-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UU4RDNDi24+wdvssh0VHT3GRBm8bniZFZyPI5kuuz0xG2gxE3+VbqSNZ8f9yLY0p yBLhZZJ4WRJz6yPAOwI8uw== 0000950137-98-003082.txt : 19980812 0000950137-98-003082.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950137-98-003082 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19980811 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LEARNING CO INC CENTRAL INDEX KEY: 0000719612 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 942562108 STATE OF INCORPORATION: DE FISCAL YEAR END: 0104 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-35677 FILM NUMBER: 98682151 BUSINESS ADDRESS: STREET 1: ONE ATHENAEUM ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6174941200 MAIL ADDRESS: STREET 1: ONE ATHENAEUM ST CITY: CAMBRIDGE STATE: MA ZIP: 02142 FORMER COMPANY: FORMER CONFORMED NAME: SOFTKEY INTERNATIONAL INC DATE OF NAME CHANGE: 19940210 FORMER COMPANY: FORMER CONFORMED NAME: WORDSTAR INTERNATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MICROPRO INTERNATIONAL CORP DATE OF NAME CHANGE: 19890618 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TRIBUNE CO CENTRAL INDEX KEY: 0000726513 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 361880355 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 435 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3122229100 SC 13D/A 1 AMENDMENT NO.3 TO SCHEDULE 13D 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO PURSUANT TO RULE 13d-2(a) (Amendment No. 3) Under the Securities Exchange Act of 1934 THE LEARNING COMPANY, INC. - -------------------------------------------------------------------------------- (Name of issuer) COMMON STOCK, PAR VALUE $.01 PER SHARE - -------------------------------------------------------------------------------- (Title of class of securities) 98136310 - -------------------------------------------------------------------------------- (CUSIP number) Crane H. Kenney Vice President, General Counsel and Secretary Tribune Company 435 North Michigan Avenue Chicago, Illinois 60611 (312) 222-9100 - -------------------------------------------------------------------------------- (Name, address and telephone number of person authorized to receive notices and communications) August 5, 1998 - -------------------------------------------------------------------------------- (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note: Schedules filed in paper format should include a signed original and five copies of the schedule including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. (Continued on following pages) 2 - -------------------- --------------------- CUSIP No. 98136310 13D Page 2 of 9 Pages - -------------------- ---------------------
- ------------------------------------------------------------------------------------------------------------------------------------ 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY) Tribune Company IRS No. 36-1880355 - ------------------------------------------------------------------------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [ ] - ------------------------------------------------------------------------------------------------------------------------------------ 3 SEC USE ONLY - ------------------------------------------------------------------------------------------------------------------------------------ 4 SOURCE OF FUNDS Not Applicable - ------------------------------------------------------------------------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - ------------------------------------------------------------------------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF 7 SOLE VOTING POWER SHARES 5,210,796 -------------------------------------------------------------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 0 -------------------------------------------------------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING 5,210,796 -------------------------------------------------------------------------------------------------------- PERSON WITH 10 SHARED DISPOSITIVE POWER 0 - ------------------------------------------------------------------------------------------------------------------------------------ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,210,796 - ------------------------------------------------------------------------------------------------------------------------------------ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ] - ------------------------------------------------------------------------------------------------------------------------------------ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.3% - ------------------------------------------------------------------------------------------------------------------------------------ 14 TYPE OF REPORTING PERSON CO - ------------------------------------------------------------------------------------------------------------------------------------
3 - -------------------- ------------------------------ CUSIP No. 98136310 13D Page 3 of 9 Pages - -------------------- ------------------------------ This Amendment No. 3 to the Schedule 13D of Tribune Company amends and supplements Tribune Company's original Schedule 13D filed on December 28, 1995, as amended by Amendment No. 1 filed on January 8, 1996 and by Amendment No. 2 filed on April 16, 1996 (as amended, the "Schedule 13D") relating to the common stock of The Learning Company, Inc. (formerly SoftKey International Inc.). Capitalized terms not defined herein have the meaning ascribed to them in the Schedule 13D. Item 1. Security and Issuer. Item 1 is supplemented and amended to read in its entirety as follows: "The title and class of equity securities to which this statement relates is the common stock, par value $.01 per share (the "Common Stock"), of The Learning Company, Inc., a Delaware corporation (the "Company"). The Company's principal executive offices are located at One Athenaeum Street, Cambridge, Massachusetts 02142." Item 2. Identity and Background. Item 2 of the Schedule 13D is hereby supplemented and amended to read in its entirety as follows: "(a)-(e) This statement is being filed by Tribune Company, a Delaware corporation ("Tribune"). Tribune is a media company. Through its subsidiaries, Tribune is engaged in the publishing of newspapers, books, educational materials and information in print and digital formats and the broadcasting, production and syndication of information and entertainment in metropolitan areas in the United States. The principal business and office address of Tribune is 435 North Michigan Avenue, Chicago, Illinois 60611. The following individuals are the executive officers and directors of Tribune (with asterisks indicating the directors):
Present Principal Occupation Name or Employment(1) Name and Business Address(2) - ---- -------------------------- ---------------------------- John W. Madigan* Chairman, President and Tribune Company Chief Executive Officer 435 N. Michigan Ave. Chicago, IL 60611 James C. Dowdle* Executive Vice Tribune Company President 435 N. Michigan Ave. Chicago, IL 60611 Diego E. Hernandez* President, Marine 15920 Kingsmoor Way Technology Group, Inc. Miami Lakes, FL 33014 (technical consulting services) (Residential Address)
- -------------- (1) Unless other wise indicated, each occupation set forth opposite an individual's name refers to such individuals' positions with Tribune. Description of the principal business of Tribune and its subsidiaries has been omitted from the table. (2) Unless otherwise noted, all addresses are business addresses. 4 - -------------------- ------------------------------ CUSIP No. 98136310 13D Page 4 of 9 Pages - -------------------- ------------------------------
Present Principal Occupation Name or Employment Name and Business Address - ---- -------------------------- ---------------------------- Robert E. La Blanc* President, Robert E. R.E. La Blanc Associates, Inc. La Blanc Associates, 323 Highland Avenue Inc. (consultants in Ridgewood, NJ 07450 information technology) Andrew J. McKenna* Chairman Schwarz and Chief Executive 8838 N. Austin Officer, Schwarz Morton Grove, IL 60053 (paper converter) Nancy Hicks Maynard* President, Maynard 2109 Broadway Partners, Incorporated Apartment 9-109 (consultants in news New York, NY 10023 media economics) (Residential Address) Kristie Miller* Author, Journalist, 5907 Frazier Lane The Daily News-Tribune, McLean, VA 22101 Inc. of LaSalle, Illinois (Residential Address) (newspaper) James J. O'Connor* Retired Chairman, 30 West Monroe Street Chief Executive Officer, Suite 500 Unicom Corporation Chicago, IL 60603 (holding company) and Commonwealth Edison Company (electric utility) Donald H. Rumsfeld* Chairman and Director 400 N. Michigan Ave. Gilead Sciences, Inc. Suite 405 (pharmaceuticals) Chicago, IL 60611 Patrick G. Ryan* Chairman, President, Aon Corporation Chief Executive Officer 123 N. Wacker Dr. and Director, Aon Corporation 30th Floor (insurance holding company) Chicago, IL 60606 Dudley S. Taft* President and Director Taft Broadcasting Company Taft Broadcasting Company 312 Walnut Street (television broadcasting) Suite 3550 Cincinnati, OH 45202
5 - -------------------- ------------------------------ CUSIP No. 98136310 13D Page 5 of 9 Pages - -------------------- ------------------------------
Present Principal Occupation Name or Employment Name and Business Address - ---- -------------------------- ---------------------------- Arnold R. Weber* Chancellor, The Civic Committee of the Northwestern University Commercial Club of Chicago and President, Civic First Nationa Plaza Committee of Commercial 21 South Clark Street Club of Chicago Suite 3115 Chicago, IL 60603 Robert D. Bosau President, Tribune Tribune Company Education Company 435 N. Michigan Ave. Chicago, IL 60611 Dennis J. FitzSimons President, Tribune Tribune Company Broadcasting Company 435 N. Michigan Ave. Chicago, IL 60611 Jack W. Fuller President, Tribune Tribune Company Publishing Company 435 N. Michigan Ave. Chicago, IL 60611 Donald C. Grenesko Senior Vice President/ Tribune Company Finance and Administration 435 N. Michigan Ave. Chicago, IL 60611 David D. Hiller Senior Vice President/ Tribune Company Development 435 N. Michigan Ave. Chicago, IL 60611 Crane H. Kenney Vice President/General Tribune Company Counsel and Secretary 435 N. Michigan Ave. Chicago, IL 60611 Luis E. Lewin Vice President/ Tribune Company Human Resources 435 N. Michigan Chicago, IL 60611 Ruthellyn Musil Vice President/ Tribune Company Corporate Relations 435 N. Michigan Ave. Chicago, IL 60611 Jeff R. Scherb Senior Vice President/ Tribune Company Chief Technology Officer 435 N. Michigan Ave. Chicago, IL 60611
Neither Tribune nor, to the knowledge of Tribune, any of the executive officers and directors identified above, during the last five years, (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. 6 - -------------------- ------------------------------ CUSIP No. 98136310 13D Page 6 of 9 Pages - -------------------- ------------------------------ (f) Tribune is a Delaware corporation. Each of the executive officers and directors identified under Item 2(a)-(e) is a citizen of the United States of America." Item 4. Purpose of Transaction. Item 4 of the Schedule 13D is hereby supplemented and amended to add the following: "Pursuant to the Standstill Agreement, Mr. James C. Dowdle, an Executive Vice President and director of Tribune, was appointed as a director of The Learning Company. Mr. Dowdle resigned from the Company's board of directors as of May 22, 1998. The issuance and sale of the DECS (defined below) will not be deemed a sale of the related shares of Common Stock under the Standstill Agreement until such shares have been delivered to the holders of the DECS. Accordingly, until such time as the shares of Common Stock are actually delivered, Tribune retains the right under the Standstill Agreement to have a designee appointed to the Company board of directors." Item 5. Interest in Securities of the Issuer. Item 5(a), (b) and (c) of the Schedule 13D is hereby supplemented and amended to add the following: "On December 5, 1997, Tribune sold the Notes in a private transaction to an investor group. Following the sale of the Notes, Tribune had and continues to have sole voting power and sole dispositive power over 5,210,796 shares of Common Stock. The shares of Common Stock beneficially owned by Tribune represent approximately 8.3% of the outstanding shares (such percentage being calculated based on 62,560,522 shares of Common Stock issued and outstanding as of July 22, 1998, as reported in the Company's proxy statement/prospectus dated July 31, 1998) On August 5, 1998, Tribune issued and sold 4,600,000 6 1/4% Exchangeable Notes Due August 15, 2001 (the "DECS") in a public offering underwritten by Smith Barney Inc. (the "Underwriter"). The DECS are one of a series of debt securities issued under an indenture dated as of January 1, 1997, as amended by the first supplemental indenture dated August 5, 1998 (as amended, the "Indenture"), between Tribune and Bank of Montreal Trust Company, as trustee. At maturity (including as a result of acceleration or otherwise), the principal amount of each DECS will be mandatorily exchanged by Tribune into a number of shares of Common Stock (or, at Tribune's option, the cash equivalent thereof and/or such other consideration as permitted or required by the terms of the DECS) at the Exchange Rate (as defined herein). The Exchange Rate is equal to, subject to certain adjustments, (a) if the Maturity Price (as defined in the Indenture) per share of Common Stock is greater than or equal to $ 33.625 per share of Common Stock, 0.8309 shares of Common Stock per DECS, (b) if the Maturity Price is less than $33.625 but is greater than the Initial Price (as defined in the Indenture), a fraction equal to the Initial Price divided by the Maturity Price of one share of Common Stock per DECS, and (c) if the Maturity Price is less than or equal to the Initial Price, one share of Common Stock per DECS. The issuance and sale of the DECS does not affect the beneficial ownership of Common Stock by Tribune." Item 6. Contracts, Arrangement, Understanding or Relationships with Respect to Securities of the Issuer. Item 6 of the Schedule 13D is hereby supplemented and amended to add the following: "In connection with the sale of the DECS, Tribune entered into an underwriting agreement (the "Underwriting Agreement") dated July 30, 1998 between the Company, Tribune and Smith Barney Inc. (the "Underwriter"). Tribune has granted to the Underwriter an option, exercisable for the 30-day period after July 30, 1998, to purchase up to an additional 610,796 DECS from Tribune, at the same price per DECS as the initial DECS purchased by the Underwriter. 7 - -------------------- ------------------------------ CUSIP No. 98136310 13D Page 7 of 9 Pages - -------------------- ------------------------------ Pursuant to the Underwriting Agreement and subject to the limitations contained therein, Tribune has agreed not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any affiliate of the Company) or announce the offering (or plans to make an offering) of, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock: (ii) enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of shares of Common Stock or such other securities, in cash or otherwise, for a period of 60 days from July 30, 1998 without the prior written consent of the Underwriter. In connection with the offering of the DECS, Tribune and Smith Barney Inc. have entered into a Securities Loan Agreement (the "Securities Loan Agreement") which provides that, subject to certain restrictions and with the agreement of Tribune, Smith Barney Inc. may from time to time borrow, return and reborrow shares of Common Stock from Tribune (the "Borrowed Securities"); provided, however, that the number of Borrowed Securities at any time may not exceed 2,000,000 shares, subject to adjustment for certain dilutive events. The Securities Loan Agreement is intended to facilitate market-making activity in the DECS by Smith Barney Inc. Smith Barney Inc. may from time to time borrow shares of Common Stock under the Securities Loan Agreement to settle short sales of Common Stock entered into by Smith Barney Inc. to hedge any long position in the DECS resulting from its market-making activities." Item 7. Material to be Filed as Exhibits.
