<PAGE>
As filed with the Securities and Exchange Commission on May 18, 2000
Registration No. 333-30184
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 3
to
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
AOL TIME WARNER INC.
(Exact Name of Registrant as Specified in Its Charter)
---------------
Delaware 7370 13-4099534
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
organization) Number)
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including Zip Code, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
---------------
Gerald M. Levin
Chief Executive Officer
AOL Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
---------------
Copies to:
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<S> <C> <C> <C> <C>
Paul T. Cappuccio, Esq. Jonathan L. Kravetz, Esq. Richard I. Beattie, Esq. Christopher P. Bogart, Esq.
Sheila A. Clark, Esq. Peter S. Lawrence, Esq. Philip T. Ruegger III, Esq. Spencer B. Hays, Esq.
Brenda C. Karickhoff, Esq. Michael L. Fantozzi, Esq. Simpson Thacher Thomas W. McEnerney, Esq.
America Online, Inc. Mintz, Levin, Cohn, Ferris, & Bartlett Time Warner Inc.
22000 AOL Way Glovsky and Popeo, P.C. 425 Lexington Avenue 75 Rockefeller Plaza
Dulles, VA 20166 One Financial Center New York, NY 10017 New York, NY 10019
(703) 265-1000 Boston, MA 02111 (212) 455-2000 (212) 484-8000
(617) 542-6000
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Robert A. Kindler, Esq.
Faiza J. Saeed, Esq.
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
(212) 474-1000
</TABLE>
---------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the proposed merger described herein have
been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
Front cover of the Joint Proxy Statement-Prospectus
[Graphic of the Instant Messenger and Bugs Bunny]
AOL Time Warner Merger
Joint Proxy Statement-Prospectus
----------------------------
Notice of Special Stockholder Meetings
Time Warner America Online
Stockholder Meeting Stockholder Meeting
June 23, 2000 June 23, 2000
Time & Life Building Sheraton Premiere at Tysons Corner
New York, New York Vienna, Virginia
[America Online, Inc. Logo] [Time Warner Inc. Logo]
<PAGE>
For driving directions to America Online's stockholder meeting
see the inside back cover.
<PAGE>
[LOGO OF TIME WARNER]
[LOGO OF AMERICA ONLINE]
To the stockholders of America Online, Inc. and Time Warner Inc.
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
America Online and Time Warner have agreed to combine in a merger of
equals. We are proposing the merger because we believe the combined strengths
of our two companies will enable us to build the world's preeminent, fully
integrated media and communications company. The new corporation will be named
AOL Time Warner Inc. and half of its board of directors will be designated by
each of America Online and Time Warner for the first year after the merger is
completed. Senior management of AOL Time Warner will be comprised of executive
officers from both America Online and Time Warner.
When the merger is completed, America Online common stockholders will
receive one share of AOL Time Warner common stock for each share they own and
Time Warner common stockholders will receive 1.5 shares of AOL Time Warner
common stock for each share they own. Time Warner series LMCN-V common
stockholders will receive 1.5 shares of substantially identical AOL Time
Warner series LMCN-V common stock for each share they own and Time Warner
preferred stockholders will receive one share of a corresponding series of
substantially identical AOL Time Warner preferred stock for each share they
own, with appropriate adjustment to the voting rights and conversion ratio for
each series. As a result, former stockholders of America Online will hold
approximately 55%, and former stockholders of Time Warner will hold
approximately 45%, of the outstanding common stock of AOL Time Warner on a
fully diluted basis. AOL Time Warner intends to apply to list its common stock
on the New York Stock Exchange under the symbol "AOL."
The boards of directors of both America Online and Time Warner have
approved the merger and recommend that their respective stockholders vote FOR
the merger proposal. Information about the merger is contained in this joint
proxy statement-prospectus. We urge you to read this document, including the
section describing risk factors that begins on page 24.
The dates, times and places of the meetings are as follows:
For America Online stockholders: For Time Warner stockholders:
June 23, 2000 at 10:00 a.m. June 23, 2000 at 10:00 a.m.
Sheraton Premiere at Tysons Corner Time & Life Building
8661 Leesburg Pike 1271 Avenue of the America
Vienna, Virginia New York, New York
Your vote is very important, regardless of the number of shares you own.
Whether or not you plan to attend the special meeting, please vote as soon as
possible to make sure that your shares are represented at the meeting. If you
do not vote, it will have the same effect as voting against the merger.
We strongly support this combination of our companies and join with our
boards of directors in enthusiastically recommending that you vote in favor of
the merger.
/s/ Stephen Case /s/ Gerald M. Levin
Stephen M. Case Gerald M. Levin
Chairman and Chief Executive Officer Chairman and Chief Executive Officer
America Online, Inc. Time Warner Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued in
connection with the merger or determined if this joint proxy statement-
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
This joint proxy statement-prospectus is dated May 19, 2000, and is first
being mailed to stockholders of America Online and Time Warner on or about May
23, 2000.
<PAGE>
ADDITIONAL INFORMATION
This joint proxy statement-prospectus incorporates important business and
financial information about America Online and Time Warner from other documents
that are not included in or delivered with the joint proxy statement-
prospectus. This information is available to you without charge upon your
written or oral request. You can obtain the documents incorporated by reference
in this joint proxy statement-prospectus by requesting them in writing or by
telephone or over the Internet from the appropriate company at one of the
following addresses:
America Online, Inc. Time Warner Inc.
Investor Relations Investor Relations
22000 AOL Way 75 Rockefeller Plaza
Dulles, Virginia 20166 New York, New York 10019
1-800-547-3617 (212) 484-6971
email: AOL [email protected] email: [email protected]
If you would like to request any documents, please do so by June 16, 2000 in
order to receive them before the special meetings.
See "Where You Can Find More Information" that begins on page 137.
<PAGE>
[LOGO OF AMERICA ONLINE, INC. APPEARS HERE]
AMERICA ONLINE, INC.
22000 AOL Way
Dulles, Virginia 20166
Notice of Special Meeting of America Online Stockholders
June 23, 2000 at 10:00 a.m.
To the stockholders of America Online, Inc.:
Notice is hereby given that a special meeting of stockholders of America
Online, Inc. will be held on June 23, 2000 at 10:00 a.m., local time, at the
Sheraton Premiere at Tysons Corner, 8661 Leesburg Pike, Vienna, Virginia for
the following purposes:
1. To consider and vote upon a proposal to adopt a merger agreement
between America Online and Time Warner pursuant to which America Online
and Time Warner will each become a wholly owned subsidiary of a new
holding company that will be named AOL Time Warner Inc. and each share
of America Online common stock will be converted into one share of AOL
Time Warner common stock.
2. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
These items of business are described in the attached joint proxy statement-
prospectus. Holders of record of America Online common stock at the close of
business on May 18, 2000, the record date, are entitled to notice of, and to
vote at, the special meeting and any adjournments or postponements of the
special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented
at the meeting. To vote your shares, you may complete and return the enclosed
proxy card or you may be able to submit your proxy or voting instructions by
telephone or the Internet. If you are a holder of record, you may also cast
your vote in person at the special meeting. If your shares are held in an
account at a brokerage firm or bank, you must instruct them on how to vote your
shares. If you do not vote or do not instruct your broker or bank how to vote,
it will have the same effect as voting against the merger.
By order of the board of directors of
America Online, Inc.
/s/ Sheila A. Clark
Sheila A. Clark
Corporate Secretary
Dulles, Virginia
May 19, 2000
<PAGE>
[LOGO OF TIME WARNER INC. APPEARS HERE]
TIME WARNER INC.
75 Rockefeller Plaza
New York, New York 10019
Notice of Special Meeting of Time Warner Stockholders
June 23, 2000 at 10:00 a.m.
To the stockholders of Time Warner Inc.:
We will hold a special meeting of the stockholders of Time Warner Inc. on
June 23, 2000 at 10:00 a.m., local time, at the Time & Life Building, 1271
Avenue of the Americas, New York, New York, for the following purposes:
1. To consider and vote upon a proposal to adopt a merger agreement
between America Online and Time Warner pursuant to which America Online
and Time Warner will each become a wholly owned subsidiary of a new
holding company that will be named AOL Time Warner Inc. and:
. each share of Time Warner common stock will be converted into 1.5
shares of AOL Time Warner common stock;
. each share of Time Warner series LMCN-V common stock will be
converted into 1.5 shares of AOL Time Warner series LMCN-V common
stock having terms substantially identical to those of the Time
Warner series LMCN-V common stock; and
. each share of each series of Time Warner preferred stock will be
converted into one share of a corresponding series of AOL Time
Warner preferred stock having terms substantially identical to those
of that series of Time Warner preferred stock, with appropriate
adjustment to the voting rights and conversion ratio for each
series.
2. To transact any other business that may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
These items of business are described in the attached joint proxy statement-
prospectus. Holders of record of Time Warner common stock and Time Warner
preferred stock at the close of business on May 18, 2000, the record date, are
entitled to vote at the special meeting and any adjournments or postponements
of the special meeting.
Your vote is very important, regardless of the number of shares you own.
Please vote as soon as possible to make sure that your shares are represented
at the meeting. To vote your shares, you may complete and return the enclosed
proxy card or you may be able to submit your proxy or voting instructions by
telephone or the Internet. If you are a holder of record, you may also cast
your vote in person at the special meeting. If your shares are held in an
account at a brokerage firm or bank, you must instruct them on how to vote your
shares. In almost all cases, if you do not vote or do not instruct your broker
or bank on how to vote, it will have the same effect as voting against the
merger. You may not appoint more than three persons to act as your proxy.
<PAGE>
Under Delaware law, holders of the Time Warner series common stock and Time
Warner preferred stock who submit a written demand for appraisal of their
shares and who comply with the applicable statutory procedures under Delaware
law, including, in the case of Time Warner preferred stockholders, not voting
in favor of adoption of the merger agreement, will be entitled to appraisal
rights and to receive payment in cash for the fair value of their shares as
determined by the Delaware Chancery Court. A summary of the applicable
requirements of Delaware law is contained in the accompanying joint proxy
statement-prospectus under the caption "The Merger-Appraisal Rights." In
addition, the text of the applicable provisions of Delaware law is attached as
Annex I to this joint proxy statement-prospectus.
