mr.
Collins conspicuously is not pursuing TBS or Tele-Communications, Inc. on
behalf of TWEC; rather, at TWI's behest, he is letting that opportunity
slip away from the Partnership.
53. Paragraph 17.18 of the Partnership Agreement specifically
provides for specific performance:
17.18 Specific Performance. Each of the parties recognizes that
its rights and obligations hereunder are unique and that damages at.
law will be an inadequate remedy for breach or threatened breach of
this Agreement, and agrees that the parties' respective rights and
obligations hereunder shall be enforceable by specific performance,
injunction or other equitable remedy.
54. In short, Defendants' conduct, and disregard of their fiduciary
duties and contractual obligations, is jeopardizing the Partnership and
plaintiffs' contractual rights and partnership interest in TWEC.
COUNT I
(BREACH OF FIDUCIARY DUTY, ASSERTED
INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF TWEC)
55. Plaintiffs repeat and reallege the allegations set forth in
paragraphs 1 through 54 above, as if fully set forth herein.
56. At all times relevant hereto, the defendants other than TWI have
been the general partners of TWEC; and TWI has been the controlling person
of both TWEC and the general partners thereof.
57. In such roles and by their conduct, Defendants stand in a
fiduciary relationship with the Partnership and the limited partners
thereof. The limited partners have reposed their trust and confidence in
Defendants, as the managing general partners and the controlling
shareholder thereof, for the proper management of Partnership affairs.
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Defendants therefore owe the Partnership and the plaintiffs the highest
degree of loyalty, fidelity, care, candor and fair dealing in their conduct
with respect to or affecting the Partnership.
58. In willful disregard and violation of such fiduciary obligations,
and in furtherance of their own self-interest, TWI and the other defendants
are seeking to effect the merger of TBS with TWI, and TWI has usurped (with
the acquiescence of the general partners) a material business opportunity
that TWI was obligated to provide to the Partnership and not to usurp for
itself. Moreover, the merger with TBS as well as the Restructuring would
violate the Partnership Agreement, and the rights and protections and
benefits thereof to the Partnership and its limited partners.
59. Plaintiffs have not made a demand upon the general partners of
TWEC to bring this action because such a demand would be futile, and
therefore is excused. The general partners are wholly owned subsidiaries
of and controlled by defendant TWI, the entity that is actively
formulating, participating in and seeking to cause and will be sole
beneficiary, to the detriment of TWEC, of the wrongful, self-interested and
self-enriching course of dealing challenged in this action. The general
partners are aware of the conduct here in issue and, at the direction of
TWI, have done nothing to prevent or address any of the wrongful acts or to
protect or advance TWEC's interests. These general partners have
participated and/or acquiesced in the conduct challenged in this
litigation. These general partners each are named as defendants in this
action, and are personally liable for the wrongdoing alleged in this action
and cannot be relied upon to reach an independent business judgment
concerning
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whether to sue themselves and, their controlling shareholder, TWI and
whether such litigation should be vigorously pursued. Under these
circumstances, demand upon the general partners to bring this action would
be futile and is excused as a matter of law.
60. Plaintiffs will fairly and adequately represent the interests of
TWEC in enforcing and prosecuting the rights of TWEC. Plaintiffs have
retained competent counsel, experienced and, successful in corporate,
securities and derivative litigation, to prosecute this action.
61. Plaintiffs have no adequate remedy at law.
COUNT II
(BREACH OF CONTRACT, ASSERTED
BY PLAINTIFFS INDIVIDUALLY)
62. Plaintiffs repeat and reallege the allegations in paragraphs 1
through 61 as if fully set forth herein.
63. TWI is threatening to breach its express contractual obligations
by acquiring 100% of the outstanding stock of TBS.
64. Plaintiffs have complied with all of their obligations under the
relevant agreements.
65. Plaintiffs have no adequate remedy at law, should the merger be
affected and the contract be breached.
COUNT III
(MISREPRESENTATION AND BREACH OF DUTY OF
CANDOR, ASSERTED BY PLAINTIFFS INDIVIDUALLY AGAINST TWI)
66. Plaintiffs repeat and reallege the allegations in paragraphs 1
through 65 as if fully set forth herein.