Exhibit Number Description -------------- ----------- 99.7 Underwriting Agreement dated July 30, 1998 between Tribune Company, The Learning Company, Inc. and Smith Barney Inc. (incorporated by reference to Exhibit 1 of the Company's Current Report on Form 8-K dated July 30, 1998) 99.8 Supplemental Indenture dated as of August 5, 1998 between Tribune Company and Bank of Montreal Trust Company 99.9 Master Securities Loan Agreement dated as of August 5, 1998 between Tribune Company and Smith Barney Inc.
8 - -------------------- ------------------------------ CUSIP No. 98136310 13D Page 8 of 9 Pages - -------------------- ------------------------------ SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. August 11, 1998 TRIBUNE COMPANY By: /s/ R. Mark Mallory ----------------------------------- Name: R. Mark Mallory Title: Vice President and Controller 9 - -------------------- ------------------------------ CUSIP No. 98136310 13D Page 9 of 9 Pages - -------------------- ------------------------------ Exhibit Index
Exhibit Number Description -------------- ----------- 99.7 Underwriting Agreement dated July 30, 1998 between Tribune Company, The Learning Company, Inc. and Smith Barney Inc. (incorporated by reference to Exhibit 1 of the Company's Current Report on Form 8-K dated July 30, 1998) 99.8 Supplemental Indenture dated as of August 5, 1998 between Tribune Company and Bank of Montreal Trust Company 99.9 Master Securities Loan Agreement dated as of August 5, 1998 between Tribune Company and Smith Barney Inc.
EX-99.8 2 SUPPLEMENTAL INDENTURE 1 Exhibit 99.8 ================================================================================ TRIBUNE COMPANY, Issuer and BANK OF MONTREAL TRUST COMPANY, Trustee FIRST SUPPLEMENTAL INDENTURE Dated as of August 5, 1998 Supplemental to Indenture dated as of January 1, 1997 ================================================================================ 2 FIRST SUPPLEMENTAL INDENTURE dated as of August 5, 1998 (this "Supplemental Indenture"), made and entered into by and between Tribune Company, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 435 North Michigan Avenue, Chicago, Illinois 60611, and Bank of Montreal Trust Company, a trust company duly organized and existing under the laws of the State of New York, as Trustee (herein called the "Trustee") under the Indenture of the Company dated as of January 1, 1997 (the "Indenture"). WHEREAS, the parties hereto previously entered into the Indenture to provide for the issuance and sale by the Company from time to time of its unsecured debentures, notes or other evidences of indebtedness (herein called the "Securities"); and WHEREAS, Sections 9.01(5) and (6) of the Indenture provide that the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into an indenture supplemental to the Indenture, in form satisfactory to the Trustee, without the consent of any Holder (a) to add to, change or eliminate any of the provisions of the Indenture, in respect of one or more series of Securities, provided that any such addition, change or elimination shall become effective only when there is no such Security Outstanding and (b) to establish the form or terms of Securities of any series as permitted by Section 2.01 and 3.01 of the Indenture; and WHEREAS, the Company has duly authorized the creation of a series of its Securities denominated its "6 1/4% Exchangeable Notes Due August 15, 2001" representing up to 5,210,796 of its "Debt Exchangeable for Common Stock(SM)" (such Securities being referred to herein as the "DECSSM"), the principal amount of which is mandatorily exchangeable at Maturity into shares of Common Stock, par value $.01 per share (the "Learning Common Stock") of The Learning Company, Inc. ("The Learning Company"), or, at the option of the Company (under the circumstances described herein), cash, in either case at the Exchange Rate (as defined herein) and/or such other consideration as permitted or required by the terms of the DECS; and WHEREAS, the entry into this Supplemental Indenture by the parties hereto is in all respects authorized by the provisions of the Indenture; and WHEREAS, the Company has duly authorized the execution and delivery of this Supplemental Indenture, and all things necessary have been done to make the DECS, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Supplemental Indenture a valid agreement of the Company, in accordance with their and its terms: 2 3 NOW THEREFORE: It is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the DECS, as follows: ARTICLE I SECTION 1.01. Definitions. For all purposes of the Indenture and this Supplemental Indenture as they relate to the DECS, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article; (2) the words "herein", "hereof" and "hereunder" and other words of similar import refer to the Indenture and this Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision; and (3) capitalized terms used but not defined herein are used as they are defined in the Indenture. "Adjustment Event" has the meaning set forth in Section 2.04(b). "Business Day" mean any day that is not a Saturday, a Sunday or a day on which the NYSE or banking institutions or trust companies in The City of New York are authorized or obligated by law or executive order to close. "Closing Price" of any security on any date of determination mean (i) the closing sale price (or, if no closing price is reported, the last reported sale price) of such security (regular way) on the NYSE on such date, (ii) if such security is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which such security is so listed, (iii) if such security is not so listed on a United States national or regional securities exchange, as reported by the Nasdaq Stock Market, (iv) if such security is not so reported, the last quoted bid price for such security in the over-the-counter market as reported by the National Quotation Bureau or similar organization, or (v) if such security is not so quoted, the average of the mid-point of the last bid and ask prices for such security from each of at least three nationally recognized independent investment banking firms selected by the Company for such purpose. "DECS" has the meaning set forth in the recitals to this Supplemental Indenture. "Dilution Event" has the meaning set forth in Section 2.05(a)(ii). 3 4 "Exchange Rate" means a rate equal to (a) if the Maturity Price is greater than or equal to $33.625 (the "Threshold Appreciation Price"), 0.8309 shares of Learning Common Stock per DECS, (b) if the Maturity Price is less than the Threshold Appreciation Price but is greater than the Initial Price, a fraction equal to (i) the Initial Price divided by (ii) the Maturity Price of one share of Learning Common Stock per DECS and (c) if the Maturity Price is less than or equal to the Initial Price, one share of Learning Common Stock per DECS; provided, however, that the Exchange Rate is subject to adjustment from time to time pursuant to Section 2.04(a). "Initial Price" means $27.9375. "Learning Common Stock" has the meaning set forth in the recitals to this Supplemental Indenture. "Market Price" means, as of any date of determination, the average Closing Price per share of Learning Common Stock for the 20 Trading Days immediately prior to the date of determination; provided, however, that if there are not 20 Trading Days for the Learning Common Stock occurring later than the 60th calendar day immediately prior to, but not including, such date, the Market Price shall be determined as the market value per share of Learning Common Stock as of such date as determined by a nationally recognized investment banking firm retained for such purpose by the Company. "Maturity" mean the date on which the principal of a DECS becomes due and payable as provided herein, whether at Stated Maturity or by declaration of acceleration or otherwise. "Maturity Price" means the average Closing Price per share of Learning Common Stock on the 20 Trading Days immediately prior to (but not including) the date of Maturity; provided, however, that if there are not 20 Trading Days for the Learning Common Stock occurring later than the 60th calendar day immediately prior to, but not including, the date of Maturity, Maturity Price means the market value per share of Learning Common Stock as of Maturity as determined by a nationally recognized investment banking firm retained for such purpose by the Company. "NYSE" means the New York Stock Exchange, Inc. "Ordinary Cash Dividend" has the meaning set forth in subparagraph (b)(5) of Section 2.04. "Reported Securities" has the meaning set forth in subparagraph (b)(3) of Section 2.04. "Share Components" means the ratios of shares of Learning Common Stock per DECS specified in clauses (a), (b) and (c) of the definition of "Exchange Rate" set forth in this Article. "Threshold Appreciation Price" has the meaning specified in the definition of "Exchange Rate" set forth in this Article. 4 5 "Trading Day" means a Business Day on which the security, the Closing Price of which is being determined, (a) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (b) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of such security. "Transaction Value" means (a) for any cash received in any Adjustment Event, the amount of cash received per share of Learning Common Stock, (b) for any Reported Securities received in any Adjustment Event, an amount equal to (x) the average Closing Price per security of such Reported Securities for the 20 Trading Days immediately prior to Maturity multiplied by (y) the number of such Reported Securities (as adjusted pursuant to subparagraph (b)(4) of Section 2.04) received per share of Learning Common Stock and (c) for any property received in any Adjustment Event other than cash or such Reported Securities, an amount equal to the fair market value of the property received per share of Learning Common Stock on the date such property is received, as determined by a nationally recognized investment banking firm retained for this purpose by the Company; provided, however, that in the case of clause (b), (x) with respect to securities that are Reported Securities by virtue of only clause (iv) of the definition of Reported Security, Transaction Value with to any such Reported Security means the average of the mid-point of the last bid and ask prices for such Reported Security as of Maturity from each of at least three nationally recognized investment banking firms retained for such purpose by the Company multiplied by the number of such Reported Securities (as adjusted pursuant to subparagraph (b)(4) of Section 2.04) received per share of Learning Common Stock and (y) with respect to all other Reported Securities, if there are not 20 Trading Days for any particular Reported Security occurring later than the 60th calendar day immediately prior to, but not including, the date of Maturity, Transaction Value with respect to such Reported Security means the market value per security of such Reported Security as of Maturity as determined by a nationally recognized investment banking firm retained for such purpose by the Company multiplied by the number of such Reported Securities (as adjusted pursuant to subparagraph (b)(4) of Section 2.04) received per share of Learning Common Stock. For purposes of calculating the Transaction Value, any cash, Reported Securities or other property receivable in any Adjustment Event shall be deemed to have been received immediately prior to the close of business on the record date for such Adjustment Event or, if there is no record date for such Adjustment Event, immediately prior to the close of business on the effective date of such Adjustment Event. Section 1.02. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 1.03. Successors and Assigns. All covenants and agreements in this Supplemental Indenture by the Company shall bind its successors and assigns, whether so expressed or not. 5 6 Section 1.04. Separability. In case any provision in this Supplemental Indenture or the DECS 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 1.05. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Supplemental Indenture by any of the provisions of the Trust Indenture Act of 1939, as amended, such required provisions shall control. Section 1.06. Benefits of Supplemental Indenture. Nothing in this Supplemental Indenture, expressed or implied, shall give to any person, other than the parties hereto and their successors hereunder, and the Holders of the DECS any benefit or any legal or equitable right, remedy or claim under this Supplemental Indenture. SECTION 1.07. Application of Supplemental Indenture. This Supplemental Indenture shall take effect on the date hereof, and shall apply only to the DECS. This Supplemental Indenture shall have no effect on any other Securities, whether originally issued prior to the date hereof or thereafter. If any provision of this Supplemental Indenture is inconsistent with any provision of the Indenture, then, to the extent permitted by the Indenture, the provision in this Supplemental Indenture shall control. SECTION 1.08. Governing Law. THIS SUPPLEMENTAL INDENTURE AND THE DECS SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF ILLINOIS AND THIS SUPPLEMENTAL INDENTURE AND EACH SUCH DECS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS. ARTICLE II The DECS Section 2.01. Title and Terms. There is hereby created under the Indenture a series of Securities known and designated as the "6 1/4% Exchangeable Notes Due August 15, 2001" of the Company. The aggregate principal amount of DECS that may be authenticated and delivered under this Indenture is limited to $200 million, except for DECS authenticated and delivered upon reregistration of, transfer of, or in 6 7 exchange for, or in lieu of, other DECS pursuant to Section 3.04, 3.05, 3.06 and 11.06 of the Indenture. The DECS shall bear interest at the rate of 6 1/4% of the principal amount per annum, from the date of original issuance or the most recent Interest Payment Date to which interest has been paid or duly provided for, until the principal amount thereof is exchanged at maturity pursuant to the terms of the DECS. Interest on the DECS shall be payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing November 15, 1998 (each, an Interest Payment Date"), to the persons in whose names the DECS (or any predecessor securities) are registered at the close of business on February 1, May 1, August 1 and November 1 immediately preceding such Interest Payment Date, provided that interest payable at Maturity shall be payable to the person to which the Learning Common Stock is deliverable. The DECS shall be initially issued in the form of a Global Security and the depositary for the DECS shall be the Depositary Trust Company, New York, New York. The DECS shall not be redeemable prior to their Maturity and shall not be subject to any sinking fund. The DECS are not subject to payment prior to the date of Maturity at the option of the Holder. The DECS shall be mandatorily exchangeable as provided in Section 2.02. The DECS shall be issuable in denominations of $27.9375 and any integral multiple thereof. The DECS shall not be issued as Original Issue Discount Securities. The form of DECS attached hereto as Exhibit A is hereby adopted, pursuant to Section 9.01(6) of the Indenture, as a form of Securities of a series that consists of DECS. Certain terms of the DECS are set forth in the form of the DECS. The Company shall not be obligated to pay any additional amount on the DECS in respect of taxes, except as otherwise provided in Section 2.06. Section 2.02. Exchange at Maturity. Subject to Section 2.04(b), at maturity the principal amount of each DECS shall be mandatorily exchanged by the Company into a number of shares of Learning Common Stock at the Exchange Rate; provided, however, that, pursuant to Section 2.03, no fraction of a share of Learning Common Stock shall be issued. The Holders of the DECS shall be responsible for the payment of any and all brokerage costs upon the subsequent sale of such shares. The Company may, at its option, in lieu of delivering Learning Common Stock, deliver cash in an amount (calculated to the nearest 1/100th of a dollar per DECS or, if there is not a nearest 1/100th of a 7 8 dollar, then to the next higher 1/100th of a dollar) equal to the product of the number of shares of Learning common Stock otherwise deliverable in respect of such DECS on the date of Maturity, multiplied by the Maturity Price; provided, however, that if such option is exercised, the Company shall deliver cash with respect to all, but not less than all, of the Learning Common Stock that would otherwise be deliverable. In determining the amount of cash deliverable in exchange for the DECS in lieu of Learning Common Stock pursuant to the prior