By Order of the Board of Directors,
Christopher P. Bogart
Secretary
New York, New York
May 19, 2000
<PAGE>
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS........................... 4
The Companies............................................................ 4
The Structure of the Merger.............................................. 7
Recommendation of the Boards of Directors and Opinions of Financial
Advisors................................................................ 9
Appraisal Rights......................................................... 9
The Special Meetings..................................................... 9
Board of Directors and Management Following the Merger................... 9
Interests of Directors and Executive Officers in the Merger.............. 10
Treatment of Stock Options and Restricted Stock.......................... 10
Tax Consequences......................................................... 10
Overview of the Merger Agreement......................................... 10
Stock Option Agreements.................................................. 12
Voting Agreement......................................................... 12
Market Price Information................................................. 12
Selected Historical and Pro Forma Financial Data......................... 13
Selected Unaudited Pro Forma Consolidated Financial Data................. 22
Unaudited Comparative Per Share Information.............................. 23
RISK FACTORS.............................................................. 24
Fluctuations in market prices may cause the value of the shares of AOL
Time Warner stock that you receive to be less than the value of your
shares of America Online stock or Time Warner stock..................... 24
The combination of America Online and Time Warner to form an integrated
media and communications company creates a new business model that the
marketplace may have difficulty valuing................................. 24
AOL Time Warner may fail to realize the anticipated benefits of the
merger.................................................................. 24
Directors of America Online and Time Warner have potential conflicts of
interest in recommending that you vote in favor of adoption of the
merger agreement........................................................ 25
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AOL Time Warner may be subject to adverse regulatory conditions ......... 25
THE SPECIAL MEETINGS...................................................... 26
Joint Proxy Statement-Prospectus......................................... 26
Date, Time and Place of the Special Meetings............................. 26
Purpose of the Special Meetings.......................................... 26
Stockholder Record Date for the Special Meetings......................... 26
Vote Required for Adoption of the Merger Agreement....................... 27
Proxies.................................................................. 28
Voting Electronically or by Telephone.................................... 29
Solicitation of Proxies.................................................. 29
THE MERGER................................................................ 30
Background of the Merger................................................. 30
America Online's Reasons for the Merger.................................. 32
Time Warner's Reasons for the Merger..................................... 35
Recommendation of America Online's Board of Directors.................... 40
Opinion of America Online's Financial Advisor............................ 40
Recommendation of Time Warner's Board of Directors....................... 49
Opinion of Time Warner's Financial Advisor............................... 49
Interests of Certain America Online Directors and Executive Officers in
the Merger.............................................................. 56
Interests of Certain Time Warner Directors and Executive Officers in the
Merger.................................................................. 57
Completion and Effectiveness of the Merger............................... 58
Structure of the Merger and Conversion of America Online and Time Warner
Stock................................................................... 58
Exchange of Stock Certificates for AOL Time Warner Stock Certificates.... 59
Treatment of America Online and Time Warner Stock Options and Other
Equity Based Awards..................................................... 60
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i
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Effect of the Merger on Outstanding America Online Convertible Notes.... 60
Material United States Federal Income Tax Consequences of the Merger.... 61
Accounting Treatment of the Merger...................................... 63
Regulatory Matters...................................................... 63
Restrictions on Sales of Shares by Affiliates of America Online and Time
Warner................................................................. 64
New York Stock Exchange Listing of AOL Time Warner Common Stock to be
Issued in the Merger................................................... 65
Appraisal Rights........................................................ 65
Delisting and Deregistration of America Online and Time Warner Common
Stock after the Merger................................................. 66
Stockholder Lawsuits Challenging the Merger............................. 66
The Merger Agreement.................................................... 67
AOL Time Warner Charter and By-laws..................................... 78
Stock Option Agreements................................................. 78
Voting Agreement........................................................ 81
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.................... 82
DESCRIPTION OF AOL TIME WARNER CAPITAL STOCK............................. 96
Authorized Capital Stock................................................ 96
AOL Time Warner Common Stock............................................ 97
AOL Time Warner Series Common Stock..................................... 97
AOL Time Warner Preferred Stock......................................... 102
Anti-Takeover Considerations............................................ 109
COMPARISON OF RIGHTS OF AOL TIME WARNER STOCKHOLDERS, AMERICA ONLINE
STOCKHOLDERS AND TIME WARNER STOCKHOLDERS............................... 110
</TABLE>
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Capitalization............................................................ 110
Voting Rights............................................................. 111
Number and Election of Directors.......................................... 112
Vacancies on the Board of Directors and Removal of Directors.............. 113
Amendments to the Certificate of Incorporation............................ 113
Amendments to Bylaws...................................................... 115
Action by Written Consent................................................. 115
Ability to Call Special Meetings.......................................... 116
Notice of Stockholder Action.............................................. 116
Limitation of Personal Liability of Directors and Officers................ 119
Indemnification of Directors
and Officers............................................................. 120
Stockholders Rights Plans................................................. 122
State Anti-Takeover Statutes.............................................. 126
Fair Price Provisions..................................................... 126
MANAGEMENT OF AOL TIME WARNER AFTER THE MERGER............................. 130
Board of Directors of AOL Time Warner..................................... 130
Committees of the AOL Time Warner Board of Directors...................... 132
Compensation of Directors................................................. 133
Executive Officers of AOL Time Warner..................................... 133
Compensation of Executive Officers........................................ 134
Integration Committee..................................................... 134
BUSINESS RELATIONSHIPS BETWEEN AMERICA ONLINE AND
TIME WARNER............................................................... 135
LEGAL MATTERS.............................................................. 136
EXPERTS.................................................................... 136
OTHER MATTERS.............................................................. 136
STOCKHOLDER PROPOSALS...................................................... 136
WHERE YOU CAN FIND MORE INFORMATION........................................ 137
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION........................... 139
</TABLE>
ANNEX A--Second Amended and Restated Agreement and Plan of Merger
ANNEX B--America Online Stock Option Agreement
ANNEX C--Time Warner Stock Option Agreement
ANNEX D--Amended and Restated Voting Agreement
ANNEX E--Opinion of Salomon Smith Barney Inc.
ANNEX F--Opinion of Morgan Stanley & Co. Incorporated
ANNEX G--Restated Certificate of Incorporation of AOL Time Warner
ANNEX H--Restated By-laws of AOL Time Warner
ANNEX I--Section 262 of the Delaware General Corporation Law
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are America Online and Time Warner proposing the merger?
A: We are proposing the merger because we believe the combined strengths of our
two companies will enable us to build the world's preeminent, fully
integrated media and communications company. The merger will combine Time
Warner's broad array of media, entertainment and news brands and its
technologically advanced broadband delivery systems with America Online's
extensive Internet franchises, technology and infrastructure to create a new
company capable of enhancing consumers' access to the broadest selection of
high-quality content and interactive services. By combining the leading
interactive services and media companies, AOL Time Warner will create the
potential for stronger operating and financial results than either company
could achieve on its own.
Q: What will I receive in the merger?
A: Stockholders of America Online and Time Warner will receive the following in
the merger:
. America Online common stockholders will receive one share of AOL Time
Warner common stock for each share they own;
. Time Warner common stockholders will receive 1.5 shares of AOL Time
Warner common stock for each share they own;
. Time Warner series LMCN-V common stockholders will receive 1.5 shares of
substantially identical AOL Time Warner series LMCN-V common stock for
each share they own; and
. Time Warner preferred stockholders will receive one share of a
corresponding series of substantially identical AOL Time Warner
preferred stock for each share of each series of Time Warner preferred
stock they own, with appropriate adjustment to the voting rights and
conversion ratio for each series.
Q: What stockholder approvals are needed?
A: For America Online, the affirmative vote of the holders of a majority of the
outstanding shares of America Online's common stock is required to adopt the
merger agreement. Each holder of common stock is entitled to one vote per
share. As of the record date, America Online directors and executive
officers and their affiliates owned less than 1% of the outstanding shares.
For Time Warner, the affirmative vote of a majority of the voting power of
the outstanding shares of Time Warner's common stock and preferred stock,
voting together as one group, is required to adopt the merger agreement.
Time Warner common stockholders are entitled to one vote per share, and the
Time Warner preferred stockholders are entitled to four votes per share. The
holders of the Time Warner series LMCN-V common stock are not entitled to
vote on the merger proposal.
As of the record date, Time Warner directors and executive officers and
their affiliates, including R.E. Turner, owned approximately 8.8% of the
voting power of Time Warner capital stock entitled to vote at the Time
Warner special meeting. Mr. Turner and his affiliates who are parties to a
voting agreement with America Online have agreed to vote substantially all
their shares of Time Warner common stock in favor of the adoption of the
merger agreement. These shares of Time Warner common stock owned by Mr.
Turner and his affiliates represent approximately 8.2% of the voting power
of Time Warner capital stock entitled to vote at the Time Warner special
meeting.
1
<PAGE>
Q: What do I need to do now?
A: After carefully reading and considering the information contained in this
joint proxy statement-prospectus, please respond by completing, signing and
dating your proxy card or voting instructions and returning it in the
enclosed postage paid envelope, or, if available, by submitting your proxy
or voting instructions by telephone or through the Internet, as soon as
possible so that your shares may be represented at your special meeting.
Q: What if I don't vote?
A: . If you fail to respond, it will have the same effect as a vote against
the merger.
. If you respond and do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the merger.
. If you respond and abstain from voting, your proxy will have the same
effect as a vote against the merger.
Q: Can I change my vote after I have delivered my proxy?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can revoke
your proxy. Second, you can submit a new proxy. If you choose either of
these two methods, you must submit your notice of revocation or your new
proxy to the secretary of America Online or Time Warner, as appropriate,
before the special meeting. If your shares are held in an account at a
brokerage firm or bank, you should contact your brokerage firm or bank to
change your vote. Third, if you are a holder of record, you can attend the
special meeting and vote in person. If you submit your proxy or voting
instructions electronically through the Internet or by telephone, you can
change your vote by submitting a proxy at a later date, using the same
procedures, in which case your later submitted proxy will be recorded and
your earlier proxy revoked.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, you will receive written instructions
from the exchange agent on how to exchange your stock certificates for
shares of AOL Time Warner. Please do not send in your stock certificates
with your proxy.
Q: Where will my shares of AOL Time Warner common stock be listed?
A: We intend to apply to list the AOL Time Warner common stock on the New York
Stock Exchange under the symbol "AOL."
Q: Will I receive dividends on my AOL Time Warner shares?
A: AOL Time Warner does not currently intend to pay dividends on its common
stock. AOL Time Warner will pay dividends on each series of its preferred
stock in accordance with its terms.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. We expect to
complete the merger during the fall of 2000.
2
<PAGE>
Q: Who can help answer my questions?
A: If you have any questions about the merger or how to submit your proxy, or
if you need additional copies of this joint proxy statement-prospectus or
the enclosed proxy card or voting instructions, you should contact:
. if you are an America Online stockholder:
America Online, Inc.
Investor Relations
22000 AOL Way
Dulles, Virginia 20166
Telephone: 1-800-547-3617
e-mail: AOL [email protected]
. if you are a Time Warner stockholder:
Time Warner Inc.
Investor Relations
75 Rockefeller Plaza
New York, New York 10019
Telephone: (212) 484-6971
e-mail: [email protected]
3
<PAGE>
SUMMARY OF THE JOINT PROXY STATEMENT-PROSPECTUS
This summary highlights selected information in the joint proxy statement-
prospectus and may not contain all of the information that is important to you.
You should carefully read this entire joint proxy statement-prospectus and the
other documents we refer to for a more complete understanding of the merger. In
particular, you should read the documents attached to this joint proxy
statement-prospectus, including the merger agreement, the stock option
agreements and the voting agreement, which are attached as Annexes A, B, C and
D, respectively. In addition, we incorporate by reference important business
and financial information about America Online and Time Warner into this joint
proxy statement-prospectus. You may obtain the information incorporated by
reference into this joint proxy statement-prospectus without charge by
following the instructions in the section entitled "Where You Can Find More
Information" that begins on page 137 of this joint proxy statement-prospectus.