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67. At all relevant times, TWI has owed USWI and USWMCI a duty under
common law misrepresentation principles not to mislead USWI and USWMCI by
withholding information from them in connection with their investment in
the Partnership.
68. In addition, once USWMCI was admitted to the Partnership,
Defendants owed fiduciary duties to the Partnership and the limited
partners. Among these duties was the duty to advise USWMCI of material
facts affecting its interests and rights as a limited partner and not to
make partial or other misleading disclosures.
69. At no time during the negotiation of the Admission Agreement or
Amendment Agreement or thereafter did TWI disclose the existence or the
terms of the TBS Participation Agreement or the Hersch Memorandum.
70. By their failure to disclose the existence or terms of the TBS
Participation Agreement or the Hersch Memorandum at anytime before or after
USWMCI invested in TWEC, TWI induced USWMCI to refrain from including in
the Admission or Amendment Agreements, additional terms which would
reaffirm the fact that TWI was unable to increase its interest in TBS under
the Partnership Agreement.
71. These material omissions (coupled with TWI's assertions
concerning the nature and scope of the non-competition provision of the
Partnership), the Partnership's goals and purposes, TWI's stated intention
to sell its investment in TBS, and TWI's representation that all agreements
had been provided to plaintiffs, led USWI to believe that the Partnership
Agreement, including the Amendments, accurately and completely reflected
the agreement and intent of the parties which was that TWI not be permitted
to purchase on its own a controlling
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interest in TBS. In addition, and because it was not aware of the TBS
Participation Agreement or the Hersch Memorandum, USWI and USWMCI did not
attempt to alter or specifically incorporate into the Agreements their
rights under the TBS Participation Agreement, or to exercise such rights.
USWI acted reasonably in relying upon all of the above facts and
circumstances.
72. Had Defendants disclosed the existence or terms of the TBS
Participation Agreement and the Hersch Memorandum, Plaintiffs would have
known of the issue raised between the original partners with respect to
TWI's investment in TBS and the means adopted to address it, and would have
been in a position to insist upon the inclusion of additional provisions or
language in the Admission Agreement and Amendment Agreement regarding TWI's
investment in TBS to reaffirm and even more clearly manifest the intent of
TWI and USWI in entering into the Admission Agreement that neither could
compete with the Partnership in the area of content, including through the
acquisition of control of a company such as TBS.
73. Plaintiffs have no adequate remedy at law.
PRAYER FOR RELIEF
WHEREFORE, plaintiffs demand judgment against defendants as follows:
(a) Declaring that Defendants have breach their fiduciary duties
owing to plaintiffs and the Partnership, including by usurping a
Partnership business opportunity;
(b) Declaring that Defendant TWI, by entering into the merger
agreement with TBS, has violated the Partnership Agreement, as amended, and
the Admission Agreement;
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(c) Preliminarily and permanently enjoining defendants from
consummating the announced merger of TWI with TBS;
(d) Preliminarily and permanently enjoining defendants from
consummating or taking any acts in furtherance of the Restructuring;
(e) Awarding plaintiffs their reasonable costs and expenses of this
action, including the fees of attorneys and other professionals; and
(f) Granting such other and further relief as this Court deems just
and proper.
MORRIS, NICHOLS, ARSHT & TUNNELL
________________________________
A. Gilchrist Sparks, III
Kenneth J. Nachbar
Alan J. Stone
David J. Teklits
S. Mark Hurd
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899
(302) 658-9200
Attorneys for Plaintiffs
OF COUNSEL:
Robert L. Connelly, Jr.
Norton Cutler
George Matava
U S WEST, INC.
Law Department
1801 California Street
Suite 5100
Denver, CO 80202
Donald J. Friedman
Robert L. Dietz
PERKINS COIE
607 Fourteenth Street, N.W.
Washington, DC 20005-2011
December 12, 1995
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Memorandum
for
Files October 29, 1991
Re: TBS
In connection with the formation of Time Warner Entertainment Company,
L.P. (the "Partnership") and Time Warner Entertainment Japan Corporation,
Mr. Oded Aboodi on behalf of Time Warner Inc. and the Partnership confirmed
the spirit of the parties to follow the terms and conditions of the
attached letter at such time as the conditions set forth in paragraph 1 of
such letter shall have been satisfied.