sentence hereof, if more than one DECS shall be surrendered for exchange at one time by the same Holder, the amount of cash which shall be delivered upon exchange shall be computed on the basis of the aggregate number of DECS so surrendered at Maturity. Section 2.03. No Fractional Shares. If more than one DECS shall be surrendered for exchange pursuant to Section 2.02 at one time by the same Holder, the number of full shares of Learning Common Stock or Reported Securities which shall be delivered upon such exchange, in whole or in part, as the case may be, shall be computed on the basis of the aggregate number of DECS surrendered at Maturity. No fractional shares or script representing fractional shares of Learning Common Stock or Reported Securities shall be issued or delivered upon any exchange pursuant to Section 2.02 of any DECS. In lieu of any fractional share of Learning Common Stock or securities which, but for the immediately preceding sentence, would otherwise be deliverable upon such exchange, the Company, through any applicable Paying Agent, shall make a cash payment in respect of such fractional interest in an amount equal to the value of such fractional share of Learning Common Stock or security at the Maturity Price. The Company shall, upon such exchange of any DECS, provide cash to any applicable Paying Agent in an amount equal to the cash payable with respect to any fractional shares of Learning Common Stock deliverable upon such exchange, and the Company shall retain such fractional shares of Learning Common Stock. SECTION 2.04. Adjustment of Exchange Rate. (a) Adjustment for Distributions, Reclassifications, etc. The Exchange Rate shall be subject to adjustment from time to time as follows: (i) If The Learning Company shall: (A) pay a stock dividend or make a distribution, in each case, with respect to the Learning Common Stock in shares of such stock; (B) subdivide or split the outstanding shares of Learning Common Stock; (C) combine its outstanding shares of Learning Common Stock into a smaller number of shares; or 8 9 (D) issue by reclassification (other than a reclassification pursuant to clause (ii), (iii), (iv) or (v) of the definition of Adjustment Event in paragraph (b) of this Section) of its shares of Learning Common Stock any shares of common stock of The Learning Company; or then, in any such event, the Exchange Rate shall be adjusted by adjusting each of the Share Components of the Exchange Rate in effect immediately prior to such event so that a holder of any DECS shall be entitled to receive, upon exchange pursuant to Section 2.02 of the principal amount of such DECS at Maturity, the number of shares of Learning Common Stock (or, in the case of a reclassification referred to in clause (D) of this sentence, the number of shares of other common stock of The Learning Company issued pursuant thereto) which such holder of such DECS would have owned or been entitled to receive immediately following such event had such DECS been exchanged immediately prior to such event or any record date with respect thereto. Each such adjustment shall become effective at the opening of business on the Business Day next following the record date for determination of holders of Learning Common Stock entitled to receive such dividend or distribution in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, split, combinations or reclassification. Each such adjustment shall be made successively. (ii) If The Learning Company shall, after the date hereof, issue rights or warrants to all holders of Learning Common Stock entitling them to subscribe for or purchase shares of Learning Common stock (other than rights to purchase Learning Common Stock pursuant to a plan for the reinvestment of dividends) at a price per share less than the Market Price of the Learning Common Stock on the Business Day next following the record date for the determination of holders of shares of Learning Common Stock entitled to receive such rights or warrants, then in each case, the Exchange Rate shall be adjusted by multiplying each of the Share Components of the Exchange Rate in effect on the record date for the determination of holders of Learning Common Stock entitled to receive such right rights or warrants, by a fraction, of which the numerator shall be (A) the number of shares of Learning Common Stock outstanding on such record date plus (B) the number of additional shares of Learning Common Stock offered for subscription or purchase pursuant to such rights or warrants, and of which the denominator shall be (x) the number of shares of Learning Common Stock outstanding on such record date plus (y) the number of additional shares of Learning Common Stock which the aggregate offering price of the total number of shares of Learning Common Stock so offered for subscription or purchase pursuant to such rights or warrants would purchase at the Market Price of the Learning Common Stock on the Business Day next following such record date, which number of additional shares shall be determined by multiplying such total number of shares by the exercise price of such rights or warrants and dividing the product so obtained by such Market Price of Learning Common Stock. Such adjustment shall become effective at the opening of business on the Business Day next following the record date for the determination of holders of Learning Common 9 10 Stock entitled to receive such rights or warrants. To the extent that such rights or warrants expire prior to the Maturity of the DECS and shares of Learning Common Stock are not delivered pursuant to such rights or warrants prior to such expiration, the Exchange Rate shall be readjusted to the Exchange Rate which would then be in effect had such adjustments for the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Learning Common Stock actually delivered pursuant to such rights or warrants. Each such adjustment shall be made successively. (iii) Any shares of Learning Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the close of business on the record date for such dividend for purposes of calculating the number of outstanding shares of Learning Common Stock under paragraph (a)(ii) of this Section. (iv) All adjustments to the Exchange Rate will be calculated to the nearest 1/10,000th of a share of Learning Common Stock (or if there is not a nearest 1/10,000th of a share of Learning Common Stock to the next lower 1/10,000th of a share of Learning Common Stock). No adjustment in the Exchange Rate shall be required unless such adjustment would require an increase or decrease of at least one percent therein; provided, however, that any adjustments which by reason of the foregoing are not required to be made shall be carried forward and taken into account in any subsequent adjustment. If an adjustment is made to the Exchange Rate pursuant to paragraphs (a)(i) or (a)(ii) of this Section, an adjustment shall also be made to the Maturity Price as such term is used throughout the definition of Exchange Rate set forth in Section 1.01. The required adjustment to the Maturity Price shall be made at Maturity by multiplying the original Maturity Price by the cumulative number or fraction determined under paragraphs (a)(i) and/or (a)(ii) of this Section by which the original Exchange Rate was multiplied to adjust such rate. In the case of a reclassification of any shares of Learning Common Stock into any common stock of The Learning Company other than Learning Common Stock, such common stock shall be deemed to be shares of Learning Common Stock solely to determine the Maturity Price and to apply the Exchange Rate at Maturity. Each such adjustment to the Exchange Rate and the Maturity Price shall be made successively. (b) Other Adjustment Events. In the event of (i) any dividend or distribution by The Learning Company to all holders of Learning Common Stock of evidences of its indebtedness or other assets (excluding any dividends or distributions referred to in clause (A) of paragraph (a)(i) of this Section, any common shares issued pursuant to a reclassification referred to in clause (D) of paragraph (a)(i) of this Section and any Ordinary Cash Dividends) or any issuance by The Learning Company to all holders of Learning Common Stock of rights or warrants (other than rights or warrants referred to in paragraph (a)(ii) of this Section), (ii) any consolidation or merger of The Learning Company with or into another entity (other than a merger or consolidation in which The Learning Company is the continuing corporation and in which the Learning Common Stock outstanding immediately prior to the merger or consolidation are not exchanged for cash, securities or other property of The Learning Company or another corporation), (iii) any sale, 10 11 transfer, lease or conveyance to another corporation of the property of The Learning Company as an entirety or substantially as an entirety, (iv) any statutory exchange of securities of The Learning Company with another corporation (other than in connection with a merger or acquisition) or (v) any liquidation, dissolution or winding up of The Learning Company (any such event, an "Adjustment Event"), the property receivable by Holders of DECS at Maturity shall be subject to adjustment from time to time as follows: (1) Each holder of a DECS will receive at Maturity, in lieu of or (in the case of an Adjustment Event described in clause (i) of this paragraph (b)) in addition to, the shares of Learning Common Stock that it would otherwise receive as required by Section 2.02, cash in an amount equal to (A) if the Maturity Price is greater than or equal to the Threshold Appreciation Price, 0.8309 multiplied by the Transaction Value, (B) if the Maturity Price is less than the Threshold Appreciation Price but is greater than the Initial Price, the product of (x) the Initial Price divided by the Maturity Price multiplied by (y) the Transaction Value and (C) if the Maturity Price is less than or equal to the Initial Price, the Transaction Value. (2) Following an Adjustment Event, the Maturity Price, as such term is used in subparagraph (b)(1) above and throughout the definition of Exchange Rate, shall be deemed to equal (A) if shares of Learning Common Stock are outstanding at Maturity, subject to Section 2.04(b)(2)(B), the Maturity Price of the shares of Learning Common Stock, as adjusted pursuant to the provisions of paragraph (a)(iv) of this Section, plus the Transaction Value or (B) if shares of Learning Common Stock are not outstanding at maturity (or if the Learning Common Stock, as a result of an Adjustment Event, is not (i) listed on a United States national securities exchange, (ii) reported on a United States national securities system subject to last sale reporting or (iii) traded in the over-the-counter market and reported on the National Quotation Bureau or similar organization, and for which bid and ask prices are not available from at least three nationally recognized investment banking firms), the Transaction Value. (3) Notwithstanding the foregoing, with respect to any securities received in an Adjustment Event that (A) are (i) listed on a United States national securities exchange, (ii) reported on a United States national securities system subject to last sale reporting, (iii) traded in the over-the-counter market and reported on the National Quotation Bureau or similar organization or (iv) for which bid and ask prices are available from at least three nationally recognized investment banking firms and (B) are either (x) perpetual equity securities or (y) non-perpetual equity or debt securities with a stated maturity after the Stated Maturity ("Reported Securities"), the Company may, at its option, in lieu of delivering the amount of cash deliverable in respect of Reported Securities received in an Adjustment Event, as determined in accordance with subparagraph (b)(1), deliver a number of such Reported Securities with a value equal to such cash amount, as determined in accordance with clause (b) of the definition of Transaction Value set forth in Section 1.01; provided, however, that (i) if such option is exercised, the Company shall 11 12 deliver Reported Securities in respect of all, but not less than all, cash amounts that would otherwise be deliverable in respect of Reported Securities received in an Adjustment Event, (ii) the Company may not exercise such option if the Company has elected to deliver cash in lieu of Learning Common Stock, if any, deliverable upon Maturity or if such Reported Securities have not yet been delivered to the holders entitled thereto following such Adjustment Event or any record date with respect thereto, and (iii) subject to clause (ii) of this proviso, the Company must exercise such option if the Company does not elect to deliver cash in lieu of Learning Common Stock, if any, deliverable upon Maturity. If the Company elects to deliver Reported Securities, each holder of a DECS will be responsible for the payment of any and all brokerage and other transaction costs upon the sale of such Reported Securities. If, following any Adjustment Event, any Reported Security ceases to qualify as a Reported Security, then (x) the Company may no longer elect to deliver such Reported Security in lieu of an equivalent amount of cash and (y) notwithstanding clause (b) of the definition of Transaction Value, the Transaction Value of such Reported Security shall mean the fair market value of such Reported Security on the date such security ceases to qualify as a Reported Security, as determined by a nationally recognized investment banking firm retained for this purpose by the Company. (4) The amount of cash and/or the kind and number of securities into which the DECS shall be exchangeable after an Adjustment Event shall be subject to adjustment following such Adjustment Event in the same manner and upon the occurrence of the same type of events as described in paragraphs (a) and (b) of this Section with respect to Learning Common Stock and The Learning Company. (5) For purposes of the foregoing, the term "Ordinary Cash Dividend" means, with respect to any consecutive 365-day period, any dividend with respect to Learning Common Stock paid in cash to the extent that the amount of such dividend, together with the aggregate amount of all other dividends on Learning Common Stock paid in cash during such 365-day period, does not exceed on a per-share basis 10% of the average of the Closing Prices of Learning Common Stock over such 365-day period. For purposes of this subparagraph (b)(5), any cash dividend shall be deemed to be paid as of the record date for such cash dividend. Section 2.05. Notice of Adjustment and Certain Other Events. (a) Whenever the Exchange Rate is adjusted as herein provided or an Adjustment Event occurs, the Company shall: (i) forthwith compute the adjusted Exchange Rate (or Transaction Value) in accordance with Section 2.04 and prepare a certificate signed by an officer of the Company setting forth the adjusted Exchange Rate (or Transaction Value), the method of calculation thereof in reasonable detail and the facts requiring such adjustment and upon 12 13 which such adjustment is based, which certificate shall be conclusive, final and binding evidence of the correctness of the adjustment, and file such certificate forthwith with the Trustee; and (ii) within ten Business Days following the occurrence of an event that permits or requires an adjustment to the Exchange Rate pursuant to Section 2.04(a) (each, a "Dilution Event") or an Adjustment Event that permits or requires a change in the consideration to be received by Holders pursuant to Section 2.04(b) (or, in any case, if the Company is not aware of such occurrence, as soon as practicable after becoming so aware), provide written notice to the Trustee and to the Holders of the outstanding DECS of the occurrence of such Dilution Event or Adjustment Event including a statement in reasonable detail setting forth the method by which any adjustment to the Exchange Rate or change in the consideration to be received by Holders of DECS following the Adjustment Event was determined and setting forth the revised Exchange Rate or consideration, as the case may be provided, however, that in respect of any adjustment of the Maturity Price, such notice need only disclose the factor by which the Maturity Price is to be multiplied pursuant to Section 2.04(a)(iv) in order to determine which clause of the definition of the Exchange Rate will apply at Maturity, it being understood that, until Maturity, the Exchange Rate itself cannot be determined. (b) In case at any time while any of the DECS are outstanding the Company receives notice from The Learning Company that: (i) The Learning Company will declare a dividend (or any other distribution) on or in respect of the Learning Common