The Companies
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-1000
http://www.aol.com
Founded in 1985, America Online is the world's leader in interactive
services, Web brands, Internet technologies and electronic commerce services.
America Online has two major lines of businesses organized into four product
groups:
. the Interactive Online Services business, comprised of the Interactive
Services Group, the Interactive Properties Group and the AOL
International Group; and
. the Enterprise Solutions business, comprised of the Netscape Enterprise
Group.
The product groups are described below.
The Interactive Services Group develops and operates branded interactive
services, including:
. the AOL service, a worldwide Internet online service with more than 22
million members;
. the CompuServe service, a worldwide Internet online service with more
than 2.5 million members;
. the Netscape Netcenter, an Internet portal with more than 25 million
registered users;
. the AOL.com Internet portal; and
. the Netscape Communicator client software, including the Netscape
Navigator browser.
The Interactive Properties Group is built around branded properties that
operate across multiple services and platforms, such as:
. Digital City, Inc., the leading local online network and community guide
on the AOL service and the Internet based on the number of visitors per
month;
. ICQ, the world's leading communications portal that provides instant
communications and chat technology based on the number of registered
users;
. MovieFone, Inc., the nation's No. 1 movie guide and ticketing service
based on the number of users, is provided through an interactive
telephone service and on the AOL service and the Internet; and
. Internet music brands Spinner.com, Winamp and SHOUTcast.
The AOL International Group oversees the AOL and CompuServe services outside
the United States, as well as the Netscape Online service in the United
Kingdom.
4
<PAGE>
The Netscape Enterprise Group focuses on providing businesses with a range
of software products, technical support, consulting and training services.
These products and services enable businesses and users to share information,
manage networks and facilitate electronic commerce.
America Online also has a strategic alliance with Sun Microsystems, Inc., a
leader in network computing products and services, to accelerate the growth of
electronic commerce. Through the alliance, the two companies develop and market
to business enterprises, client software and network application and server
software for electronic commerce, extended communities and connectivity,
including software based in part on the Netscape Enterprise Group code base, on
Sun code and technology and on certain America Online services features.
Recent Developments. On March 17, 2000, America Online and Bertelsmann AG
announced a global alliance to expand the distribution of Bertelsmann's media
content and electronic commerce properties over America Online's interactive
brands worldwide. America Online and Bertelsmann also announced an agreement to
restructure their interests in the AOL Europe and AOL Australia joint ventures.
This restructuring consists of a put and call arrangement for America Online to
purchase, in two installments, Bertelsmann's 50% interest in AOL Europe for
consideration ranging from $6.75 billion to $8.25 billion, payable at America
Online's option in cash, America Online stock (or AOL Time Warner stock, if the
merger has closed) or a combination of cash and stock. Bertelsmann has the
right to require America Online to purchase 80% of its 50% interest in AOL
Europe on January 31, 2002 for $5.3 billion and the remainder on July 1, 2002
for $1.45 billion. If Bertelsmann fails to exercise its put rights, America
Online has the right to purchase 80% of Bertelsmann's 50% interest in AOL
Europe between January 15, 2002 and January 15, 2003 for $6.5 billion and the
remainder between June 30, 2002 and June 30, 2003 for $1.75 billion. In
addition, the parties agreed that America Online would take immediate ownership
of Bertelsmann's 50% interest in the parties' AOL Australia joint venture,
subject to receipt of necessary regulatory approvals. Because Bertelsmann's
first put option will not close until January 31, 2002, if exercised, America
Online has not determined yet how it will fund the payment of the purchase
price for its purchases of Bertelsmann's interest in AOL Europe. America Online
cannot predict if Bertelsmann will exercise its put rights, and America
Online's call rights are not exercisable unless Bertelsmann fails to exercise
its put rights. If Bertelsmann does not exercise its put rights, America Online
will consider all pertinent factors at such time and during the exercisability
period of its call rights in determining whether to exercise its call rights,
including the performance and perceived value of AOL Europe at such time,
conditions in the markets where AOL Europe operates, financial market
conditions and America Online's (or AOL Time Warner's) business plans and
financial situation. For the year ended June 30, 1999, AOL Europe's revenues
are less than 10% of America Online's revenues and AOL Europe's net loss is
less than 5% of America Online's net income. America Online anticipates that
the primary impact of the potential acquisition of Bertelsmann's interest in
AOL Europe on results of operations would be the amortization of $1 billion to
$1.5 billion of goodwill each year. America Online does not anticipate an
adverse impact from the potential acquisition on America Online's financial
position because it will have the ability to pay the purchase price either in
stock or cash, or a combination of the two, at its option. America Online
believes it will have adequate resources from its cash reserves or from
accessing the capital markets to make the required payment upon exercise of a
put or call right, should it decide to pay in cash, and that following the
merger, AOL Time Warner will be in a stronger position to make such payments
than America Online alone would be.
On December 21, 1999, America Online and MapQuest.com, Inc. entered into a
merger agreement pursuant to which MapQuest, a leader in online destination
information solutions, will become a wholly owned subsidiary of America Online.
The merger is subject to customary conditions, including regulatory consents
and MapQuest stockholder approval, and is expected to be completed prior to the
merger of America Online and Time Warner.
America Online has been named as a defendant in several class action
lawsuits that have been filed in state and federal courts. The complaints in
these lawsuits contend that consumers and competing Internet service providers
have been injured because of the default selection features in AOL 5.0. These
cases are at a preliminary stage, but America Online does not believe they have
merit and intends to contest them vigorously.
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Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
http://www.timewarner.com
Time Warner is the world's largest media and entertainment company. Time
Warner's principal business objective is to create and distribute branded
information and entertainment throughout the world. Time Warner classifies its
business interests into the following fundamental areas:
. cable networks, consisting principally of interests in cable television
programming, including WTBS Superstation, TNT, Cartoon Network, CNN News
Group and Home Box Office;
. publishing, consisting principally of interests in magazine publishing,
book publishing and direct marketing, including Time, People, Sports
Illustrated, Warner Books and Time Life Inc.;
. music, consisting principally of interests in recorded music and music
publishing, including Warner Music Group and its labels Atlantic,
Elektra, Rhino, Sire, Warner Bros. Records and Warner Music
International;
. filmed entertainment, consisting principally of interests in filmed
entertainment, television production and television broadcasting,
including Warner Bros., New Line Cinema and the WB Network;
. cable, consisting principally of interests in cable television systems,
including Time Warner Cable; and
. digital media, consisting principally of interests in Internet-related
and digital media businesses.
Time Warner is a holding company that derives its operating income and cash
flow from its investments in its subsidiaries, including Time Warner
Entertainment Company, L.P., or "TWE," a limited partnership that owns a
majority of Time Warner's interests in filmed entertainment and cable
television systems and a portion of its interests in cable networks. Time
Warner owns general and limited partnership interests in TWE consisting of
74.49% of the pro rata priority capital and residual equity capital, and 100%
of the junior priority capital. The remaining 25.51% limited partnership
interests in the pro rata priority capital and residual equity capital of TWE
are held by a subsidiary of MediaOne Group, Inc. A significant portion of TWE's
cable television systems are held by the Time Warner Entertainment-
Advance/Newhouse Partnership, of which TWE is the managing partner and owns a
65% interest.
Recent Developments. On January 24, 2000, Time Warner and EMI Group plc
announced that they had signed definitive agreements to combine their recorded
music and music publishing businesses into a global joint venture. The new
company, Warner EMI Music, will be one of the world's leading music companies,
with broad domestic and international holdings. The global joint venture will
be owned equally by Time Warner and EMI Group. The eleven-member Warner EMI
Music board of representatives, controlled by Time Warner, will consist of six
Time Warner designees and five EMI designees. The transaction is subject to
certain conditions, including regulatory consents and EMI Group shareholder
approval, and is expected to be completed by the end of 2000.
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<PAGE>
AOL Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
http://www.aoltimewarner.com
AOL Time Warner is a newly formed corporation that has not, to date,
conducted any activities other than those incident to its formation, the
matters contemplated by the merger agreement and the preparation of this joint
proxy statement-prospectus. Upon completion of the merger, America Online and
Time Warner will each become a wholly owned subsidiary of AOL Time Warner. The
business of AOL Time Warner will be the combined businesses currently conducted
by America Online and Time Warner.
The Structure of the Merger (see page 58)
To accomplish the combination of their businesses, America Online and Time
Warner jointly formed a new company, AOL Time Warner, with two subsidiaries,
America Online Merger Sub Inc. and Time Warner Merger Sub Inc. At the time the
merger is completed:
. America Online Merger Sub will be merged into America Online, and
America Online will be the surviving corporation; and
. Time Warner Merger Sub will be merged into Time Warner, and Time Warner
will be the surviving corporation.
As a result, America Online and Time Warner will each become a wholly owned
subsidiary of AOL Time Warner.
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The organization of the companies before and after the merger is illustrated
below:
[FLOW CHART]
BEFORE THE MERGER
Holders of Time Warner:
Holders of . Common Stock
America Online . Series LMCN-V Common Stock
Common Stock . Series E, F, I and J
Preferred Stock
America Online Time Warner
AOL Time Warner
America Online Time Warner
Merger Sub Merger Sub
AFTER THE MERGER
Former Holders Former Holders Former Holders Former Holders
of Time Warner of America of Time Warner of Time Warner
Series LMCN-V Online Common Series E, F, I and J
Common Stock Common Stock Stock Preferred Stock
1 to 1.5 1 to 1 1 to 1.5 1 to 1
conversion ratio conversion ratio conversion ratio conversion ratio
AOL Time Warner Series AOL Time Warner AOL Time Warner
LCMN-V Common Stock Common Stock Series E, F, I and J
Preferred Stock
AOL Time Warner
America Online Time Warner
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Recommendation of the Boards of Directors and Opinions of Financial Advisors
(see page 40)
To America Online Stockholders: The America Online board of directors
believes that the merger is fair to you and in your best interest and, with one
member absent, unanimously voted to approve the merger agreement and
unanimously recommends that you vote FOR the adoption of the merger agreement.
To Time Warner Stockholders: The Time Warner board of directors believes
that the merger is fair to you and in your best interest and unanimously voted
to approve the merger agreement and unanimously recommends that you vote FOR
the adoption of the merger agreement.
Opinion of America Online's Financial Advisor. In deciding to approve the
merger, the America Online board of directors considered the opinion of its
financial advisor, Salomon Smith Barney Inc., that, as of the date of its
opinion, and subject to and based on the considerations referred to in its
opinion, the ratio to exchange Time Warner common stock for AOL Time Warner
common stock is fair, from a financial point of view, to America Online. The
full text of this opinion is attached as Annex E to this joint proxy statement-
prospectus. America Online urges its stockholders to read the opinion of
Salomon Smith Barney in its entirety.