Dennis S. Hersch
cc: Robert Schumer, Esq.
Shunichi Yamashita, Esq.
Kanji Kawamura, Esq.
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[Letterhead of]
TIME WARNER INC.
October , 1991
C. Itoh & Co.
[Address]
Toshiba Corporation
[Address]
Turner Broadcasting System, Inc.
Dear Sirs:
Reference is made to (i) the Agreement of Limited Partnership dated as
of the date hereof (the "Partnership Agreement"), pursuant to which Time
Warner Entertainment Company, L.P. (the "Partnership") is being formed and
(ii) the Agreement dated as of June 3, 1987 (the "Time-TCI Agreement"),
among TWI, Time TBS Holdings, Inc., Tele-Communications, Inc., TCI Turner
Preferred, Inc., United Artists Corporation, Inc. and United Cable
Television Corporation. Capitalised terms used but not otherwise defined
in this letter shall have the meanings ascribed to them in the Partnership
Agreement.
1. The purpose of this letter in to confirm our understanding that
if, at any time during the Term, Time Warner Inc. ("TWI") shall acquire or
otherwise beneficially own, directly or indirectly, a controlling interest
in Turner Broadcasting System, Inc., a Georgia corporation ("TBS") (it
being understood that TWI shall have no obligation to attempt to acquire
such a Controlling interest), and, at such time, the Partnership shall be a
controlled Affiliate (as defined in the Time-TCI Agreement) of TWI (it
being understood that, until both such conditions are satisfied, this
letter shall impose no obligations or restrictions on TWI or any of its
subsidiaries with respect to the holding, voting or disposition of capital
stock of TBS or otherwise), then TWI, C. Itoh & Co. ("C. Itoh")
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Toshiba Corporation ("Toshiba") and any Electing Participants (as
hereinafter defined) shall enter into an agreement (a "TBS Agreement")
pursuant to which:
(a) TWI, C. Itoh, Toshiba and any Electing Participants (either
directly or through Wholly-Owed Subsidiaries) will form a Delaware
limited partnership (the "TBS Partnership") on substantially the same
terms as those contained in the Partnership Agreement (except that the
capital accounts of partners in the TBS Partnership will be equivalent
to Common Sub-Accounts under the Partnership Agreement);
(b) subject to paragraph 4 below, TWI will (i) transfer (or
cause its Subsidiaries to transfer) to the TBS Partnership at its Fair
Value (as hereinafter defined) either, at TWI's election (A) all or
substantially all the assets of TBS (subject to the obligations
primarily relating to, or associated from time to time with, such
assets) or (B) all the shares of capital stock of TBS owned, directly
or indirectly, by TWI as of such time other than shares of the Class C
Convertible Preferred Stock, par value $0.125 per share (the "Class C
Preferred"), of TBS (the Transferred Assets") and (ii) if the option
in clause (B) is elected, use its reasonable best efforts to take all
actions reasonably necessary to permit the transfer to the TBS
Partnership of all shares of Class C Preferred owned, directly or
indirectly, by TWI as of such time;
(c) the TBS Partnership shall agree to cooperate fully with TWI
in causing any such transfer to comply with TWI's (and its
Subsidiaries') contractual arrangements (including, without
limitation, by executing a supplement to the Time-TCI Agreement, as
contemplated by Section 1(c) thereof);
(d) upon formation of the TBS Partnership, C. Itoh and Toshiba
shall each cause to be contributed to the capital of the TBS
Partnership cash in an amount equal to (i) the Fair Value of the
Transferred Assets multiplied by (ii) a fraction the numerator of
which is equal to 6.25 and the denominator (the "Denominator") of
which is equal to (A) 87.5 minus (B) an amount equal to the aggregate
Participation Percentage Shares of the Electing Participants (as
hereinafter defined), excluding for such purpose any portion of such
Participating Percentage Shares with respect to which
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the Electing Participant is a direct or Indirect transferee of CI Co. or T
Co.;
(e) upon formation of the TBS Partnership, each Electing
Participant shall cause to be contributed to the capital of the TBS
Partnership each in an amount equal to (i) the Fair Value of the
Transferred Assets multiplied by (ii) a fraction the numerator of
which is equal to such Electing Participants Participating Percentage
Share (excluding any portion thereof with respect to which such
Participant is a direct or indirect transferee of CI Co. or T Co.) and
the denominator of which is equal to the Denominator; and
(f) TWI, C. Itoh, Toshiba and the Electing Participants (if
any), or their Wholly-Owned subsidiaries, shall receive interests in
the TBS Partnership in proportion to the assets they cause to be
transferred or contributed as contemplated by clauses (b), (d) and (e)
above, with TWI receiving the equivalent of a Class B Partnership
Interest and C. Itoh, Toshiba and any Electing Participants receiving
the equivalent of Class A Partnership Interests.