Stock to which Section 2.04(a)(i) or (ii) shall apply (other than any cash dividends and distributions, if any, paid from time to time by The Learning Company that constitute Ordinary Cash Dividends); (ii) The Learning Company will authorize the issuance to all holders of Learning Common Stock of rights or warrants to subscribe for or purchase shares of Learning Common Stock or of any other subscription rights or warrants; (iii) there will occur any conversion or reclassification of Learning Common Stock (other than a subdivision or combination of outstanding shares of such Learning Common Stock) or any consolidation, merger or reorganization to which The Learning Company is a party and for which approval of any stockholders of The Learning Company is required, or the sale or transfer of all or substantially all of the assets of The Learning Company; or (iv) there will occur the voluntary or involuntary dissolution, liquidation or winding up of The Learning Company; 13 14 then, if the notice provides to the Company the information described in clause (x) and (y) below in a reasonable amount of time in advance of the delivery and filing requirements set forth in this subparagraph (b), the Company shall cause to be delivered to the Trustee and any applicable Paying Agent and filed at the office or agency maintained for the purpose of exchange of DECS at Maturity in the Borough of Manhattan, in The City of New York by the Trustee (or any applicable Paying Agent), and shall cause to be mailed to the Holders of DECS at their last addresses as they shall appear upon the registration books of the Security Registrar, at least ten days before the date hereinafter specified (or the earlier of the dates hereinafter specified, in the event that more than one is specified), a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or grant of rights or warrants or, if a record is not to be taken, the date as of which holders of Learning Common Stock of record to be entitled to such dividend, distribution or grant of rights are to be determined, or (y) the date, if known by the Company, on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding up is expected to become effective. Following any Adjustment Event, the provisions of this paragraph (b) shall apply with respect to any Reported Securities in the same manner as with respect to The Learning Company and the Learning Common Stock. (c) On or prior to the fourth Business Day preceding the Stated Maturity of the DECS the Company shall notify the Trustee and will publish a notice in a daily newspaper of national circulation stating whether the Company will deliver, in accordance with Section 2.02, shares of Learning Common Stock or cash (and/or, in accordance with Section 2.04(b), cash or Reported Securities) upon the mandatory exchange of the principal amount of the DECS. The Trustee shall notify DTC of the form of consideration to be delivered by the Company. After the close of business on the Business Day immediately preceding the Stated Maturity of the DECS, the Company shall notify the Trustee in writing of the number of shares of Learning Common Stock and/or Reported Securities, or the amount of cash to be paid per DECS. SECTION 2.06. Taxes. (a) The Company will pay any and all documentary, stamp, transfer or similar taxes that may be payable in respect of the transfer and delivery of Learning Common Stock (or Reported Securities) pursuant hereto; provided, however, that the Company shall not be required to pay any such tax which may be payable in respect of any transfer involved in the delivery of Learning Common Stock (or Reported Securities) in a name other than that in which the DECS so exchanged were registered, and no such transfer or delivery shall be made unless and until the person requesting such transfer has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. (b) The parties hereto hereby agree, and each Holder of a DECS by its purchase of a DECS hereby agrees: (i) to treat, for U.S. federal income tax purposes, each DECS as a forward purchase contract to purchase Learning Common Stock at Maturity (including as 14 15 a result of acceleration or otherwise) ( the "forward purchase contract characterization"), under the terms of which contract (a) at the time of issuance of the DECS the Holder deposits irrevocably with the Company a fixed amount of cash equal to the purchase price of the DECS to assure the fulfillment of the Holder's purchase obligation described in clause (c) below, which deposit will unconditionally and irrevocably be applied at Maturity to satisfy such obligation, (b) until Maturity the Company will be obligated to pay interest on such deposit at a rate equal to the stated rate of interest on the DECS as compensation to the Holder for the Company's use of such cash deposit during the term of the DECS, and (c) at Maturity such cash deposit unconditionally and irrevocably will be applied by the Company in full satisfaction of the Holder's obligation under the forward purchase contract, and the Company will deliver to the Holder the number of shares of Learning Common Stock that the Holder is entitled to receive at the time pursuant to the terms of the DECS (subject to the Company's right to deliver cash in lieu of the shares of Learning Common Stock); (ii) to treat, consistent with the above characterization, (x) amounts paid to the Company in respect of the original issue of a DECS as allocable in their entirety to the amount of the cash deposit attributable to such DECS, and (y) amounts denominated as interest that are payable with respect to the DECS as interest payable on the amount of such deposit, includible annually in the income of the Holder as interest income in accordance with its method of accounting; and (iii) to file all U.S. federal, state and local income and franchise tax returns consistent with the forward purchase contract characterization (unless required otherwise by an applicable taxing authority). SECTION 2.07. Delivery of Securities upon Maturity. All Learning Common Stock and Reported Securities deliverable to Holders upon the Maturity of the DECS shall be delivered to such Holders, whenever practicable, in such manner (such as book-entry transfer) so as to assure same-day transfer of such securities to Holders and otherwise in the manner customary at such time for delivery of such securities and securities of the same type. ARTICLE III Covenants SECTION 3.01. Shares Free and Clear; No Rights in the Stock. With respect to the DECS only and for the benefit of only the Holders thereof, the Company covenants and warrants that upon exchange of a DECS at Maturity pursuant to the Indenture and this Supplemental Indenture, the Holder of a DECS shall receive valid title to the Learning Common Stock (and, in the event an Adjustment Event has occurred, the Reported 15 16 Securities, if Reported Securities are delivered) for which such DECS is at such time exchangeable pursuant to this Indenture, free and clear of any and all liens, claims, charges and encumbrances whatsoever, except to the extent such liens, claims, charges and encumbrances are caused by the Holders. Except as provided in Section 2.06(a), the Company shall pay all taxes and charges with respect to the delivery of Learning Common Stock (and Reported Securities) delivered in exchange for DECS hereunder. Until such time, if any, as the Company shall deliver shares of Learning Common Stock to Holders of the DECS at Maturity, the Holders shall not be entitled to any rights with respect to the Learning Common Stock (including, without limitation, voting rights and the rights to receive any dividends or other distributions in respect thereof. Section 3.02 Discharge of Indenture. With respect to the DECS only and for the benefit of only the Holders thereof, the Company surrenders all rights and powers conferred on it by subclause (b)(ii) or (iii) of clause (1) of Section 4.01 of the Indenture. With respect to the DECS only and for the benefit of only the Holders thereof, the Company shall have the right to discharge the Indenture pursuant to and in accordance with the remaining provisions of Section 4.01 of the Indenture if, instead of depositing with the Trustee funds, the Company deposits Learning Common Stock, Reported Securities and/or cash sufficient to pay and discharge the entire indebtedness on the DECS for principal and interest to the date of Stated Maturity. ARTICLE IV Miscellaneous SECTION 4.01. Confirmation of Indenture. The Indenture, as supplemented and amended by this Supplemental Indenture and all other indentures supplemental thereto, is in all respects ratified and confirmed, and the Indenture, this Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument. SECTION 4.02. Concerning the Trustee. The Trustee assumes no duties, responsibilities or liabilities by reason of this Supplemental Indenture other than as set forth in the Indenture. SECTION 4.03. Payment of Principal. Each reference in the Indenture to the payment by the Company of the principal of any Security (or words of like import) shall be deemed, for purposes of the DECS only, to mean the delivery of the Learning Common Stock (or, at the Company's option, the cash equivalent thereof) at the time, rate and manner set forth herein. 16 17 --------------- This 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. 17 18 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. TRIBUNE COMPANY By:/s/David J. Granat -------------------------------- Name: David D. Granat Title: Vice President/Treasurer Attest:/s/ Brigid E. Kenney ----------------------------------- Name: Brigid E. Kenney Title: Director/Treasury Operations BANK OF MONTREAL TRUST COMPANY, as Trustee By:/s/ Amy Roberts -------------------------------- Name: Amy Roberts Title: Vice President Attest: /s/ Amy Roberts ----------------------------------- Name: Amy Roberts Title: Vice President 18 19 STATE OF ILLINOIS ) ) SS.: COUNTY OF COOK ) On the 4th day of August, 1998, before me personally came DAVID J. GRANAT, to me known, who, being by me duly sworn, did depose and say that he is the Vice President of TRIBUNE COMPANY, one of the corporations described in and which executed the foregoing instrument; that she/he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that she/he signed her/his name thereto by like authority. /s/ Paula Ann Newton ----------------------------------- Notary Public SEAL STATE OF NEW YORK ) ) SS.: COUNTY OF NEW YORK ) On the 3rd day of August, 1998, before me personally came AMY ROBERTS, to me known, who, being by me duly sworn, did depose and say that she is the Vice President of BANK OF MONTREAL TRUST COMPANY, one of the corporations described in and which executed the foregoing instrument; that she/he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that she/he signed her/his name thereto by like authority. /s/ Patricia Simmon ----------------------------------- Notary Public SEAL 19 20 Exhibit A THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITARY OR A NOMINEE OF THE DEPOSITARY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL DEBT SECURITIES REPRESENTED HEREBY, THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. NO.____________ CUSIP NO. 896047206 [Form of Face of DECS] TRIBUNE COMPANY _______ DECS (sm) (Debt Exchangeable for Common Stock (sm)) 6 1/4% Exchangeable Note Due August 15, 2001 (Subject to Exchange at Maturity into Shares of Common Stock, Par Value $.01 Per Share, of The Learning Company, Inc.) Tribune Company, a Delaware corporation (hereinafter called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to exchange with CEDE & CO. or registered assigns, on August 15, 2001 a number of shares of Common Stock, par value $.01 per share (the "Learning Common F-1 21 Stock"), of the Learning Company, Inc. ("The Learning Company") (or, at the Company's option, the cash equivalent thereof and/or such other consideration as permitted or required by the terms of the DECS) at the Exchange Rate (as defined herein), and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on such principal amount from the date of original issuance or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, quarterly on February 15, May 15, August 15 and November 15 of each year (each, an "Interest Payment Date" and, collectively, the "Interest Payment Dates"), commencing November 15, 1998, at the rate per annum specified in the title of this note, until Maturity. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in said Indenture, be paid to the person in whose name this DECS (or the DECS in exchange or substitution for which this DECS was issued) is registered at the close of business on the Regular Record Date (as defined below) for interest payable on such Interest Payment Date. The Regular Record Date for any interest payment is the close of business on the February 1, May 1, August 1 and November 1 immediately preceding the relevant Interest Payment Date, whether or not a Business Day (as defined below), provided that interest payable at Maturity shall be payable to the person to whom the Learning Common Stock is deliverable. In any case where such Interest Payment Date shall not be a Business Day, then (notwithstanding any other provision of said Indenture or this DECS) payment of such interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and, if such payment is so made, no interest shall accrue for the period from and after such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered Holder on such Regular Record Date, and may be paid to the person in whose name this DECS (or the DECS in exchange or substitution for which this DECS was issued) is registered at the close of business on a record date for the payment of such interest to be fixed by the Trustee for the DECS, notice whereof shall be given to Holders of the DECS not less than ten days prior to such 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 DECS may be listed and not deemed impracticable by the Trustee, and upon such notice as may be required by such exchange. At Maturity, the principal amount of this DECS will be mandatorily exchanged into a number of shares of Learning Common Stock, at the Exchange Rate. The "Exchange Rate" is equal to (a) if the Maturity Price (as defined below) is greater than or equal to $33.625 (the "Threshold Appreciation Price"), .8309 shares of Learning Common Stock per DECS, (b) if the Maturity Price is less than the Threshold Appreciation Price but is greater than $27.9375 (the "Initial Price"), a fraction equal to the Initial Price divided by the Maturity Price of one share of Learning Common Stock per DECS (such fractional share being calculated to the nearest 1/10,000th of a share or, if there is not a nearest 1/10,000th of a share, to the next higher 1/10,000th of a share) and (c) if the Maturity Price is less than or equal to the Initial Price, one share of Learning Common Stock per DECS. Any shares of Learning Common Stock delivered by the Company to the Holders of the DECS that are not affiliated with The Learning Company shall be free of any transfer restrictions except to the extent any transfer restrictions are caused by F-2 22 the Holders of DECS, and the holders of DECS will be responsible for the payment of any and all brokerage costs upon the subsequent sale of such shares. No fractional shares of Learning Common Stock will be issued at Maturity as provided in the Indenture. The Company may at its option, in lieu of delivering shares of Learning Common Stock, deliver cash in an amount equal to the value of such number of shares of Learning Common Stock at the Maturity Price as provided in the Indenture; provided, however, that if such option is exercised, the Company shall deliver cash with respect to all, but not less than all, of the shares of Learning Common Stock that would otherwise be deliverable. Notwithstanding the foregoing, (i) in the case of certain dilution events, the Exchange Rate will be subject to adjustment and (ii) in the case of certain adjustment events, the consideration received by Holders of DECS at Maturity will be shares of Learning Common Stock, other securities and/or cash, each as provided in the Indenture. The "Maturity Price" is defined as the average Closing Price per share of Learning Common Stock on the 20 Trading Days immediately prior to (but not including) the date of Maturity or, under certain circumstances as provided in the Indenture, the market value per share of Learning Common Stock as of the date of Maturity as determined by a nationally recognized investment banking firm retained for this purpose by the Company. The "Closing Price" of any security on any date of determination means (i) the closing sale price (or, if no closing sale price is reported, the last reported sale price) of such security (regular way) on the New York Stock Exchange (the "NYSE") on such date, (ii) if such security is not listed for trading on the NYSE on any such date, as reported in the composite transactions for the principal United States securities exchange on which such security is so listed, (iii) if such security is not so listed on a United States national or regional securities exchange, as reported by the Nasdaq Stock Market, (iv) if such security is not so reported, the last quoted bid price for such security in the over-the counter market as reported by the National Quotation Bureau or similar organization or (v) if such security is not so quoted, the average of the mid-point of the last bid and ask prices for such security from each of at least three nationally recognized investment banking firms selected for this purpose by the Company. A "Trading Day" is defined as a Business Day on which the security the Closing Price of which is being determined (i) is not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business and (ii) has traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of such security. "Business Day" means any day that is not a Saturday, a Sunday or a day on which the NYSE, banking institutions or trust companies in The City of New York, New York are authorized or obligated by law or executive order to close. Interest on this DECS will be payable, and delivery of Learning Common Stock (or, at the Company's option, its cash equivalent and/or such other consideration as permitted or required herein and in the Indenture) in exchange for the principal amount of this DECS at Maturity will be made upon surrender of this DECS, at the office or agency of the Company F-3 23 maintained for that purpose, and payment of interest on (and, if the Company elects not to deliver Learning Common Stock and/or other securities upon exchange at Maturity, the cash equivalent thereof payable upon exchange for the principal amount of) this DECS will be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the persons in whose names the DECS are registered on the close of business on the February 1, May 1, August 1 and November 1 immediately preceding the relevant Interest payment Date. Initially, such office shall be the principal corporate trust office of the Trustee in New York City, which is located at 77 Water Street, New York, New York 10005 ADDITIONAL PROVISIONS OF THIS DECS ARE CONTAINED ON THE REVERSE HEREOF AND SUCH PROVISIONS SHALL HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH IN THIS PLACE. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee for this DECS by manual signature, this DECS shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. "DECS" and "Debt Exchangeable for Common Stock" are service marks of Salomon Brothers Inc. IN WITNESS WHEREOF, Tribune Company has caused this instrument to be duly executed under its corporate seal. Dated: TRIBUNE COMPANY By:__________________________ Name: Title: Attest: Name: F-4 24 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Debt Securities issued under the within-mentioned Indenture. BANK OF MONTREAL TRUST COMPANY, as Trustee By:____________________________ Authorized Officer F-5 25 [Form of Reverse of DECS] TRIBUNE COMPANY 6 1/4% Exchangeable Note Due August 15, 2001 (Subject to Exchange at Maturity into Shares of Common Stock, Par Value $.01 Per Share, of The Learning Company, Inc.) This DECS is one of a duly authorized issue of debentures, notes or other evidences of indebtedness (hereinafter called the "Debt Securities") of the Company of the series hereinafter specified, which DECS are limited in aggregate principal amount to $200 million, all such Debt Securities issued and to be issued under an indenture dated as of January 1, 1997, as supplemented by the First Supplemental Indenture dated August 5, 1998 (as so supplemented and as may be further supplemented from time to time, the "Indenture") between the Company and Bank of Montreal Trust Company, as trustee (herein called the "Trustee", which term includes any successor Trustee under the Indenture), pursuant to which the Company has designated Bank of Montreal Trust Company as Trustee for the DECS, to which Indenture and all other indentures supplemental thereto reference is hereby made for a statement of the rights and limitation of rights thereunder of the Holders of the Debt Securities and of the rights, obligations, duties and immunities of the Trustee for each series of Debt Securities and of the Company, and the terms upon which the Debt Securities are and are to be authenticated and delivered. As provided in the Indenture, the Debt Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may be denominated in currencies other than U.S. Dollars (including composite currencies), may mature at different times, may bear interest, if any, at different rates, may be subject to different redemption provisions, if any, may be subject to different sinking fund or other purchase provisions, if any, may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided or permitted. This DECS is one of a series of the Debt Securities designated as 6 1/4% Exchangeable Notes Due August 15, 2001. The DECS may not be redeemed prior to Stated Maturity and are not entitled to the benefit of any sinking fund. The provisions contained in the Indenture for defeasance of the Company's obligations upon compliance by the Company with certain conditions set forth therein will not be applicable to the DECS. Certain other provisions contained in the Indenture pertaining to satisfaction and discharge of the Indenture upon deposit of funds with the Trustee shall apply to the DECS in the manner set forth in the First Supplemental Indenture referred to above. If an Event of Default with respect to the DECS, as defined in the Indenture, shall occur and be continuing, the principal of all DECS may be declared due and payable and therefore R-1 26 will result in the mandatory exchange of the principal amount thereof for Learning Common Stock (or, at the Company's option, cash and/or such other consideration as permitted or required herein), all in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Debt Securities of each series under the Indenture at any time by the Company with the consent of the Holders of not less than a majority in aggregate principal amount of the Debt Securities at the time outstanding of each series to be affected thereby. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Debt Securities of any series at the time outstanding, on behalf of the Holders of all the Debt Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences with respect to such series. Any such consent or waiver by the Holder of this DECS shall be conclusive and binding upon such Holder and upon all future Holders of this DECS and of any DECS issued upon the transfer hereof or in exchange herefor or in lieu hereof whether or not notation of such consent or waiver is made upon this DECS. No reference herein to the Indenture and no provision of this DECS or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the interest on this DECS and make the mandatory exchange for Learning Common Stock at the times, place and rate, and in the manner, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, this DECS is transferable on the register for the DECS, upon surrender of this DECS for registration of transfer at the office or agency of the Company to be maintained for that purpose in The City of New York, New York, or at any other office or agency of the Company maintained for that purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar for the DECS duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new DECS, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental. charge payable in connection with the registration of such transfer or exchange, other than certain exchanges not involving any transfer. Certain capitalized terms used in this DECS but not defined herein have the meanings set forth in the Indenture. THIS DECS SHALL FOR ALL PURPOSES BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. R-2 27 The Company, the Trustee for the DECS and any agent of the Company or such Trustee may treat the person in whose name this DECS is registered as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this DECS be overdue, and neither the Company, such Trustee nor any such agent shall be affected by notice to the contrary. R-3 28 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian ---------- ---------- TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of Under Uniform Gifts to Minors Act survivorship and not as tenants in common ---------------------------------- (State) Additional abbreviations may also be used though not in the above list. --------------------------------------------------- FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfer(s) unto Please insert Social Security or Taxpayer I.D. or other Identifying Number of Assignee ------------------------------------ / / - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ Please Print or Type Name and Address Including Postal Zip Code of Assignee - ------------------------------------------------------------------------------------------------------------------------ the within DECS and all rights thereunder, hereby irrevocably constituting and appointing ------------------------------ attorney to transfer said ----------------------------------------------------------------------------------------------- DECS on the books of Tribune Company with full power of substitution in the premises. Dated: ------------------------------ ---------------------------------------- Signature ---------------------------------------- NOTICE: The signature to this assignment must correspond with the name as it appears upon the face of the within DECS. in every particular, without alteration or enlargement or any change whatsoever.
R-4 EX-99.9 3 MASTER SECURITIES LOAN AGREEMENT 1 Public Securities Association Exhibit 99.9 40 Broad Street, New York, NY 10004-2373 Telephone (212) 809-7000 MASTER SECURITIES LOAN AGREEMENT Dated as of August 5, 1998 Between: Smith Barney, Inc - ----------------------------------- and Tribune Company - ----------------------------------- This Agreement sets forth the terms and conditions under which one party ("Lender") may, from time to time, lend to the other party ("Borrower") certain securities against a pledge of collateral. Capitalized terms not otherwise defined herein shall have the meanings provided in Section 26. The parties hereto agree as follows: 1. Loans of Securities. 1.1 Subject to the terms and conditions of this Agreement, Borrower or Lender may, from time to time, orally seek to initiate a transaction in which Lender will lend securities to Borrower. Borrower and Lender shall agree orally on the terms of each Loan, including the issuer of the securities, the amount of securities to be lent, the basis of compensation, and the amount of Collateral to be transferred by Borrower, which terms may be amended during the Loan. 1.2 Notwithstanding any other provision in this Agreement regarding when a Loan commences, a Loan hereunder shall not occur until the Loaned Securities and the Collateral therefor have been transferred in accordance with Section 16. 1.3 WITHOUT WAIVING ANY RIGHTS GIVEN TO LENDER HEREUNDER, IT IS UNDERSTOOD AND AGREED THAT THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT LENDER WITH RESPECT TO LOANED SECURITIES HEREUNDER AND THAT, THEREFORE, THE COLLATERAL DELIVERED TO LENDER MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF BORROWER'S OBLIGATIONS IN THE EVENT BORROWER FAILS TO RETURN THE LOANED SECURITIES. 2 2. Transfer of Loaned Securities. 2.1 Unless otherwise agreed, Lender shall transfer Loaned Securities to Borrower hereunder on or before the Cutoff Time on the date agreed to by Borrower and Lender for the commencement of the Loan. 2.2 Unless otherwise agreed, Borrower shall provide Lender, in each Loan in which Lender is a Customer, with a schedule and receipt listing the Loaned Securities. Such schedule and receipt may consist of (a) a schedule provided to Borrower by Lender and executed and returned by Borrower when the Loaned Securities are received, (b) in the case of securities transferred through a Clearing Organization which provides transferors with a notice evidencing such transfer, such notice, or (c) a confirmation or other document provided to Lender by Borrower. 3. Collateral. 3.1 Unless otherwise agreed, Borrower shall, prior to or concurrently with the transfer of the Loaned Securities to Borrower, but in no case later than the close of business on the day of such transfer, transfer to Lender Collateral with a market value at least equal to a percentage of the market value of the Loaned Securities agreed to by Borrower and Lender (which shall be not less than 100% of the market value of the Loaned Securities) (the "Margin Percentage"). 3.2 The Collateral transferred by Borrower to Lender, as adjusted pursuant to Section 8, shall be security for Borrower's obligations in respect of such Loan and for any other obligations of Borrower to Lender. Borrower hereby pledges with, assigns to, and grants Lender a continuing first security interest in, and a lien upon, the Collateral, which shall attach upon the transfer of the Loaned Securities by Lender to Borrower and which shall cease upon the transfer of the Loaned Securities by Borrower to Lender. In addition to the rights and remedies given to Lender hereunder, Lender shall have all the rights and remedies of a secured party under the New York Uniform Commercial Code. It is understood that Lender may use or invest the Collateral, if such consists of cash, at its own risk, but that (unless Lender is a Broker-Dealer) Lender shall, during the term of any Loan hereunder, segregate Collateral from all securities or other assets in its possession. Lender may pledge, repledge, hypothecate, rehypothecate, lend, relend, sell or otherwise transfer the Collateral, or re-register Collateral evidenced by physical certificates in any name other than Borrower's, only (a) if Lender is Broker-Dealer or (b) in the event of a Default by Borrower. Segregation of Collateral may be accomplished by appropriate identification on the books and records of Lender if it is a "financial intermediary" or a "clearing corporation" within the meaning of the New York Uniform Commercial Code. 3.3 Except as otherwise provided herein, upon transfer to Lender of the Loaned Securities on the day a Loan is terminated pursuant to Section 5, Lender shall be obligated to transfer the Collateral (as adjusted pursuant to Section 8) to Borrower no later than the Cutoff 2 3 Time on such day or, if such day is not a day on which a transfer of such Collateral may be effected under Section 16, the next day on which such a transfer may be effected. 3.4 If Borrower transfers Collateral to Lender, as provided in Section 3.1, and Lender does not transfer the Loaned Securities to Borrower, Borrower shall have the absolute right to the return of the Collateral, and if Lender transfers Loaned Securities to Borrower and Borrower does not transfer Collateral to Lender as provided in Section 3.1, Lender shall have the absolute right to the return of the Loaned Securities. 3.5 Borrower may, upon reasonable notice to Lender (taking into account all relevant factors, including industry practice, the type of Collateral to be substituted and the applicable method of transfer), substitute Collateral for Collateral securing any Loan or Loans; provided, however, that such substituted Collateral shall (a) consist only of cash, securities or other property that Borrower and Lender agreed would be acceptable Collateral prior to the Loan or Loans and (b) have a market value such that the aggregate market value of such substituted Collateral, together with all other Collateral for Loans in which the party substituting such Collateral is acting as Borrower, shall equal or exceed the agreed upon Margin Percentage of the market value of the Loaned Securities. Prior to the expiration of any letter of credit supporting Borrower's obligations hereunder, Borrower shall, no later than the Cutoff Time on the date such letter of credit expires, obtain an extension of the expiration of such letter of credit or replace such letter of credit by providing Lender with a substitute letter of credit in an amount at least equal to the amount of the letter of credit for which it is substituted. 3.6 Lender acknowledges that, in connection with Loans of Government Securities and as otherwise permitted by applicable law, some securities provided by Borrower as Collateral under this Agreement may not be guaranteed by the United States. 