Opinion of Time Warner's Financial Advisor. In deciding to approve the
merger, the Time Warner board of directors considered the opinion of its
financial advisor, Morgan Stanley & Co. Incorporated, that, as of the date of
its opinion, and subject to and based on the considerations referred to in its
opinion, the ratio to exchange Time Warner common stock and series common stock
for AOL Time Warner common stock and series common stock is fair, from a
financial point of view, to the holders of Time Warner common stock and series
common stock. The full text of this opinion is attached as Annex F to this
joint proxy statement-prospectus. Time Warner urges its stockholders to read
the opinion of Morgan Stanley in its entirety.
Appraisal Rights (see page 65)
Under Delaware law, America Online stockholders and Time Warner common
stockholders are not entitled to appraisal rights in connection with the
merger. However, holders of the Time Warner series LMCN-V common stock and Time
Warner preferred stock who submit a written demand for appraisal of their
shares and who comply with the other applicable statutory procedures under
Delaware law, including, in the case of Time Warner preferred stockholders, not
voting in favor of adoption of the merger agreement, will be entitled to
appraisal rights and to receive payment in cash for the fair value of their
shares as determined by the Delaware Chancery Court. For a more complete
description of these appraisal rights, see "The Merger--Appraisal Rights."
The Special Meetings (see page 26)
Special Meeting of America Online's Stockholders. The America Online special
meeting will be held at the Sheraton Premiere at Tysons Corner, 8661 Leesburg
Pike, Vienna, Virginia on June 23, 2000, starting at 10:00 a.m., local time.
Special Meeting of Time Warner's Stockholders. The Time Warner special
meeting will be held at the Time & Life Building, 1271 Avenue of the Americas,
New York, New York on June 23, 2000, starting at 10:00 a.m., local time.
Board of Directors and Management Following the Merger (see page 130)
We have agreed that, initially, half of the 16 directors of AOL Time Warner
will be selected by America Online, and half will be selected by Time Warner.
We are required to maintain this equal membership for one year after the merger
is completed.
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<PAGE>
Stephen M. Case, Chairman and Chief Executive Officer of America Online,
will become Chairman of the Board of AOL Time Warner. Gerald M. Levin, Chairman
and Chief Executive Officer of Time Warner, will become Chief Executive Officer
of AOL Time Warner. Kenneth J. Novack, Vice Chairman of America Online, will
become Vice Chairman of AOL Time Warner. R. E. Turner, Vice Chairman of Time
Warner, will become Vice Chairman and Senior Advisor of AOL Time Warner.
Richard D. Parsons, President of Time Warner, and Robert W. Pittman, President
and Chief Operating Officer of America Online, will be Co-Chief Operating
Officers of AOL Time Warner. J. Michael Kelly, Senior Vice President and Chief
Financial Officer of America Online, will become Chief Financial Officer and
Executive Vice President of AOL Time Warner. Messrs. Case, Levin, Novack,
Turner, Parsons and Pittman will be members of the AOL Time Warner board of
directors.
Interests of Directors and Executive Officers in the Merger (see page 56)
Some of the directors and executive officers of America Online and Time
Warner have interests in the merger that are different from, or are in addition
to, the interests of their company's stockholders. These interests include the
potential for positions as directors or executive officers of AOL Time Warner,
acceleration of vesting of options or restricted stock as a result of the
merger and the right to continued indemnification and insurance coverage by AOL
Time Warner for acts or omissions occurring prior to the merger.
Treatment of Stock Options and Restricted Stock (see page 60)
America Online. When the merger is completed, each outstanding America
Online employee stock option will be converted into an option to purchase
shares of AOL Time Warner common stock at an exercise price per share equal to
the exercise price per share of America Online common stock subject to the
option before the conversion. In addition, each outstanding restricted share of
America Online common stock will be converted into one restricted share of AOL
Time Warner common stock. As a result of the completion of the merger,
substantially all America Online employee stock options and shares of
restricted stock outstanding on January 10, 2000, by their terms, will vest and
become exercisable or free of restrictions, as the case may be, upon the
earliest to occur of their normal vesting date, the first anniversary of the
completion of the merger and the employee's termination without cause or
constructive termination.
Time Warner. When the merger is completed, each outstanding Time Warner
stock option will be converted into an option to purchase the number of shares
of AOL Time Warner common stock that is equal to the product of 1.5 multiplied
by the number of shares of Time Warner common stock that would have been
obtained before the merger upon the exercise of the option, rounded to the
nearest whole share. The exercise price per share will be equal to the exercise
price per share of Time Warner common stock subject to the option before the
conversion divided by 1.5. In addition, each outstanding restricted share of
Time Warner common stock will be converted into the number of restricted shares
of AOL Time Warner common stock that is equal to the product of 1.5 multiplied
by the shares of Time Warner common stock subject to the award. Each Time
Warner stock option outstanding on January 9, 2000, by its terms, accelerated
and became fully vested, and each share of restricted Time Warner common stock
outstanding on that date, by its terms, became fully vested and free of
restrictions.
Tax Consequences (see page 61)
We have structured the merger so that America Online, Time Warner and their
respective stockholders who exchange their shares for shares of AOL Time Warner
capital stock will not recognize gain or loss for United States federal income
tax purposes in connection with the merger, except for taxes payable because of
cash received by Time Warner stockholders instead of fractional shares.
Overview of the Merger Agreement (see page 67)
Conditions to the Completion of the Merger. Each of America Online's and
Time Warner's obligation to complete the merger is subject to the satisfaction
or waiver of specified conditions, including those listed below:
. the merger agreement must be adopted by both the America Online and Time
Warner stockholders;
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<PAGE>
. no law, injunction or order preventing the completion of the merger may
be in effect;
. the applicable waiting period under U.S. antitrust laws must expire or
be terminated;
. we must obtain other regulatory approvals from domestic and foreign
governmental entities;
. the shares of AOL Time Warner common stock to be issued in the merger
must have been approved for listing on the New York Stock Exchange;
. we must have complied with our respective covenants in the merger
agreement;
. our respective representations and warranties in the merger agreement
must be true and correct; and
. we must each receive an opinion of tax counsel to the effect that the
merger will qualify as a tax-free exchange or reorganization, or both.
Termination of the Merger Agreement. America Online and Time Warner can
jointly agree to terminate the merger agreement at any time. Either company may
also terminate the merger agreement if:
. the merger is not completed on or before May 31, 2001, so long as the
failure to complete the merger is not the result of the failure by that
company to fulfill any of its obligations under the merger agreement;
. government actions do not permit the completion of the merger;
. either company's stockholders do not vote to adopt the merger agreement
at a duly held meeting of that company's stockholders;
. the board of directors or officers of the other company fail to take
required actions as described on page 71; or
. the other company breaches its representations, warranties or covenants
in the merger agreement in a material way.
Termination Fees. The merger agreement provides that in several
circumstances, America Online or Time Warner may be required to pay termination
fees to the other party as described on pages 72 through 75.
"No Solicitation" Provisions. The merger agreement contains detailed
provisions prohibiting America Online and Time Warner from seeking an
alternative transaction. These "no solicitation" provisions prohibit America
Online and Time Warner, as well as their officers, directors, subsidiaries and
representatives, from taking any action to solicit an acquisition proposal as
described on page 69. The merger agreement does not, however, prohibit either
party or its respective board of directors from considering, and potentially
recommending, an unsolicited bona fide written superior proposal from a third
party as described on pages 69 through 71.
Regulatory Matters. Under U.S. antitrust laws, we may not complete the
merger until we have notified the Antitrust Division of the Department of
Justice and the Federal Trade Commission of the merger and filed the necessary
report forms, and until a required waiting period has ended. We have filed the
required information and materials to notify the Department of Justice and the
Federal Trade Commission of the merger. The Federal Trade Commission is
reviewing the information and materials we filed with our report forms as well
as additional information and documentary materials the Federal Trade
Commission requested we provide. The waiting period has been extended while
representatives of the Federal Trade Commission conduct their review. We are
cooperating with representatives of the Federal Trade Commission as they
conduct their review.
To complete the merger, we must also obtain the approval of the Federal
Communications Commission, and a number of state and local authorities. The
Federal Communications Commission and these state and local authorities have
not completed their reviews of the merger.
In addition, both America Online and Time Warner are required to make
filings with the European Commission and other international regulatory
authorities in connection with the merger, including regulatory authorities in
Argentina, Australia, Brazil, Canada, Mexico and South Africa.
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<PAGE>
We cannot assure you that we will obtain all regulatory approvals to
complete the merger or that the granting of these approvals will not involve
the imposition of conditions on the completion of the merger or require changes
to the terms of the merger. These conditions or changes could result in the
conditions to the merger not being satisfied.
Accounting Treatment. We intend to account for the merger under the purchase
method of accounting for business combinations.
Completion and Effectiveness of the Merger. We will complete the merger when
all of the conditions to completion of the merger are satisfied or waived in
accordance with the merger agreement. The merger will become effective when we
file certificates of merger with the State of Delaware. We expect to complete
the merger during the fall of 2000.
Stock Option Agreements (see page 78)
Each of America Online and Time Warner has granted the other company an
option to purchase up to 19.9% of its outstanding shares. An option becomes
exercisable if the grantee becomes entitled to receive the larger of the two
termination fees payable by the grantor of the option under the merger
agreement as described on page 75. The grantee's profit under its stock option
agreement is capped at the amount of the larger of the two termination fees
payable by the grantor under the merger agreement.
Voting Agreement (see page 81)
America Online has entered into a voting agreement with Mr. Turner and his
affiliates who are parties to the agreement pursuant to which these Time Warner
stockholders have agreed to vote substantially all their shares of Time Warner
common stock in favor of the adoption of the merger agreement. As of the record
date, these stockholders owned shares representing approximately 8.2% of the
voting power of Time Warner capital stock entitled to vote at the Time Warner
special meeting.
Market Price Information
Shares of each of America Online and Time Warner common stock are traded on
the New York Stock Exchange. On January 7, 2000, the last trading day before
the public announcement of the merger, America Online common stock closed at
$72.88 per share and Time Warner common stock closed at $64.75 per share. Based
on the Time Warner common stock exchange ratio, 1.5, the pro forma equivalent
per share value of the Time Warner common stock on January 7, 2000 was equal to
approximately $109.32 per share. On May 15, 2000, America Online common stock
closed at $58.50 per share and Time Warner common stock closed at $86.06 per
share. The pro forma equivalent per share value of the Time Warner common stock
on May 15, 2000 was approximately $87.75 per share.
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<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present (1) selected historical financial data of
America Online, (2) selected historical financial data of Time Warner and (3)
selected unaudited pro forma consolidated financial data of AOL Time Warner,
which reflect the merger.
AMERICA ONLINE
Selected Historical Financial Data
The selected historical financial data of America Online has been derived
from the audited historical consolidated financial statements and related notes
of America Online for each of the years in the five-year period ended June 30,
1999 and the unaudited consolidated financial statements for the nine months
ended March 31, 2000 and 1999, and have been adjusted to reflect the two-for-
one common stock split in November 1999. The historical data is only a summary,
and you should read it in conjunction with the historical financial statements
and related notes contained in the annual and quarterly reports of America
Online which have been incorporated by reference into this joint proxy
statement-prospectus.