2. TWI, C. Itoh, Toshiba and the Electing Participants will
negotiate the terms of a TBS Agreement in good faith.
3. The "Fair Value" of the Transferred Assets shall be an
amount equal to the fair market value (taking into consideration a control
premium) of such Transferred Assets as determined by an Investment Banking
Firm pursuant to procedures similar to those contained in Section 11.3 of
the Partnership Agreement.
4. At the time a Person first becomes a Participant of TWE,
such Participant (other than TWI, C. Itoh, Toshiba or any other Participant
to the extent such other Participant or its Designee is a direct or
indirect transferee with respect to the Partnership Interests of CI Co. or
T Co.) shall be offered, for a period of 30 days, the opportunity to become
a party to this Agreement. Upon becoming a party to this Agreement (by
executing a counterpart of this Agreement), such Participant shall be
considered an Electing Participant. A Person shall cease to be an Electing
Participant upon ceasing to be a Participant.
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5. Notwithstanding the foregoing, (a) TWI shall retain the CNN
business of TBS and (b) TWI shall not be required to take any action
(including negotiating the terms of or entering into a TBS Agreement) that
would be prohibited by the terms of any contractual arrangement relating to
TBS or would (i) impair the voting, preference or other rights of the Class
C Preferred owned, directly or indirectly, by TWI (including, without
limitation, by causing the conversion of such Class C Preferred) or (ii)
trigger any third party rights to acquire or seek to acquire such shares or
any other shares of TBS capital stock owned, directly or indirectly, by
TWI.
6. This Agreement may be executed in two or more counterparts,
each of which shall constitute an original but all of which when taken
together shall constitute but one contract.
7. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, but without giving
effect to application principles of conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby.
Please confirm that the foregoing accurately sets forth our
understanding by signing below in the space provided and returning this
letter to us.
Very truly yours,
TIME WARNER INC.
by __________________
Name:
Title:
Accepted and agreed to as
of the date set forth above
C. ITOH & CO.,
by__________________________
Name:
Titles:
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TOSHIBA CORPORATION,
by ______________________
Name:
Title:
Electing Participants
Accepted and agreed to as of
the date set forth below next
to our signature
___________________________
by _________________________ Date: __________________
Name:
Title:
___________________________
by _________________________ Date: __________________
Name:
Title:
___________________________
by _________________________ Date: __________________
Name:
Title:
___________________________
by _________________________ Date: __________________
Name:
Title:
___________________________
by _________________________ Date: __________________
Name:
Title:
<PAGE>
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Business wire
Copyright (c) 1995, Business Wire
Thursday, November 16, 1995
TIME WARNER CREATES NEW ENTERTAINMENT OPERATING STRUCTURE AND MANAGEMENT
TEAM; Bob Daly and Terry Semel Will Head Warner Bros. and Warner Music
Group
NEW YORK--(BUSINESS WIRE)--Nov. 16, 1995--Gerald M. Levin, chairman
and CEO of Time Warner Inc., today announced the creation of a new
strategic operating structure and management team for the company's
entertainment businesses that will optimize their ability to work together
constructively, capitalize on growth opportunities and generate maximum
value for shareholders.
Under the new structure, the company will begin by uniting its Warner
Bros. and Warner Music businesses under the leadership of Robert Daly and
Terry Semel who will be chairmen and co-CEO of both businesses.