4. Fees for Loan. 4.1 Unless otherwise agreed, (a) Borrower agrees to pay Lender a loan fee (a "Loan Fee"), computed daily on each Loan to the extent such Loan is secured by Collateral other than cash, based on the aggregate par value (in the case of Loans of Government Securities) or the aggregate market value (in the case of all other Loans) of the Loaned Securities on the day for which such Loan Fee is being computed, and (b) Lender agrees to pay Borrower a fee or rebate (a "Cash Collateral Fee") on Collateral consisting of cash, computed daily based on the amount of cash held by Lender as Collateral, in the case of each of the Loan Fee and the Cash Collateral Fee at such rates as Borrower and Lender may agree. Except as Borrower and Lender may otherwise agree (in the event that cash Collateral is transferred by clearing house funds or otherwise), Loan Fees shall accrue from and including the date on which the Loaned Securities are transferred to Borrower to, but excluding, the date on which such Loaned Securities are returned to Lender, and Cash Collateral Fees shall accrue from and including the date on which the cash Collateral is transferred to Lender to, but excluding, the date on which such cash Collateral is returned to Borrower. 3 4 4.2 Unless otherwise agreed, any Loan Fee or Cash Collateral Fee payable hereunder shall be payable: (a) in the case of any Loan of securities other than Government Securities, upon the earlier of (i) the fifteenth day of the month following the calendar month in which such fee was incurred or (ii) the termination of all Loans hereunder (or, if a transfer of cash in accordance with Section 16 may not be effected on such fifteenth day or the day of such termination, as the case may be, the next day on which such a transfer may be effected); and (b) in the case of any Loan of Government Securities, upon the termination of such Loan. Notwithstanding the foregoing, all Loan Fees shall be payable by Borrower immediately in the event of a Default hereunder by Borrower and all Cash Collateral Fees shall be payable immediately by Lender in the event of a Default by Lender. 5. Termination of the Loan. Unless otherwise agreed, (a) Borrower may terminate a Loan on any Business Day by giving notice to Lender and transferring the Loaned Securities to Lender before the Cutoff Time on such Business Day, and (b) Lender may terminate a Loan on a termination date established by notice given to Borrower prior to the close of business on a Business Day. The termination date established by a termination notice given by Lender to Borrower shall be a date no earlier than the standard settlement date for trades of the Loaned Securities entered into on the date of such notice, which date shall, unless Borrower and Lender agree to the contrary, be (i) in the case of Government Securities, the next Business Day following such notice and (ii) in the case of all other securities, the fifth Business Day following such notice. Unless otherwise agreed, Borrower shall, on or before the Cutoff Time on the termination date of a Loan, transfer the Loaned Securities to Lender; provided, however, that upon such transfer by Borrower, Lender shall transfer the Collateral (as adjusted pursuant to Section 8) to Borrower in accordance with Section 3.3. 6. Rights of Borrower in Respect of the Loaned Securities. Except as set forth in Sections 7.1 and 7.2 and as otherwise agreed by Borrower and Lender, until Loaned Securities are required to be redelivered to Lender upon termination of a Loan hereunder, Borrower shall have all of the incidents of ownership of the Loaned Securities, including the right to transfer the Loaned Securities to others. Lender hereby waives the right to vote, or to provide any consent or to take any similar action with respect to, the Loaned Securities in the event that the record date or deadline for such vote, consent or other action falls during the term of the Loan. 7. Dividends, Distributions, Etc. 7.1 Lender shall be entitled to receive all distributions made on or in respect of the Loaned Securities which are not otherwise received by Lender, to the full extent it would be so 4 5 entitled if the Loaned Securities had not been lent to Borrower, including, but not limited to: (a) cash and all other property; (b) stock dividends; (c) securities received as a result of split ups of the Loaned Securities and distributions in respect thereof; (d) interest payments; and (e) all rights to purchase additional securities. 7.2. Any cash distributions made on or in respect of the Loaned Securities, which Lender is entitled to receive pursuant to Section 7.1 shall be paid by the transfer of cash to Lender by Borrower, on the date any such distribution is paid, in an amount equal to such cash distribution, so long as Lender is not in Default at the time of such payment. Non-cash distributions received by Borrower shall be added to the Loaned Securities on the date of distribution and shall be considered such for all purposes, except that if the Loan has terminated, Borrower shall forthwith transfer the same to Lender. 7.3 Borrower shall be entitled to receive all cash distributions made on or in respect of non-cash Collateral which are not otherwise received by Borrower, to the full extent it would be so entitled if the Collateral had not been transferred to Lender. Any distributions of cash made on or in respect of such Collateral which Borrower is entitled to receive hereunder shall be paid by the transfer of cash to Borrower by Lender, on the date any such distribution is paid, in an amount equal to such cash distribution, so long as Borrower is not in Default at the time of such payment. 7.4 (a) Unless otherwise agreed, if (i) Borrower is required to make a payment (a "Borrower Payment") with respect to cash distributions on Loaned Securities under Sections 7.1 and 7.2 ("Securities Distributions"), or (ii) Lender is required to make a payment (a "Lender Payment") with respect to cash distributions on Collateral under Section 7.3 ("Collateral Distributions"), and (iii) Borrower or Lender, as the case may be ("Payor"), shall be required by law to collect any withholding or other tax, duty, fee, levy or charge required to be deducted or withheld from such Borrower Payment or Lender Payment ("Tax"), then Payor shall (subject to subsections (b) and (c) below, pay such additional amounts as may be necessary in order that the net amount of the Borrower Payment or Lender Payment received by the Lender or Borrower, as the case may be ("Payee"), after payment of such Tax equals the net amount of the Securities Distribution or Collateral Distribution that would have been received if such Securities Distribution or Collateral Distribution had been paid directly to the Payee. (b) No additional amounts shall be payable to a Payee under subsection (a) above to the extent that Tax would have been imposed on a Securities Distribution or Collateral Distribution paid directly to the Payee. (c) No additional amounts shall be payable to a Payee under subsection (a) above to the extent that such Payee is entitled to an exemption from, or reduction in the rate of, Tax on a Borrower Payment or Lender Payment subject to the provision of a certificate or other documentation, but has failed timely to provide such certificate or other documentation. 5 6 (d) Each party hereto shall be deemed to represent that, as of the commencement of any Loan hereunder, no Tax would be imposed on any cash distribution paid to it with respect to (i) Loaned Securities subject to a Loan in which it is acting as Lender or (ii) Collateral for any Loan in which it is acting as Borrower, unless such party has given notice to the contrary to the other party hereto (which notice shall specify the rate at which such Tax would be imposed). Each party agrees to notify the other of any change that occurs during the term of a Loan in the rate of any Tax that would be imposed on any such cash distributions payable to it. 7.5 To the extent that, under the provisions of Sections 7.1 through 7.4 (a) a transfer of cash or other property by Borrower would give rise to a Margin Excess (as defined in Section 8.3 below) or (b) a transfer of cash or other property by Lender would give rise to a Margin Deficit (as defined in Section 8.2 below), Borrower or Lender (as the case may be) shall not be obligated to make such transfer of cash or other property in accordance with such Sections, but shall in lieu of such transfer immediately credit the amounts that would have been transferable under such Sections to the account of Lender or Borrower (as the case may be). 8. Mark to Market 8.1 Borrower shall daily mark to market any Loan hereunder and in the event that at the close of trading on any Business Day the market value of the Collateral for any Loan to Borrower shall be less that 100% of the market value of all the outstanding Loaned Securities subject to such Loan, Borrower shall transfer additional Collateral no later than the close of the next Business Day so that the market value of such additional Collateral, when added to the market value of the other Collateral for such Loan, shall equal 100% of the market value of the Loaned Securities. 8.2 In addition to any rights of Lender under Section 8.1, in the event that at the close of trading on any Business Day the aggregate market value of all Collateral for Loans by Lender shall be less than the Margin Percentage of the market value of all the outstanding Loaned Securities subject to such Loans (a "Margin Deficit"), Lender may, by notice to Borrower, demand that Borrower transfer to Lender additional Collateral so that the market value of such additional Collateral, when added to the market value of all other Collateral for such Loans, shall equal or exceed the agreed upon Margin Percentage of the market value of the Loaned Securities. Unless otherwise agreed, such transfer is to be made no later than the close of the next Business Day following the day of Lender's notice to Borrower. 8.3 In the event that at the close of trading on any Business Day the market value of all Collateral for Loans to Borrower shall be greater than the Margin Percentage of the market value of all the outstanding Loaned Securities subject to such Loans (a "Margin Excess"), Borrower may, by notice to Lender, demand that Lender transfer to Borrower such amount of the Collateral selected by Borrower so that the market value of the Collateral for such Loans, after deduction of such amounts, shall thereupon not exceed the Margin Percentage of the market value of the 6 7 Loaned Securities. Unless otherwise agreed, such transfer is to be made no later than the close of the next Business Day following the day of Borrower's notice to Lender. 8.4 Borrower and Lender may agree, with respect to one or more Loans hereunder, to mark the values to market pursuant to Sections 8.2 and 8.3 by separately valuing the Loaned Securities lent and the Collateral given in respect thereof on a Loan-by-Loan basis. 8.5 Borrower and Lender may agree, with respect to any or all Loans hereunder, that the respective rights of Lender and Borrower under Sections 8.2 and 8.3 may be exercised only where a Margin Excess or Margin Deficit exceeds a specified dollar amount or a specified percentage of the market value of the Loaned Securities under such Loans (which amount or percentage shall be agreed to by Borrower and Lender prior to entering into any such Loans). 9. Representations. Each party to this Agreement hereby makes the following representations and warranties, which shall continue during the term of any Loan hereunder: 9.1 Each party hereto represents and warrants that (a) it has the power to execute and deliver this Agreement, to enter into the Loans contemplated hereby and to perform its obligations hereunder; (b) it has taken all necessary action to authorize such execution, delivery and performance; and (c) this Agreement constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms. 9.2 Each party hereto represents and warrants that the execution, delivery and performance by it of this Agreement and each Loan hereunder will at all times comply with all applicable laws and regulations including those of applicable regulatory and self-regulatory organizations. 9.3 Each party hereto represents and warrants that it has not relied on the other for any tax or accounting advice concerning this Agreement and that it has made its own determination as to the tax and accounting treatment of any Loan and any dividends, remuneration or other funds received hereunder. 9.4 Borrower represents and warrants that it is acting for its own account. Lender represents and warrants that it is acting for its own account unless it expressly specifies otherwise in writing and complies with Section 10.3(b). 9.5 Borrower represents and warrants that (a) has, or will have at the time of transfer of any Collateral, the right to grant a first security interest therein subject to the terms and conditions hereof, and (b) it (or the person to whom it relends the Loaned Securities) is borrowing or will borrow the Loaned Securities (except for Loaned Securities that qualify as "exempted securities" under Regulation T of the Board of Governors of the Federal Reserve System) for the purpose of making delivery of such securities in the case of short sales, failure to 7 8 receive securities required to be delivered, or as otherwise permitted pursuant to Regulation T as in effect from time to time. 9.6 Lender represents and warrants that it has, or will have at the time of transfer of any Loaned Securities, the right to transfer the Loaned Securities subject to the terms and conditions hereof. 10. Covenants 10.1 Each party hereto agrees and acknowledges that (a) each Loan hereunder is a "securities contract," as such term is defined in Section 741(7) of Title 11 of the United States Code (the "Bankruptcy Code"), (b) each and every transfer of funds, securities and other property under this Agreement and each Loan hereunder is a "settlement payment" or a "margin payment," as such terms are used in Sections 362(b)(6) and 546(e) of the Bankruptcy Code, and (c) the rights given to Borrower and Lender hereunder upon a Default by the other constitute the right to cause the liquidation of a securities contract and the right to set off mutual debts and claims in connection with a securities contract, as such terms are used in Sections 555 and 362(b)(6) of the Bankruptcy Code. Each party hereto further agrees and acknowledges that if a party hereto is an "insured depository institution," as such term is defined in the Federal Deposit Insurance Act, as amended ("FDIA"), then each Loan hereunder is a "securities contract" and "qualified financial contract," as such terms are defined in the FDIA and any rules, orders or policy statements thereunder. 10.2 Borrower agrees to be liable as principal with respect to its obligations hereunder. 10.3 Lender agrees either (a) to be liable as principal with respect to its obligations hereunder or (b) to execute and comply fully with the provisions of Annex I (the terms and conditions of which Annex are incorporated herein and made a part hereof). 10.4 Promptly upon (and in any event within seven (7) Business Days after) demand by Lender, Borrower shall furnish Lender with Borrower's most recent publicly-available financial statements and any other financial statements mutually agreed upon by Borrower and Lender. Unless otherwise agreed, if Borrower is subject to the requirements of Rule 17a-5(c) under the Exchange Act, it may satisfy the requirements of this Section by furnishing Lender with its most recent statement required to be furnished to customers pursuant to such Rule. 10.5 Except to the extent required by applicable law or regulation or as otherwise agreed, Borrower and Lender agree that Loans hereunder shall in no event be "exchange contracts" for purposes of the rules of any securities exchange and that Loans hereunder shall not be governed by the buy-in or similar rules of any such exchange, registered national securities or other self-regulatory organization. 