<TABLE>
<CAPTION>
Nine Months
Ended
March 31, Year Ended June 30,
------------- -------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ ------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $4,924 $3,400 $4,777 $3,091 $2,197 $1,323 $ 425
Business segment
operating income
(loss)(/1/)............ 1,034 299 529 (63) (132) (151) (85)
Interest and other,
net.................... 533 608 638 30 10 5 3
Net income (loss)....... 910 602 762 (74) (171) (202) (106)
Net income (loss) per
share
Basic................. $ 0.40 $ 0.29 $ 0.37 $(0.04) $(0.10) $(0.13) $(0.09)
Diluted............... $ 0.35 $ 0.24 $ 0.30 $(0.04) $(0.10) $(0.13) $(0.09)
Average common shares:
Basic................. 2,255 2,044 2,081 1,850 1,676 1,501 1,175
Diluted............... 2,593 2,531 2,555 1,850 1,676 1,501 1,175
</TABLE>
- --------
(/1/) Business segment operating income (loss) reflects income (loss) from
operations adjusted to exclude corporate related expenses.
<TABLE>
<CAPTION>
June 30,
March 31, ---------------------------
2000 1999 1998 1997 1996 1995
--------- ----- ----- ----- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and equivalents.................... $2,655 $ 887 $ 677 $ 191 $177 $63
Total assets............................ 10,789 5,348 2,874 1,501 957 382
Debt due within one year................ 13 6 2 2 3 3
Long-term debt.......................... 1,625 358 372 52 22 21
Stockholders' equity.................... 6,419 3,033 996 610 393 165
</TABLE>
Significant Events Affecting America Online's Operating Trends. The
comparability of America Online's operating results is affected by a number of
significant and nonrecurring items recognized in some periods. For the nine
months ended March 31, 2000, America Online incurred a special charge of $5
million related to a merger and gains of $386 million related to investments.
In fiscal 1999, America Online incurred special charges of $95 million related
to mergers and a restructuring, $25 million in transition costs and a net gain
of $567 million related to the sale of investments in Excite, Inc. In fiscal
1998, America Online incurred special
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<PAGE>
charges of $94 million for acquired in-process research and development, $17
million related to settlements and $75 million related to a merger and
restructuring. In fiscal 1997, America Online incurred special charges of $49
million related to a restructuring, $24 million for contract terminations, $24
million for a legal settlement and $9 million related to acquired in-process
research and development. In fiscal 1996, America Online incurred special
charges of $17 million for acquired in-process research and development, $8
million in merger related costs and $8 million for the settlement of a class
action lawsuit. In fiscal 1995, America Online incurred special charges of $2
million for merger related costs and $50 million for acquired in-process
research and development.
To assess meaningfully underlying operating trends from period to period,
America Online's management believes that the results of operations for each
period should be analyzed after excluding the effects of these significant
nonrecurring items. Where noted, the following summary adjusts America Online's
historical operating results to exclude the impact of these unusual items.
However, unusual items may occur in any period. Accordingly, investors and
other financial statement users should consider the types of events and
transactions for which adjustments have been made.
<TABLE>
<CAPTION>
Nine Months
Ended
March 31, Year Ended June 30,
------------ -----------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ---- ------- ----- ----- ----- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Other selected data:
Cash provided by operating
activities.................. $1,313 $929 $ 1,099 $ 437 $ 131 $ 2 $ 18
Cash (used in) provided by
investing activities........ (1,116) 273 (1,776) (531) (367) (261) (104)
Cash provided by financing
activities.................. 1,571 802 887 580 250 373 89
Business segment operating
income (as adjusted)........ 1,039 404 649 123 (26) (126) (33)
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) (as
adjusted)/(1)/.............. 1,234 557 866 265 24 (106) (29)
</TABLE>
- --------
/(1)/ EBITDA is defined as net income plus: (a) provision/(benefit) for income
taxes, (b) interest, (c) depreciation and amortization and (d) special
items. America Online considers EBITDA to be an important indicator of
the operational strength and performance of its business, including its
ability to provide cash flows to service its debt and fund capital
expenditures. EBITDA, however, should not be considered an alternative to
operating or net income as an indicator of America Online's performance,
or as an alternative to cash flows from operating activities as a measure
of liquidity, in each case determined in accordance with generally
accepted accounting principles. In addition, this definition of EBITDA
may not be comparable to similarly titled measures reported by other
companies.
Ratio of Earnings to Combined Fixed Charges and Preferred Dividends
The following table sets forth the ratio of earnings to combined fixed
charges and preferred dividends for the nine months ended March 31, 2000 and
for each of the last five fiscal years.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended June 30,
March 31, --------------------------
2000 1999 1998 1997 1996 1995
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and
preferred dividends............ 10.13x 7.72x 0.25x -- -- --
</TABLE>
For purposes of computing the ratio of earnings to combined fixed charges
and preferred dividends, earnings represent earnings from continuing operations
before income taxes plus interest expense on indebtedness, amortization of debt
discount and the portion of rent expense deemed representative of an interest
factor. Fixed charges include interest on indebtedness (whether expensed or
capitalized), amortization of debt discount and the portion of rent expense
deemed representative of an interest factor. For the years ended June 30, 1997,
1996 and 1995, the deficiency of earnings to combined fixed charges and
preferred dividends totaled $106 million, $151 million and $87 million,
respectively.
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TIME WARNER
Selected Historical Financial Data
The selected historical financial data of Time Warner has been derived from
the audited historical consolidated financial statements and related notes of
Time Warner for each of the years in the five-year period ended December 31,
1999 and the unaudited consolidated financial statements for the three months
ended March 31, 2000 and 1999. The historical data is only a summary, and you
should read it in conjunction with the historical financial statements and
related notes contained in the annual and quarterly reports of Time Warner
which have been incorporated by reference into this joint proxy statement-
prospectus. Certain reclassifications have been made to conform to Time
Warner's 2000 financial statement presentation.
The selected historical financial data for 1999 reflects the consolidation
of TWE and its related companies, retroactive to the beginning of 1999. We
refer to TWE and its related companies as the "entertainment group." The
selected historical financial data for all prior periods has not been changed.
However, in order to enhance comparability, pro forma financial data for 1998
reflects the consolidation of the entertainment group. In addition, selected
historical financial data of the entertainment group is included elsewhere in
this joint proxy statement-prospectus to facilitate an analysis of Time
Warner's results of operations and financial condition for all prior periods in
which the entertainment group was not consolidated.
The selected historical financial data for 1998 reflects:
. the transfer of cable television systems (or interests therein) serving
approximately 650,000 subscribers that were formerly owned by
subsidiaries of Time Warner to the TWE-Advance Newhouse Partnership,
subject to approximately $1 billion of debt, in exchange for common and
preferred interests in the partnership, as well as related transactions,
which we refer to as the "TWE-A/N Transfers"; and
. the redemption of Time Warner's series M preferred stock at an aggregate
cost of approximately $2.1 billion, using proceeds from the issuance of
lower-cost debt.
The selected historical financial data for 1996 reflects:
. the use of approximately $1.55 billion of net proceeds from the issuance
of Time Warner's series M preferred stock to reduce outstanding
indebtedness; and
. the acquisitions of Turner Broadcasting System, Inc. and Cablevision
Industries Corporation and related companies, resulting in:
. the issuance of an aggregate 6.3 million shares of Time Warner
preferred stock having a total liquidation preference of $633 million
and 365.4 million shares of Time Warner common stock; and
. the assumption or incurrence of approximately $4.8 billion of
indebtedness.
The selected historical financial data for 1995 reflects:
. Time Warner's acquisitions of KBLCOM Incorporated and Summit
Communications Group, Inc.; and
. the exchange by Toshiba Corporation and ITOCHU Corporation of their
direct and indirect interests in TWE, resulting in:
15
<PAGE>
. the issuance of an aggregate 29.3 million shares of Time Warner
preferred stock having a total liquidation preference of $2.926
billion and 5.2 million shares of Time Warner common stock; and
. the assumption or incurrence of approximately $1.3 billion of
indebtedness.
Per common share amounts and average common shares give effect to the two-
for-one common stock split that occurred on December 15, 1998.
Statements of Operations and Cash Flows Data:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
--------------------- ----------------------------------------------------------------
2000 1999 1999 1998 Pro 1998 1997 1996 1995
Historical Historical Historical Forma Historical Historical Historical Historical
---------- ---------- ---------- -------- ---------- ---------- ---------- ----------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 6,549 $ 6,091 $ 27,333 $ 26,244 $ 14,582 $ 13,294 $10,064 $8,067
Business segment
operating income....... 841 935 6,051 3,122 1,486 1,241 897 619
Equity in pretax income
of entertainment
group.................. -- -- -- -- 356 686 290 256
Interest and other,
net.................... (808) (506) (1,913) (2,040) (1,118) (943) (1,033) (788)
Income (loss) before
extraordinary item..... (96) 138 1,960 168 168 301 (156) (124)
Net income (loss)....... (96) 138 1,948 168 168 246 (191) (166)
Net income (loss)
applicable to common
shares (after preferred
dividends)............. (101) 120 1,896 (372) (372) (73) (448) (218)
Per share of common
stock:
Basic net income
(loss)................ $ (0.08) $ 0.10 $ 1.50 $ (0.31) $ (0.31) $ (0.06) $ (0.52) $(0.28)
Diluted net income
(loss)................ $ (0.08) $ 0.10 $ 1.42 $ (0.31) $ (0.31) $ (0.06) $ (0.52) $(0.28)
Dividends.............. $ 0.045 $ 0.045 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18
Average common shares:
Basic.................. 1,301.5 1,243.1 1,267.0 1,194.7 1,194.7 1,135.4 862.4 767.6
Diluted................ 1,301.5 1,243.1 1,398.3 1,194.7 1,194.7 1,135.4 862.4 767.6
Cash provided by
operations............. 399 816 3,953 3,408 1,845 1,408 253 1,051
Cash provided (used) by
investing activities... (660) (389) (1,930) (908) 353 (45) (424) (271)
Cash provided (used) by
financing activities... (175) (248) (1,181) (2,938) (2,401) (1,232) (500) 123
EBITDA(/1/)............. $ 1,479 $ 1,520 $ 8,561 $ 5,738 $ 2,645 $ 2,516 $ 1,866 $1,159
</TABLE>
- --------
(/1/) EBITDA consists of business segment operating income (loss) before
depreciation and amortization. Time Warner considers EBITDA to be an
important indicator of the operational strength and performance of its
businesses, including the ability to provide cash flows to service debt
and fund capital expenditures. EBITDA, however, should not be considered
an alternative to operating or net income as an indicator of the
performance of Time Warner, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined
in accordance with generally accepted accounting principles. In addition,
this definition of EBITDA may not be comparable to similarly titled
measures reported by other companies.
