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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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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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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"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 ▇▇.▇▇. 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
▇▇.▇▇. 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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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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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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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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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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(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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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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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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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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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
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
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.
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%
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.
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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
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
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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
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
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.
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
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 ▇▇▇▇▇ Business
Newswires Service
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
28
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
29
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.
30
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:
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
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
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,
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,
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.
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
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
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
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
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
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Guarantee Trustee,
By
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Assistant Vice President