In making the announcement, Mr. Levin said: "I want to send a clear
message to our shareholders and our employees that, going forward, we will
be managing our businesses in a manner designed to maximize shareholder
value. Today we take a major step toward that goal. The creation of this
structure is also another important step in our simplification process.
"Time Warner contains three fundamental businesses: Entertainment,
News and Information and Telecommunications. Combining the studio and
music assets under one management team recognizes this natural fit,
creating an entertainment powerhouse that approaches $10 billion in revenue
and includes worldwide recorded music, music publishing, motion-picture
production, television production.- the new WB Network, animation, home
video, consumer products, the Warner Bros. Studio Stores, Six Flags Theme
Parks in the U.S. and Warner World Theme Parks internationally. In
addition, the new structure will include the worldwide distribution
companies to support these businesses.
"This structure improves the ability of our businesses to communicate
and work with each other by assuring that each group is headed by leaders
who understand the particular nature and business issues of the operations
under their command leaders capable of inspiring constructive collaboration
among their own businesses and working together with the other businesses
of Time Warner.
"By that measure, or by any other, I could find no better qualified
people to run Time Warner's entertainment operations than Bob Daly and
Terry Semel. Two of the most respected people in the entertainment
industry, Bob and Terry have the most consistent record of success in the
business. Their blend of expertise is particularly appropriate to guiding
these entertainment assets toward a future of boundless opportunity all
around the globe. With their exceptional ability to attract and retain
both artists and creative
Copr. (C) West 1995 No claim to orig. U.S. govt. works
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executives, their extensive experience in both distribution and marketing
on a worldwide basis, and their ability to spawn and develop new long-term
growth opportunities while continuing to focus on short-term value, they
are the ideal leaders for the world's premier entertainment company.
"The Warner Music Group has the best team in the industry focused on
creating and distributing the world's finest music. Working together they
have kept the ship on course, and now under new leadership which is totally
dedicated to the creation and worldwide distribution and marketing of
entertainment products, they are even better positioned to realize their
full greatness. With this change, we now have a management structure in
place for the Warner Music Group that can continue the momentum and expand
the group's opportunities for growth."
Bob Daly and Terry Semel said: "We are gratified by Jerry's confidence
in ??? We have great respect and admiration for the Warner Music Group's
team, and we look forward to a creative partnership that will secure and
deepen their decades-long hold on the number one position in the industry.
Just like Warner Bros., the Warner Music Group is and will continue to be
the home of choice for the world's finest artists." "Uniting under one
roof, the unrivaled leader in every entertainment category creates a global
powerhouse that will generate its own new growth opportunities. The
ability to work on a worldwide basis with a coordinated approach to both
indigenous and export entertainment, all emanating from one organization,
opens up whole new horizons for growth."
Levin added: "Michael Fuchs is stepping down as chairman of both HBO
and the Warner Music Group. Michael has had great success at HBO over many
years, and he deserves a full measure of credit for its preeminence. Over
the past several months he has worked hard to bring the music group
together and has accomplished much. He will be missed from our company,
and we wish him well. Jeff Bewkes now becomes chairman of HBO in addition
to president and CEO. Jeff's contributions to HBO have been significant,
and I am confident that under his leadership HBO will continue to
flourish."
Time Warner Inc. is the world's leading media and entertainment
company, with interests in magazine and book publishing, recorded music and
music publishing, filmed entertainment, broadcasting and theme parks and
cable television and cable television programming.
To receive a copy of this press release through the Internet, access
Time Warner's Factfinder located at http://pathfinder.com/Corp/
CONTACT: Time Warner Inc., New York Edward Adler, (212) 484-6630
15:55 ET NOV 16, 1995
Copr. (C) West 1995 No claim to orig. U.S. govt. works
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CERTIFICATE OF SERVICE
I hereby certify that on this 12th day of December, 1995, two copies
of the foregoing Amended And Supplemental Complaint For Injunctive And
Declaratory Relief were served by hand upon the following counsel:
Charles F. Richards, Jr., Esquire
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
_______________________
S. Mark Hurd