Significant Events Affecting Time Warner's Operating Trends. The
comparability of Time Warner's operating results is affected by a number of
significant and nonrecurring items recognized in some periods.
For the three months ended March 31, 2000, these items included:
. net pretax gains of $28 million relating to the sale or exchange of
certain cable television systems and investments;
16
<PAGE>
. a noncash pretax charge of approximately $220 million relating to the
write-down of Time Warner's carrying value of its investment in The
Columbia House Company, a 50%-owned equity investee; and
. one-time transaction costs of approximately $46 million relating to Time
Warner's proposed merger with America Online.
For the three months ended March 31, 1999, those items included a net pretax
gain of approximately $215 million relating to the early termination and
settlement of a long-term, home video distribution agreement.
For the full year 1999, these items included:
. net pretax gains of approximately $2.247 billion relating to the sale or
exchange of cable television systems and investments;
. a pretax gain of approximately $115 million relating to the initial
public offering of a 20% interest in Time Warner Telecom Inc., an
integrated communications provider that provides a wide range of
telephony and data services to businesses;
. an approximate $215 million net pretax gain recognized in connection
with the early termination and settlement of a long-term, home video
distribution agreement;
. an approximate $97 million pretax gain recognized in connection with the
sale of an interest in CanalSatellite, a satellite television platform
serving France and Monaco;
. a noncash pretax charge of approximately $106 million relating to Warner
Bros.'s retail stores; and
. an extraordinary loss of approximately $12 million on the retirement of
debt.
For 1998, significant and nonrecurring items included:
. net pretax gains of approximately $108 million relating to the sale or
exchange of cable television systems and investments;
. a pretax charge of approximately $210 million principally to reduce the
carrying value of an interest in Primestar, Inc.; and
. an increase in preferred dividend requirements of approximately $234
million relating to the premium paid in connection with Time Warner's
redemption of its series M preferred stock.
For 1997, significant and nonrecurring items included:
. net pretax gains of approximately $212 million relating to the sale or
exchange of cable television systems and investments;
. a pretax gain of approximately $200 million relating to the disposal of
an interest in Hasbro, Inc. and the related redemption of certain
mandatorily redeemable preferred securities of a subsidiary;
. a pretax gain of approximately $250 million relating to the sale of an
interest in E! Entertainment Television, Inc.; and
. an extraordinary loss of approximately $55 million on the retirement of
debt.
For 1996, significant and nonrecurring items included an extraordinary loss
of approximately $35 million on the retirement of debt.
17
<PAGE>
For 1995, significant and nonrecurring items included:
. pretax losses of approximately $85 million relating to certain
businesses and joint ventures owned by Time Warner's music division that
were either restructured or closed; and
. an extraordinary loss of approximately $42 million on the retirement of
debt.
To assess meaningfully underlying operating trends from period to period,
Time Warner's management believes that the results of operations for each
period should be analyzed after excluding the effects of these significant
nonrecurring items. The following summary adjusts Time Warner's historical
operating results to exclude the impact of these unusual items. However,
unusual items may occur in any period. Accordingly, investors and other
financial statement users individually should consider the types of events and
transactions for which adjustments have been made.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Years Ended December 31,
--------------------- -------------------------------------------------------------
1998
2000 1999 1999 Pro 1998 1997 1996 1995
Historical Historical Historical Forma Historical Historical Historical Historical
---------- ---------- ---------- ------ ---------- ---------- ---------- ----------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjusted business
segment operating
income................. $ 813 $ 720 $3,598 $3,014 $1,468 $1,229 $ 897 $ 704
Adjusted EBITDA......... 1,451 1,305 6,108 5,630 2,627 2,504 1,866 1,244
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
March 31, ----------------------------------------------------------------
2000 1999 1998 1998 1997 1996 1995
Historical Historical Pro Forma Historical Historical Historical Historical
---------- ---------- --------- ---------- ---------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents.... $ 848 $ 1,284 $ 529 $ 442 $ 645 $ 514 $ 1,185
Total assets............ 50,213 51,239 47,951 31,640 34,163 35,064 22,132
Debt due within one
year................... 22 22 25 19 8 11 34
Long-term debt and other
obligations(/1/)....... 19,554 19,901 19,190 12,395 12,941 14,150 10,856
Series M preferred
stock.................. -- -- -- -- 1,857 1,672 --
Shareholders' equity:
Preferred stock
liquidation
preference............ 540 840 2,260 2,260 3,539 3,559 2,994
Equity applicable to
common stock.......... 9,724 8,873 6,592 6,592 5,817 5,943 673
Total shareholders'
equity................ 10,264 9,713 8,852 8,852 9,356 9,502 3,667
Total capitalization.... 29,840 29,636 28,067 21,266 24,162 25,335 14,557
</TABLE>
- --------
(/1/) Long-term debt and other obligations include borrowings against future
stock option proceeds and mandatorily redeemable preferred securities of
subsidiaries.
18
<PAGE>
TIME WARNER ENTERTAINMENT GROUP
Selected Historical Financial Data
Since 1993, the entertainment group had not been consolidated by Time Warner
for financial reporting purposes because a subsidiary of MediaOne Group, which
is a limited partner of TWE, had rights that allowed it to participate in the
management of TWE's businesses. However, in August 1999, MediaOne's management
rights over TWE terminated. As a result, retroactive to the beginning of 1999,
the entertainment group has been consolidated by Time Warner.
The selected financial data of the entertainment group has been derived from
and should be read in conjunction with the Time Warner selected financial data
previously presented and the consolidated financial statements and other
financial data of TWE contained in Time Warner's Annual Report on Form 10-K for
the year ended December 31, 1999 and with the unaudited consolidated condensed
financial statements and other financial information of TWE contained in Time
Warner's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
The historical financial data is only a summary and you should read it in
conjunction with the historical financial statements of Time Warner and TWE,
which have been incorporated by reference in this joint proxy statement-
prospectus.
The selected historical financial data for 1998 reflects:
. the TWE-A/N Transfers effective as of January 1, 1998;
. the transfer of Time Warner Cable's direct broadcast satellite
operations to Primestar, Inc. effective as of April 1, 1998;
. the formation of the Road Runner joint venture to operate and expand
Time Warner Cable's and MediaOne's existing high-speed online
businesses, effective as of June 30, 1998;
. the reorganization of Time Warner Cable's business telephony operations
into a separate entity now named Time Warner Telecom Inc., effective as
of July 1, 1998; and
. the formation of a joint venture in Texas that owns cable television
systems serving approximately 1.1 million subscribers, effective as of
December 31, 1998.
The selected historical financial data for 1995 reflects:
. the formation of the TWE-Advance Newhouse Partnership, effective as of
April 1, 1995;
. the consolidation of Paragon Communications, effective as of July 6,
1995; and
. the deconsolidation of Six Flags Entertainment Corporation resulting
from the disposition by TWE of a 51% interest in Six Flags, effective as
of June 23, 1995.
Statements of Operations and Cash Flows Data:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Years Ended December 31,
-------------- ------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------- ------- ------- ------- ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $3,297 $2,934 $13,164 $12,256 $11,328 $10,861 $9,629
Business segment
operating income....... 497 651 4,227 1,724 1,461 1,090 992
Interest and other,
net.................... (180) (220) (818) (945) (338) (524) (539)
Income before
extraordinary item..... 222 312 2,759 331 642 220 170
Net income.............. 222 312 2,759 331 619 220 146
Cash provided by
operations............. 776 788 2,713 2,288 (1,799) 1,912 1,495
Cash used by investing
activities............. (599) (322) (605) (745) (1,217) (1,253) (750)
Cash used by financing
activities............. (334) (232) (1,678) (1,778) (476) (652) (1,607)
EBITDA(/1/)............. 852 959 5,591 3,160 2,847 2,334 2,052
</TABLE>
- --------
(/1/)EBITDA consists of business segment operating income (loss) before
depreciation and amortization. Time Warner considers EBITDA to be an
important indicator of the operational strength and performance of its
businesses, including the ability to provide cash flows to service debt
and fund capital expenditures. EBITDA, however, should not be considered
an alternative to operating or net income as an indicator of the
performance of Time Warner, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. In addition,
this definition of EBITDA may not be comparable to similarly titled
measures reported by other companies.
19
<PAGE>
Significant Events Affecting the Time Warner Entertainment Group's Operating
Trends. The comparability of the entertainment group's operating results is
affected by certain significant and nonrecurring items recognized in certain
periods.
For the three months ended March 31, 1999, those items included a net pretax
gain of approximately $215 million relating to the early termination and
settlement of a long-term, home video distribution agreement.
For the full year 1999, these items included:
. net pretax gains of approximately $2.119 billion relating to the sale or
exchange of cable television systems and investments;
. an approximate $215 million net pretax gain recognized in connection
with the early termination and settlement of a long-term, home video
distribution agreement;
. an approximate $97 million pretax gain recognized in connection with the
sale of an interest in CanalSatellite, a satellite television platform
serving France and Monaco; and
. a noncash pretax charge of approximately $106 million relating to Warner
Bros.'s retail stores.
For 1998, significant and nonrecurring items included:
. net pretax gains of approximately $90 million relating to the sale or
exchange of cable television systems and investments; and
. a pretax charge of approximately $210 million principally to reduce the
carrying value of an interest in Primestar.
For 1997, significant and nonrecurring items included:
. net pretax gains of approximately $200 million relating to the sale or
exchange of cable television systems and investments;
. a pretax gain of approximately $250 million relating to the sale of an
interest in E! Entertainment Television, Inc.; and
. an extraordinary loss of approximately $23 million on the retirement of
debt. For 1995, significant and nonrecurring items included an
extraordinary loss of approximately $24 million on the retirement of
debt.
To assess meaningfully underlying operating trends from period to period,
Time Warner's management believes that the results of operations for each
period should be analyzed after excluding the effects of these significant
nonrecurring items. The following summary adjusts the entertainment group's
historical operating results to exclude the impact of these unusual items.
However, unusual items may occur in any period. Accordingly, investors and
other financial statement users individually should consider the types of
events and transactions for which adjustments have been made.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Years Ended December 31,
------------- ---------------------------------
2000 1999 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------ -----
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Adjusted business segment
operating income............. $497 $436 $1,902 $1,634 $1,261 $1,090 $ 992
Adjusted EBITDA............... 852 744 3,266 3,070 2,647 2,334 2,052
</TABLE>
20
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
March 31, ---------------------------------------
2000 1999 1998 1997 1996 1995
--------- ------- ------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Cash and equivalents........ $ 360 $ 517 $ 87 $ 322 $ 216 $ 209
Total assets................ 24,272 24,843 22,241 20,739 20,027 18,960
Debt due within one year.... 6 6 6 8 7 47
Long-term debt and other
obligations(/1/)........... 6,648 6,655 6,795 6,223 5,676 6,137
Time Warner General
Partners' Senior Capital... -- -- 603 1,118 1,543 1,426
Partners' capital........... 6,343 7,149 5,210 6,430 6,681 6,576
</TABLE>
- --------
(/1/) Long-term debt and other obligations include preferred stock of a
subsidiary.