8 9 11. Events of Default. All Loans hereunder may, at the option of the non-defaulting party exercised by notice to the defaulting party (which option shall be deemed to have been exercised even if no notice is given, immediately upon the occurrence of an event specified in subsection(e) below), be terminated immediately upon the occurrence of any one or more of the following events (individually a "Default"): (a) if any Loaned Securities shall not be transferred to Lender upon termination of the Loan as required by Section 5; (b) if any Collateral shall not be transferred to Borrower upon termination of the Loan as required by Sections 3.3 and 5; (c) if either party shall fail to transfer Collateral as required by Section 8; (d) if either party (i) shall fail to transfer to the other party amounts in respect of distributions required to be transferred by Section 7, (ii) shall have received notice of such failure from the non-defaulting party, and (iii) shall not have cured such default by the Cutoff Time on the next day after such notice on which a transfer of cash may be effected in accordance with Section 16; (e) if (i) either party shall commence as debtor any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law, or seek the appointment of a receiver, conservator, trustee, custodian or similar official for such party or any substantial part of its property, (ii) any such case or proceeding shall be commenced against either party, or another shall seek such an appointment, or any application shall be filed against either party for a protective decree under the provisions of the Securities Investor Protection Act of 1970, which (A) is consented to or not timely contested by such party, (B) results in the entry of any order for relief, such an appointment, the issuance of such a protective decree or the entry of an order having similar effect, or (C) is not dismissed within 15 days, (iii) either party shall make a general assignment for the benefit of creditors, or (iv) either party shall admit in writing its inability to pay its debts as they become due; (f) if either party shall have been suspended or expelled from membership or participation in any national securities exchange or registered national securities association of which it is a member or other self-regulatory organization to whose rules it is subject or if it is suspended from dealing in securities by any federal or state government agency thereof; (g) if either party shall have its license, charter, or other authorization necessary to conduct a material portion of its business withdrawn, suspended or revoked by any applicable federal or state government or agency thereof; 9 10 (h) if any representation made by either party in respect of this Agreement or any Loan or Loans hereunder shall be incorrect or untrue in any material respect during the term of any Loan hereunder; (i) if either party notifies the other, orally or in writing, of its inability to or its intention not to perform its obligations hereunder or otherwise disaffirms, rejects or repudiates any if its obligations hereunder; or (j) if either party (i) shall fail to perform any material obligation under this Agreement not specifically set forth in clauses (a) through (i) above, including but not limited to the payment of fees as required by Section 4, and the payment of transfer taxes as required by Section 14, (ii) shall have received notice of such failure from the non-defaulting party and (iii) shall not have cured such failure by the Cutoff Time on the next day after such notice on which a transfer of cash may be effected under Section 16. 12. Lender's Remedies. Upon the occurrence of a Default under Section 11 entitling Lender to terminate all Loans hereunder, Lender shall have the right (without further notice to Borrower), in addition to any other remedies provided herein or under applicable law, (a) to purchase a like amount of Loaned Securities ("Replacement Securities") in the principal market for such Collateral in a commercially reasonable manner, (b) to sell any Collateral in the principal market for such Collateral in a commercially reasonable manner and (c) to apply and set off the Collateral and any proceeds thereof (including any amounts drawn under a letter of credit supporting any Loan) against the payment of the purchase price for such Replacement Securities and any amounts due to Lender under Sections 4, 7, 14 and 17. In the event Lender shall exercise such rights, Borrower's obligation to return a like amount of the Loaned Securities shall terminate, Lender may similarly apply the Collateral and any proceeds thereof to any other obligation of Borrower under this Agreement, including Borrower's obligations with respect to distributions paid to Borrower (and not forwarded to Lender) in respect of Loaned Securities. In the event that (i) the purchase price of Replacement Securities (plus all other amounts, if any, due to Lender hereunder) exceeds (ii) the amount of the Collateral, Borrower shall be liable to Lender for the amount of such excess together with interest thereon at a rate equal to (A) in the case of purchases of Foreign Securities, LIBOR, (B) in the case of purchases of any other securities (or other amounts, if any, due to Lender hereunder), the Federal Funds Rate or (C) such other rate as may be specified in Schedule B, in each case as such rate fluctuates from day to day, from the date of such purchase until the date of payment of such excess. As security for Borrower's obligation to pay such excess, Lender shall have, and Borrower hereby grants, a security interest in any property of Borrower then held by or for Lender and a right of setoff with respect to such property and any other amount payable by Lender to Borrower. The purchase price of Replacement Securities purchased under this Section 12 shall include, and the proceeds of any sale of Collateral shall be determined after deduction of, broker's fees and commissions and all other reasonable costs, fees and expenses related to such purchase or sale (as the case may be). In the event Lender exercises its rights under this Section 12, Lender may elect in its sole 10 11 discretion, in lieu of purchasing all or a portion of the Replacement Securities or selling all or a portion of the Collateral, to be deemed to have made, respectively, such purchase of Replacement Securities or sale of Collateral for an amount equal to the price therefor on the date of such exercise obtained from a generally recognized source or the most recent closing bid quotation from such a source. Subject to Section 19, upon the satisfaction of all obligations hereunder, any remaining Collateral shall be returned to Borrower. 13. Borrower's Remedies. Upon the occurrence of a Default under Section 11 entitling Borrower to terminate all Loans hereunder, Borrower shall have the right (without further notice to Lender), in addition to any other remedies provided herein or under applicable law, (a) to purchase a like amount of Collateral ("Replacement Collateral") in the principal market for such Collateral in a commercially reasonable manner, (b) to sell a like amount of the Loaned Securities in the principal market for such securities in a commercially reasonable manner and (c) to apply and set off the Loaned Securities and any proceeds thereof against (i) the payment of the purchase price for such Replacement Collateral, (ii) Lender's obligation to return any cash or other Collateral and (iii) any amounts due to Borrower under Sections 4, 7 and 17. In such event, Borrower may treat the Loaned Securities as its own and Lender's obligation to return a like amount of the Collateral shall terminate; provided, however, that Lender shall immediately return any letters of credit supporting any Loan upon the exercise or deemed exercise by Borrower of its termination rights under Section 11. Borrower may similarly apply the Loaned Securities and any proceeds thereof to any other obligation of Lender under this Agreement, including Lender's obligations with respect to distributions paid to Lender (and not forwarded to Borrower) in respect of Collateral. In the event that (i) the sales price received from such Loaned Securities is less than (ii) the purchase price of Replacement Collateral (plus the amount of any cash or other Collateral not replaced by Borrower and all other amounts, if any, due to Borrower hereunder), Lender shall be liable to Borrower for the amount of any such deficiency, together with interest on such amounts at a rate equal to (A) in the case of Collateral consisting of Foreign Securities, LIBOR, (B) in the case of Collateral consisting of any other securities (or other amounts due, if any, to Borrower hereunder), the Federal Funds Rate or (C) such other rate as may be specified in Schedule B, in each case as such rate fluctuates from day to day, from the date of such sale until the date of payment of such deficiency. As security for Lender's obligation to pay such deficiency, Borrower shall have, and Lender hereby grants, a security interest in any property of Lender then held by or for Borrower and a right of setoff with respect to such property and any other amount payable by Borrower to Lender. The purchase price of any Replacement Collateral purchased under this Section 13 shall include, and the proceeds of any sale of Loaned Securities shall be determined after deduction of, broker's fees and commissions and all other reasonable costs, fees and expenses related to such purchase or sale (as the case may be). In the event Borrower exercises its rights under this Section 13, Borrower may elect in its sole discretion, in lieu of purchasing all or a portion of the Replacement Collateral or selling all or a portion of the Loaned Securities, to be deemed to have made, respectively, such purchase of Replacement Collateral or sale of Loaned Securities for an amount equal to the price therefor on the date of such exercise obtained from a generally recognized source or the most recent closing bid quotation from such a source. Subject to Section 19, upon the satisfaction of all Lender's 11 12 obligations hereunder, any remaining Loaned Securities (or remaining cash proceeds thereof) shall be returned to Lender. Without limiting the foregoing, the parties hereto agree that they intend the Loans hereunder to be loans of securities. If, however, any Loan is deemed to be a loan of money by Borrower to Lender, then Borrower shall have, and Lender shall be deemed to have granted, a security interest in the Loaned Securities and the proceeds thereof. 14. Transfer Taxes. All transfer taxes with respect to the transfer of the Loaned Securities by Lender to Borrower and by Borrower to Lender upon termination of the Loan shall be paid by Borrower. 15. Market Value. 15.1 Unless otherwise agreed, if the principal market for the securities to be valued is a national securities exchange in the United States, their market value shall be determined by their last sale price on such exchange on the preceding Business Day or, if there was no sale on that day, by the last sale price on the next preceding Business Day on which there was a sale on such exchange, all as quoted on the Consolidated Tape or, if not quoted on the Consolidated Tape, then as quoted by such exchange. 15.2 Except as provided in Section 15.3 or 15.4 or as otherwise agreed, if the principal market for the securities to be valued is the over-the-counter market, their market value shall be determined as follows. If the securities are quoted on the National Association of Securities Dealers Automated Quotations System ("NASDAQ"), their market value shall be the closing sale price on NASDAQ on the preceding Business Day or, if the securities are issues for which last sale prices are not quoted on NASDAQ, the closing bid price on such day. If the securities to be valued are not quoted on NASDAQ, their market value shall be the highest bid quotation as quoted in any of The Wall Street Journal, the National Quotation Bureau pink sheets, the Salomon Brothers quotation sheets, quotations sheets of registered market makers and, if necessary, dealers' telephone quotations on the preceding Business Day. In each case, if the relevant quotation did not exist on such day, then the relevant quotation on the next preceding Business Day in which there was such a quotation shall be the market value. 15.3 Unless otherwise agreed, if the securities to be valued are Government Securities, their market value shall be the average of the bid and ask prices as quoted on Prophesy at 3:30 P.M. New York time on the Business Day preceding the date on which such determination is made. If the securities are not so quoted on such day, their market value shall be determined as of the next preceding Business Day on which they were so quoted. If the securities to be valued are Government Securities that are not quoted on Prophesy, their market value shall be determined as of the close of business on the preceding Business Day in accordance with market practice for such securities. 12 13 15.4 Unless otherwise agreed, if the securities to be valued are Foreign Securities, their market value shall be determined as of the close of business on the preceding Business Day in accordance with market practice in the principal market for such securities. 15.5 Unless otherwise agreed, the market value of a letter of credit shall be the undrawn amount thereof. 15.6 All determinations of market value under Sections 15.1, 15.2, 15.3 and 15.4 shall include, where applicable, accrued interest to the extent not already included therein (other than any interest transferred to the other party pursuant to Section 7), unless market practice with respect to the valuation of such securities in connection with securities loans is to the contrary. All determinations of market value that are required to be made at the close of trading on any Business Day pursuant to Section 8 or otherwise hereunder shall be made as if being determined at the commencement of trading on the next Business Day. The determinations of market value provided for in this Section 15 shall apply for all purposes under this Agreement, except for purposes of Sections 12 and 13. 16. Transfers. 16.1 All transfers of securities hereunder shall be by (a) physical delivery of certificates representing such securities together with duly executed stock and bond transfer powers, as the case may be, with signatures guaranteed by a bank or a member firm of the New York Stock Exchange, Inc., (b) transfer on the books of a Clearing Organization, or (c) such other means as Borrower and Lender may agree. In every transfer of securities hereunder, the transferor shall take all steps necessary (i) to effect a "transfer" under Section 8-313 of the New York Uniform Commercial Code or, where applicable, under any U.S. federal regulation governing transfers of securities and (ii) to provide the transferee with comparable rights under any applicable foreign law or regulation. 16.2 All transfers of cash Collateral hereunder shall be by (a) wire transfer in immediately available, freely transferable funds or (b) such other means as Borrower and Lender may agree. All other transfers of cash hereunder shall be made in accordance with the preceding sentence or by delivery of a certified or official bank check representing next-day New York Clearing House Funds. 16.3 All transfers of a letter of credit from Borrower to Lender shall be made by physical delivery to Lender of an irrevocable letter of credit issued by a "bank" as defined in Section 3(a)(6)(A)-(C) of the Exchange Act. Transfer of a letter of credit from Lender to Borrower shall be made by causing such letter of credit to be returned or by causing the amount of such letter of credit to be reduced to the amount required after such transfer. 16.4 A transfer of securities, cash or letters of credit may be effected under this Section 16 on any day except (a) a day on which the transferee is closed for business at its address set 13 14 forth in Schedule A hereto or (b) a day on which a Clearing Organization or wire transfer system is closed, if the facilities of such Clearing Organization or wire transfer system are required to effect such transfer. 17. Contractual Currency. 17.1 Borrower and Lender agree that: (a) any payment in respect of a distribution under Section 7 shall be made in the currency in which the underlying distribution of cash was made; (b) any return of cash shall be made in the currency in which the underlying transfer of cash was made and (c) any other payment of cash in connection with a Loan under this Agreement shall be in the currency agreed upon by Borrower and Lender in connection with such Loan (the currency established under clause (a), (b) or (c) hereinafter referred to as the "Contractual Currency"). Notwithstanding the foregoing, the payee of any such payment may, at its option, accept tender thereof in any other currency; provided, however, that, to the extent permitted by applicable law, the obligation of the payor to make such payment will be discharged only to the extent of the amount of Contractual Currency that such payee may, consistent with normal banking procedures, purchase with such other currency (after deduction of any premium and costs of exchange) on the banking day next succeeding its receipt of such currency. 