21
<PAGE>
AOL TIME WARNER
Selected Unaudited Pro Forma Consolidated Financial Data
The selected unaudited pro forma consolidated financial data of AOL Time
Warner have been derived from the unaudited pro forma consolidated condensed
financial statements included elsewhere in this joint proxy statement-
prospectus. Because America Online and Time Warner have different fiscal years,
and the combined company will adopt the calendar year-end of Time Warner, pro
forma operating results are presented on two different bases:
. a June 30 fiscal-year basis, which is consistent with America Online's
historical fiscal year-end; and
. a December 31 calendar-year basis, which is consistent with both Time
Warner's historical fiscal year-end and that of AOL Time Warner going
forward.
Management believes that it is meaningful to present pro forma financial
information based on the calendar year-end of the combined company to
facilitate an analysis of the pro forma effects of the merger.
<TABLE>
<CAPTION>
Nine Three
Months Year Months Year
Ended Ended Ended Ended
March 31, June 30, March 31, December 31,
2000 1999 2000 1999
--------- -------- --------- ------------
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues........................... $26,184 $31,259 $ 8,385 $33,051
Amortization of goodwill and other
intangible assets................. (6,325) (8,392) (2,110) (8,393)
Business segment operating income
(loss)............................ 10 (2,106) (511) (70)
Interest and other, net............ (1,328) (1,402) (472) (1,099)
Loss before extraordinary item..... (2,095) (3,913) (1,039) (2,522)
Loss before extraordinary item per
basic and diluted share........... (0.50) (1.10) (0.25) $ (0.63)
Average common shares.............. 4,195 3,928 4,240 4,090
EBITDA(/1/)(/2/) .................. 7,500 7,749 1,996 9,802
</TABLE>
- --------
(/1/) EBITDA consists of business segment operating income (loss) before
depreciation and amortization. AOL Time Warner considers EBITDA to be an
important indicator of the operational strength and performance of its
businesses, including the ability to provide cash flows to service debt
and fund capital expenditures. EBITDA, however, should not be considered
an alternative to operating or net income as an indicator of the
performance of AOL Time Warner, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined
in accordance with generally accepted accounting principles. In addition,
this definition of EBITDA may not be comparable to similarly titled
measures reported by other companies.
(/2/) EBITDA includes a number of significant and nonrecurring items. The
aggregate effect of those items for each period, as well as the adjusted
EBITDA excluding such amounts, is as follows:
<TABLE>
<S> <C> <C> <C> <C>
Increase in EBITDA.................. $ 1,490 $ 890 $ 28 $ 2,330
======= ======= ======= =======
Adjusted EBITDA..................... $ 6,010 $ 6,859 $ 1,968 $ 7,472
======= ======= ======= =======
</TABLE>
See "Selected Historical Financial Data" elsewhere herein for further
reference.
<TABLE>
<CAPTION>
March 31,
2000
-------------
(in millions)
<S> <C>
Balance Sheet Data:
Cash and equivalents............................................ $ 3,503
Total assets.................................................... 235,388
Long-term debt and other obligations(/3/)....................... 21,179
Shareholders' equity............................................ 156,293
</TABLE>
- --------
(/3/) Includes $1.245 billion of borrowings against future stock option
proceeds and $575 million of mandatorily redeemable preferred securities
of subsidiaries.
22
<PAGE>
UNAUDITED COMPARATIVE PER SHARE INFORMATION
We present below per common share data regarding the income, cash dividends
declared and book value of America Online and Time Warner on both historical
and unaudited pro forma consolidated bases and on a per share equivalent
unaudited pro forma basis for Time Warner. We have derived the unaudited pro
forma consolidated per share information from the unaudited pro forma
consolidated condensed financial statements presented elsewhere in this joint
proxy statement-prospectus. Because America Online and Time Warner have
different fiscal years, and the combined company will adopt the calendar year-
end of Time Warner, pro forma per share data are presented on two different
bases: (1) a June 30 fiscal-year basis, which is consistent with America
Online's historical fiscal year-end and (2) a December 31 calendar-year basis,
which is consistent with both Time Warner's historical fiscal year-end and that
of AOL Time Warner going forward. Management believes that it is meaningful to
present pro forma financial information based on the calendar year-end of the
combined company to facilitate an analysis of the pro forma effects of the
merger. You should read the information below in conjunction with the financial
statements and accompanying notes of America Online and Time Warner that are
incorporated by reference in this joint proxy statement-prospectus and with the
unaudited pro forma consolidated information included under "Pro Forma
Consolidated Condensed Financial Statements."
<TABLE>
<CAPTION>
As of and for the As of and for the As of and for the As of and for the
Nine Months Ended Year Ended June Three Months Ended Year Ended
March 31, 2000 30, 1999 March 31, 2000 December 31, 1999
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
America Online
Historical:
Net income per common
share:
Basic................. $ 0.40 $ 0.37 $ 0.19 $ 0.48
Diluted............... 0.35 0.30 0.17 0.41
Cash dividends declared
per common share...... -- -- -- --
Book value per common
share................. 2.80 1.38 2.80 2.74
Time Warner Historical:
Income per common share
before extraordinary
item:
Basic................. $ 0.86 $ 0.36 $(0.08) $ 1.51
Diluted............... 0.84 0.36 (0.08) 1.43
Cash dividends declared
per common share...... 0.135 0.18 0.045 0.18
Book value per common
share................. 7.39 5.73 7.39 6.90
AOL Time Warner--Pro
Forma Combined:
Loss per common share
before extraordinary
item.................. $(0.50) $(1.10) $(0.25) $(0.63)
Cash dividends declared
per common
share(/1/)............ -- -- -- --
Book value per common
share................. 36.50 37.00 36.50 36.67
Time Warner Per Share
Equivalent Pro Forma:
Loss per common share
before extraordinary
item.................. $(0.75) $(1.65) $(0.38) $(0.95)
Cash dividends declared
per common
share(/1/)............ -- -- -- --
Book value per common
share................. $54.75 $55.50 $54.75 $55.01
</TABLE>
- --------
(/1/)AOL Time Warner does not currently intend to pay dividends on its common
stock.
The Time Warner per share equivalent pro forma data are calculated by
multiplying the AOL Time Warner per share amounts by 1.5, the exchange ratio to
AOL Time Warner common stock. The America Online per share equivalents remain
unchanged, as the exchange ratio to AOL Time Warner common stock is one to one.
23
<PAGE>
RISK FACTORS
In addition to the other information contained in or incorporated by
reference into this joint proxy statement-prospectus, you should carefully
consider the following risk factors in deciding whether to vote for adoption of
the merger agreement.
Fluctuations in market prices may cause the value of the shares of AOL Time
Warner stock that you receive to be less than the value of your shares of
America Online stock or Time Warner stock.
Upon completion of the merger, all shares of America Online stock and Time
Warner stock will be converted into shares of AOL Time Warner stock. The ratios
at which the shares will be converted are fixed, and there will be no
adjustment for changes in the market price of either America Online common
stock or Time Warner common stock. Any change in the price of either America
Online common stock or Time Warner common stock will affect the value Time
Warner stockholders and America Online stockholders will receive in the merger.
America Online common stock has historically experienced significant
volatility, and the value of the shares of AOL Time Warner stock received in
the merger may go up or down as the market price of America Online common
stock, or Time Warner common stock, goes up or down. Stock price changes may
result from a variety of factors that are beyond the control of America Online
and Time Warner, including changes in their businesses, operations and
prospects, regulatory considerations and general market and economic
conditions. Neither party is permitted to "walk away" from the merger or
resolicit the vote of its stockholders solely because of changes in the market
price of either party's common stock.
The prices of America Online common stock and Time Warner common stock at
the closing of the merger may vary from their respective prices on the date of
this joint proxy statement-prospectus and on the dates of the special meetings.
Because the date the merger is completed will be later than the dates of the
special meetings, the prices of America Online common stock and Time Warner
common stock on the dates of the special meetings may not be indicative of
their respective prices on the date the merger is completed.
The combination of America Online and Time Warner to form an integrated media
and communications company creates a new business model that the marketplace
may have difficulty valuing.
The market value of shares of common stock generally reflects a "multiple"
of selected measures of financial performance, such as operating profits or
earnings per share. The market price of shares of common stock of Internet
companies, such as America Online, typically reflects a higher multiple of the
underlying measures of financial performance than does the market price of
shares of common stock of media companies, such as Time Warner. The multiple
for shares of AOL Time Warner common stock may be similar to the multiple for
shares of America Online common stock, or it may be similar to the multiple for
shares of Time Warner common stock, or it may reflect a "blending" of the two.
AOL Time Warner will be the first global, fully integrated media and
communications company, and financial analysts and investors may have
difficulty identifying and applying measures of financial performance that
reflect the value of the combined company. As a result, shares of AOL Time
Warner common stock may not achieve a valuation in the public trading market
that fully reflects the true value of the combined company, including its
synergies and benefits.
AOL Time Warner may fail to realize the anticipated benefits of the merger.
The success of the merger will depend, in part, on the ability of AOL Time
Warner to realize the anticipated growth opportunities and synergies from
combining the businesses of America Online with the businesses of Time Warner.
To realize the anticipated benefits of this combination, members of the
management team of AOL Time Warner must develop strategies and implement a
business plan that will:
. effectively combine Time Warner's media, entertainment and news brands
and its broadband delivery systems with America Online's interactive
services, technology and infrastructure;
24
<PAGE>
. successfully use the anticipated opportunities for cross-promotion and
sales of the products and services of Time Warner and America Online and
for increasing revenues from advertising and e-commerce;
. effectively and efficiently integrate the policies, procedures and
operations of America Online and Time Warner;
. successfully retain and attract key employees of the combined company,
including operating management and key technical personnel, during a
period of transition and in light of the competitive employment market;
and
. while integrating the combined company's operations, maintain adequate
focus on the core businesses of AOL Time Warner in order to take
advantage of competitive opportunities and to respond to competitive
challenges.
If members of the management team of AOL Time Warner are not able to develop
strategies and implement a business plan that achieves these objectives, the
anticipated benefits of the merger may not be realized. In particular,
anticipated growth in revenue, earnings before interest, taxes and
amortization, or "EBITA," earnings before interest, taxes, depreciation and
amortization, or "EBITDA," and cash flow may not be realized, which would have
an adverse impact on AOL Time Warner and the market price of shares of AOL Time
Warner common stock.
Directors of America Online and Time Warner have potential conflicts of
interest in recommending that you vote in favor of adoption of the merger
agreement.