17.2 If for any reason the amount in the Contractual Currency received under Section 17.1, including amounts received after conversion of any recovery under any judgment or order expressed in a currency other than the Contractual Currency, falls short of the amount in the Contractual Currency due in respect of this Agreement, the party required to make the payment will (unless a Default has occurred and such party is the non-defaulting party) as a separate and independent obligation and to the extent permitted by applicable law, immediately pay such additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. 17.3 If for any reason the amount in the Contractual Currency received under Section 17.1 exceeds the amount in the Contractual Currency due in respect of this Agreement, then the party receiving the payment will (unless a Default has occurred and such party is the nondefaulting party) refund promptly the amount of such excess. 18. ERISA. Lender shall, if any of the securities transferred to the Borrower hereunder for any Loan have been or shall be obtained, directly or indirectly, from or using the assets of any Plan, so notify Borrower in writing upon the execution of the Agreement or upon initiation of such Loan under Section 1.1. If Lender so notifies Borrower, then Borrower and Lender shall conduct the Loan in accordance with the terms and conditions of Department of Labor Prohibited Transaction Exemption 81-6 (46 Fed. Reg. 7527, Jan. 23, 1981; as amended, 52 Fed. Reg. 18754, May 19, 1987), or any successor thereto (unless Borrower and Lender have agreed prior to entering into a Loan that such Loan will be conducted in reliance on another exemption, or without relying on any exemption, from the prohibited transaction provisions of Section 406 of the Employee Retirement Income Security Act of 1974, as amended, and Section 4975 of the 14 15 Internal Revenue Code of 1986, as amended). Without limiting the foregoing and notwithstanding any other provision of this Agreement, if the Loan will be conducted in accordance with Prohibited Transaction Exemption 81-6, then: (a) Borrower represents and warrants to Lender that it is either (i) a bank subject to federal or state supervision, (ii) a broker-dealer registered under the Exchange Act or (iii) exempt from registration under Section 15(a)(1) of the Exchange Act as a dealer in Government Securities. (b) Borrower represents and warrants that, during the term of any Loan hereunder, neither Borrower nor any affiliate of Borrower has any discretionary authority or control with respect to the investment of the assets of the Plan involved in the Loan or renders investment advice (within the meaning of 29 C.F.R. Section 2510.3-21(c)) with respect to the assets of the Plan involved in the Loan. Lender agrees that, prior to or at the commencement of any Loan hereunder, it will communicate to Borrower information regarding the Plan sufficient to identify to Borrower any person or persons that have discretionary authority or control with respect to the investment of the assets of the Plan involved in the Loan or that render investment advice (as defined in the preceding sentence) with respect to the assets of the Plan involved in the Loan. In the event Lender fails to communicate and keep current during the term of any Loan such information, Lender rather than Borrower shall be deemed to have made the representation and warranty in the first sentence of this clause (b). (c) Borrower and Lender agree that: (i) the term "Collateral" shall mean cash, securities issued or guaranteed by the United States government or its agencies or instrumentalities, or irrevocable bank letters of credit issued by a person other than Borrower or an affiliate thereof; (ii) prior to the making of any Loans hereunder, Borrower shall provide Lender with (A) the most recent available audited statement of Borrower's financial condition and (B) the most recent available unaudited statement of Borrower's financial condition (if more recent than the most recent audited statement), and each Loan made hereunder shall be deemed a representation by Borrower that there has been no material adverse change in Borrower's financial condition subsequent to the date of the latest financial statements or information furnished in accordance herewith; (iii) the Loan may be terminated by Lender at any time, whereupon Borrower shall deliver the Loaned Securities to Lender within the lesser of (A) the customary delivery period for such securities; (B) five Business Days and 15 16 (C) the time negotiated for such delivery between Borrower and Lender; provided, however, that Borrower and Lender may agree to a longer period only if permitted by Prohibited Transaction Exemption 81-6; and (iv) the Collateral transferred shall be security only for obligations of Borrower to the Plan with respect to Loans, and shall not be security for any obligation of Borrower to any agent or affiliate of the Plan. 19. Single Agreement. Borrower and Lender acknowledge that, and have entered into this Agreement in reliance of the fact that, all Loans hereunder constitute a single business and contractual relationship and have been entered into in consideration of each other. Accordingly, Borrower and Lender hereby agree that payments, deliveries and other transfers made by either of them in respect of any Loan shall be deemed to have been made in consideration of payments, deliveries and other transfers in respect of any other Loan hereunder, and the obligations to make any such payments, deliveries and other transfers may be applied against each other and netted. In addition, Borrower and Lender acknowledge that, and have entered into this Agreement in reliance on the fact that, all Loans hereunder have been entered into in consideration of each other. Accordingly, Borrower and Lender hereby agree that (a) each shall perform all of its obligations in respect of each Loan hereunder, and that a default in the performance of any such obligation by Borrower or by Lender (the "Defaulting Party") in any Loan hereunder shall constitute a default by the Defaulting Party under all such Loans hereunder, and (b) the non-defaulting party shall be entitled to set off claims and apply property held by it in respect of any Loan hereunder against obligations owing to it in respect of any other Loan with the Defaulting Party. 20. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF. 21. Waiver. The failure of a party to this Agreement to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. All waivers in respect of a Default must be in writing. 22. Remedies. All remedies hereunder and all obligations with respect to any Loan shall survive the termination of the relevant Loan, return of Loaned Securities or Collateral and termination of this Agreement. 23. Notices and Other Communications. Unless another address is specified in writing by the respective party to whom any notice or other communication is to be given hereunder, all such notices or communications shall be in writing or confirmed in writing and delivered at the respective addresses set forth in Schedule A attached hereto. All notices shall be effective upon actual receipt, provided, however, that if any notice shall be received by a party on a day on which 16 17 such party is not open for business at its office located at the address set forth in Schedule A, such notice shall be deemed to have been received by such party at the opening of business on the next day on which such party is open for business at such address. 24. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. 24.1 EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK CITY, AND ANY APPELLATE COURT FROM ANY SUCH COURT, SOLELY FOR THE PURPOSE OF ANY SUIT, ACTION OR PROCEEDING BROUGHT TO ENFORCE ITS OBLIGATIONS HEREUNDER OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY LOAN HEREUNDER AND (B) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, ANY DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND ANY RIGHT OF JURISDICTION ON ACCOUNT OF ITS PLACE OF RESIDENCE OR DOMICILE. 24.2 EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT MAY HAVE TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 25. Miscellaneous. This Agreement supersedes any other agreement between the parties hereto concerning loans of securities between Borrower and Lender. This Agreement shall not be assigned by either party without the prior written consent of the other party and any attempted assignment without such consent shall be null and void. Subject to the foregoing, this Agreement shall be binding upon and shall ensure to the benefit of Borrower and Lender and their respective heirs, representatives, successors and assigns. This Agreement may be terminated by either party upon written notice to the other, subject only to fulfillment of any obligations then outstanding. This Agreement shall not be modified, except by an instrument in writing signed by the party against whom enforcement is sought. The parties hereto acknowledge and agree that, in connection with this Agreement and each Loan hereunder, time is of the essence. Each provision and agreement herein shall be treated as separate and independent from any other provision herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement. 26. Definitions. For the purposes hereof: 26.1 "Broker-Dealer" shall mean any person that is a broker (including a municipal securities broker), dealer, municipal securities dealer, government securities broker or government securities dealer as defined in the Exchange Act, regardless of whether the activities of such 17 18 person are conducted in the United States or otherwise require such person to register with the Securities and Exchange Commission or other regulatory body. 26.2 "Business Day" shall mean, with respect to any Loan hereunder, a day on which regular trading occurs in the principal market for the Loaned Securities subject to such Loan, provided, however, that for purposes of Section 15, such term shall mean a day on which regular trading occurs in the principal market for the securities whose value is being determined. Notwithstanding the foregoing, (i) for purposes of Section 8, "Business Day" shall mean any day on which regular trading occurs in the principal market for any Loaned Securities or for any securities Collateral under any outstanding Loan hereunder and "next Business Day" shall mean the next day on which a transfer of Collateral may be effected in accordance with Section 16; and (ii) in no event shall a Saturday or Sunday be considered a Business Day. 26.3 "Clearing Organization" shall mean The Depository Trust Company, or, if agreed to by Borrower and Lender, such other clearing agency at which Borrower (or Borrower's agent) and Lender (or Lender's agent) maintain accounts, or a book-entry system maintained by a Federal Reserve Bank. 26.4 "Collateral" shall mean, whether now owned or hereafter acquired and to the extent permitted by applicable law, (a) any property which Borrower and Lender agree shall be acceptable collateral prior to the Loan and which is transferred to Lender pursuant to Section 3 or 8 (including as collateral, for definitional purposes, any letters of credit mutually acceptable to Lender and Borrower), (b) any property substituted therefor pursuant to Section 3.5, (c) all accounts in which such property is deposited and all securities and the like in which any cash collateral is invested or reinvested, and (d) any proceeds of any of the foregoing. For purposes of return of Collateral by Lender or purchase or sale of securities pursuant to Section 12 or 13, such term shall include securities of the same issuer, class and quantity as the Collateral initially transferred by Borrower to Lender. 26.5 "Customer" shall mean any person that is a customer of Borrower under Rule 15c3-3 under the Exchange Act or any comparable regulation of the Secretary of the Treasury under Section 15C of the Exchange Act (to the extent that Borrower is subject to such Rule or comparable regulation). 26.6 "Cutoff Time" shall mean a time on a Business Day by which a transfer of cash, securities or other property must be made by Borrower or Lender to the other, as shall be agreed by Borrower and Lender in Schedule B or otherwise orally or in writing or, in the absence of any such agreement, as shall be determined in accordance with market practice. 26.7 "Default" shall have the meaning assigned in Section 11. 26.8 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 18 19 26.9 "Federal Funds Rate" shall mean the rate of interest (expressed as an annual rate), as published in Federal Reserve Statistical Release H.15(519) or any publication substituted therefor, charged for federal funds (dollars in immediately available funds borrowed by banks on an overnight unsecured basis) on that day or, if that day is not a banking day in New York City, on the next preceding banking day. 26.10 "Foreign Securities" shall mean, unless otherwise agreed, securities that are principally cleared and settled outside the United States. 26.11 "Government Securities" shall mean government securities as defined in Section 3(a)(42)(A)-(C) of the Exchange Act. 26.12 "LIBOR" shall mean for any date, the offered rate for deposits in U.S. dollars for a period of three months which appears on the Reuters Screen LIBO page as of 11:00 A.M., London time, on such date (or, if at least two such rates appear, the arithmetic mean of such rates). 26.13 "Loan" shall mean a loan of securities hereunder. 26.14 "Loaned Security" shall mean any security which is a security as defined in the Exchange Act, transferred in a Loan hereunder until such security (or an identical security) is transferred back to Lender hereunder, except that, if any new or different security shall be exchanged for any loaned security by recapitalization, merger, consolidation or other corporate action, such new or different security shall, effective upon such exchange, be deemed to become a Loaned Security in substitution for the former Loaned Security for which such exchange is made. For purposes of return of Loaned Securities by Borrower or purchase or sale of securities pursuant to Section 12 or 13, such term shall include securities of the same issuer, class and quantity as the Loaned Securities, as adjusted pursuant to the preceding sentence. 26.15 "Plan" shall mean (a) any "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 which is subject to Part 4 of Subtitle B of Title I of such Act; (b) any "plan" as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986; or (c) any entity the assets of which are deemed to be assets of any such "employee benefit plan" or "plan" by reason of the Department of Labor's plan asset regulation, 29 C.F.R. Section 2510.3-101. SMITH BARNEY, INC. By: /s/ Charles K. Bobrinskoy --------------------------------- Title: Managing Director ------------------------------ Date: August 10, 1998 ------------------------------- 19 20 TRIBUNE COMPANY By: /s/ Brigid Kenney ------------------------------------- Title: Director/Treasury Operations ---------------------------------- Date: August 5, 1998 ----------------------------------- 20 21 Schedule B DEFINED TERMS AND SUPPLEMENTAL PROVISIONS 1. Section 4.1 is amended by deleting clause (a) and replacing it with the following: (a) Borrower agrees to pay Lender a loan fee (a "Loan Fee"), computed daily on each Loan to the extent such Loan is secured by Collateral other than cash, based on the aggregate market value of the Loaned Securities on the day for which such Loan Fee is being computed, and 2. Section 4.1 is amended by adding to the end the following new sentence: Unless otherwise agreed, such Loan Fees and Cash Collateral Fees shall be calculated on the basis of a 360-day year for the actual number of days the Loaned Securities are outstanding in accordance with the preceding sentence. 3. Section 5 is amended by deleting the second sentence and replacing it with the following new sentence: The termination date established by a termination notice given by Lender to Borrower shall be a date no earlier than the standard settlement date for trades of the Loaned Securities entered into on the date of such notice, which date shall, unless Borrower and Lender agree to the contrary, be (i) in the case of Government Securities, the next Business Day following such notice, (ii) in the case of Foreign Securities, the next Business Day following the standard settlement date for trades of the Loaned Securities entered into on the date of such notice and (iii) in the case of all other securities, the standard settlement date for trades of the Loaned Securities entered into on the date of such notice. 4. Section 15.3 is amended by deleting the clause "on Prophecy" in the first sentence and substituting the clause "by a mutually acceptable source or mutually acceptable sources," and by deleting the third sentence in its entirety. 5. The "Cutoff Time" shall be 3 p.m. New York time. 21 -----END PRIVACY-ENHANCED MESSAGE-----