A number of directors of America Online and a number of directors of Time
Warner who recommend that you vote in favor of the adoption of the merger
agreement have employment or severance agreements or benefit arrangements that
provide them with interests in the merger that differ from yours. Following
completion of the merger, Stephen M. Case, Chairman and Chief Executive Officer
of America Online, will serve as Chairman of the Board of AOL Time Warner, and
Robert W. Pittman, President and Chief Operating Officer of America Online,
will serve as Co-Chief Operating Officer of AOL Time Warner. In addition,
Gerald M. Levin, Chairman and Chief Executive Officer of Time Warner, will
serve as Chief Executive Officer of AOL Time Warner, Richard D. Parsons,
President of Time Warner, will serve as Co-Chief Operating Officer of AOL Time
Warner and R.E. Turner, Vice Chairman of Time Warner will serve as Vice
Chairman of AOL Time Warner.
The receipt of compensation or other benefits in the merger, including the
vesting of stock options and restricted stock, or the continuation of
indemnification arrangements for current directors of America Online and Time
Warner following completion of the merger, may influence these directors in
making their recommendation that you vote in favor of the adoption of the
merger agreement.
AOL Time Warner may be subject to adverse regulatory conditions.
Before the merger may be completed, various approvals must be obtained from,
or notifications submitted to, among others, competition authorities in the
United States and abroad, the Federal Communications Commission and numerous
state and local authorities. Many of these governmental entities from whom
approvals are required may attempt to condition their approval of the merger,
or of the transfer to the combined company of licenses and other entitlements,
on the imposition of certain regulatory conditions that may have the effect of
imposing additional costs on AOL Time Warner or of limiting AOL Time Warner's
revenues. In addition, the regulatory environment in which AOL Time Warner's
businesses will operate is complex and subject to change, and adverse changes
in that environment could have either of these adverse effects.
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THE SPECIAL MEETINGS
Joint Proxy Statement-Prospectus
This joint proxy statement-prospectus is being furnished to you in
connection with the solicitation of proxies by each of America Online's and
Time Warner's board of directors in connection with the proposed merger.
This joint proxy statement-prospectus is first being furnished to
stockholders of America Online and Time Warner on or about May 23, 2000.
Date, Time and Place of the Special Meetings
The special meetings are scheduled to be held as follows:
For America Online stockholders: For Time Warner stockholders:
June 23, 2000 June 23, 2000
10:00 a.m., local time 10:00 a.m., local time
Sheraton Premiere at Tysons Corner Time & Life Building
8661 Leesburg Pike 1271 Avenue of the Americas
Vienna, Virginia New York, New York
Purpose of the Special Meetings
The special meetings are being held so that stockholders of each of America
Online and Time Warner may consider and vote upon a proposal to adopt a merger
agreement between America Online and Time Warner pursuant to which America
Online and Time Warner will each become a wholly owned subsidiary of AOL Time
Warner, and to transact any other business that properly comes before the
special meetings or any adjournment or postponement of the special meetings.
Adoption of the merger agreement will also constitute approval of the merger
and the other transactions contemplated by the merger agreement.
If the stockholders of America Online and Time Warner adopt the merger
agreement, upon completion of the merger:
. each outstanding share of America Online common stock will be converted
into one share of AOL Time Warner common stock;
. each outstanding share of Time Warner common stock will be converted
into 1.5 shares of AOL Time Warner common stock;
. each outstanding share of Time Warner series LMCN-V common stock will be
converted into 1.5 shares of AOL Time Warner series LMCN-V common stock
having terms substantially identical to those of the Time Warner series
LMCN-V common stock; and
. each outstanding share of each series of Time Warner preferred stock
will be converted into one share of a corresponding series of AOL Time
Warner preferred stock having terms substantially identical to those of
that series of Time Warner preferred stock, except that the voting
rights and conversion ratio of the AOL Time Warner preferred stock will
be adjusted to reflect the 1.5 conversion ratio between shares of Time
Warner common stock and shares of AOL Time Warner common stock.
Stockholder Record Date for the Special Meetings
America Online. America Online's board of directors has fixed the close of
business on May 18, 2000 as the record date for determination of America Online
stockholders entitled to notice of and to vote at the special meeting. On the
record date, there were 2,298,656,008 shares of America Online common stock
outstanding, held by approximately 40,750 holders of record.
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Time Warner. Time Warner's board of directors has fixed the close of
business on May 18, 2000 as the record date for determination of Time Warner
stockholders entitled to notice of and to vote at the Time Warner special
meeting. On the record date, there were:
. 1,207,390,229 shares of Time Warner common stock outstanding, held by
approximately 25,000 holders of record;
. 3,124,829 shares of Time Warner series E preferred stock outstanding,
held by 14 holders of record;
. 4,496 shares of Time Warner series F preferred stock outstanding, held
by five holders of record;
. 700,000 shares of Time Warner series I preferred stock outstanding, held
by two holders of record; and
. 188,657 shares of Time Warner series J preferred stock outstanding, held
by two holders of record.
Vote Required for Adoption of the Merger Agreement
America Online. A majority of the outstanding shares of America Online
common stock must be represented, either in person or by proxy, to constitute a
quorum at the America Online special meeting. The affirmative vote of the
holders of a majority of the outstanding shares of America Online's common
stock outstanding as of the record date is required to adopt the merger
agreement. At the America Online special meeting, each share of America Online
common stock is entitled to one vote on all matters properly submitted to the
America Online stockholders.
As of the record date, America Online directors and executive officers and
their affiliates owned less than 1% of the outstanding shares of America Online
common stock.
Time Warner. A majority of the votes entitled to be cast at the Time Warner
special meeting must be represented, either in person or by proxy, to
constitute a quorum at the Time Warner special meeting. The affirmative vote of
the holders of a majority of the voting power of shares of Time Warner common
stock, Time Warner series E preferred stock, Time Warner series F preferred
stock, Time Warner series I preferred stock and Time Warner series J preferred
stock outstanding as of the record date, voting together as one group, is
required to adopt the merger agreement. At the Time Warner special meeting:
. each share of Time Warner common stock is entitled to one vote on all
matters properly submitted to the Time Warner stockholders; and
. each share of Time Warner series E preferred stock, Time Warner series F
preferred stock, Time Warner series I preferred stock and Time Warner
series J preferred stock is entitled to four votes on all matters
properly submitted to the Time Warner stockholders.
The holders of the Time Warner series LMCN-V common stock are not entitled
to vote on the merger proposal.
As of the record date, Time Warner directors and executive officers and
their affiliates, including Mr. Turner, owned approximately 8.8% of the voting
power of Time Warner capital stock entitled to vote at the Time Warner special
meeting. Mr. Turner and his affiliates who are parties to the voting agreement
with America Online have agreed to vote substantially all their shares of Time
Warner common stock in favor of the adoption of the merger agreement. These
shares of Time Warner common stock owned by Mr. Turner and his affiliates
represent approximately 8.2% of the voting power of Time Warner capital stock
entitled to vote at the Time Warner special meeting.
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Proxies
All shares of America Online common stock represented by properly executed
proxies or voting instructions received before or at the America Online special
meeting and all shares of Time Warner common stock and preferred stock
represented by properly executed proxies or voting instructions received before
or at the Time Warner special meeting will, unless the proxies or voting
instructions are revoked, be voted in accordance with the instructions
indicated on those proxies or voting instructions. If no instructions are
indicated on a properly executed proxy card or voting instruction, the shares
will be voted FOR adoption of the merger agreement. You are urged to mark the
box on the proxy card to indicate how to vote your shares. A Time Warner
stockholder of record may not appoint more than three persons to act as his or
her proxy at the Time Warner special meeting.
If a properly executed proxy card or voting instruction is returned and the
stockholder has abstained from voting on adoption of the merger agreement, the
America Online common stock or Time Warner common stock or preferred stock
represented by the proxy or voting instruction will be considered present at
the special meeting for purposes of determining a quorum, but will not be
considered to have been voted in favor of adoption of the merger agreement. If
your shares are held in an account at a brokerage firm or bank, you must
instruct them on how to vote your shares. If an executed proxy card is returned
by a broker or bank holding shares which indicates that the broker or bank does
not have discretionary authority to vote on adoption of the merger agreement,
the shares will be considered present at the meeting for purposes of
determining the presence of a quorum, but will not be considered to have been
voted in favor of adoption of the merger agreement. Your broker or bank will
vote your shares only if you provide instructions on how to vote by following
the information provided to you by your broker. If you hold shares through a
Time Warner benefit plan, your shares may be voted even if you do not instruct
the trustee how to vote, as explained in your voting instruction card.
Because adoption of the merger agreement requires, in the case of America
Online, the affirmative vote of at least a majority of the shares of America
Online's common stock outstanding on the record date and, in the case of Time
Warner, the affirmative vote of the holders of a majority of the voting power
of the shares of Time Warner common stock and Time Warner preferred stock
outstanding on the record date, voting together as one group, abstentions,
failures to vote and broker non-votes will have the same effect as a vote
against adoption of the merger agreement.
The America Online special meeting or the Time Warner special meeting may be
adjourned or postponed, including by their respective chairmen, in order to
permit further solicitation of proxies. No proxy voted against the proposal to
adopt the merger agreement will be voted on any proposal to adjourn or postpone
the special meeting that is submitted to the stockholders for a vote.
Neither America Online nor Time Warner expects that any matter other than
adoption of the merger agreement will be brought before its special meeting.
If, however, other matters are properly presented, the persons named as proxies
will vote in accordance with their judgment with respect to those matters,
unless authority to do so is withheld on the proxy card.
A stockholder may revoke his or her proxy at any time before it is voted by:
. notifying in writing the Corporate Secretary of America Online, Inc. at
22000 AOL Way, Dulles, Virginia 20166, if you are an America Online
stockholder, or the Secretary of Time Warner Inc. at 75 Rockefeller
Plaza, New York, New York 10019, if you are a Time Warner stockholder;
. granting a subsequently dated proxy; or
. appearing in person and voting at the special meeting if you are a
holder of record.
Attendance at the special meeting will not in and of itself constitute
revocation of a proxy.
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Voting Electronically or by Telephone
Because Delaware, the state in which both America Online and Time Warner are
incorporated, permits electronic submission of proxies through the Internet or
by telephone, instead of submitting proxies by mail on the enclosed proxy card
or voting instructions, many stockholders will have the option to submit their
proxies or voting instructions electronically through the Internet or by
telephone. Please note that there are separate arrangements for using the
Internet and telephone depending on whether your shares are registered in your
company's stock records in your name or in the name of a brokerage firm or
bank. Stockholders should check their proxy card or voting instructions
forwarded by their broker, bank or other holder of record to see which options
are available.
The Internet and telephone procedures described below for submitting your
proxy or voting instructions are designed to authenticate stockholders'
identities, to allow stockholders to have their shares voted and to confirm
that their instructions have been properly recorded. We have been advised by
counsel that the procedures that have been put in place are consistent with the
requirements of Delaware law. Stockholders submitting proxies or voting
instructions via the Internet should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that would be borne by the stockholder.
America Online holders of record may submit their proxies:
. through the Internet by visiting a website established for that purpose
at http://www.eproxyvote.com/aol and following the instructions; or
. by telephone by calling the toll-free number 1-877-PRX-VOTE (1-877-779-
8683) and following the recorded instructions. Stockholders residing
outside the United States can call collect on a touch-tone phone 1-201-
536-8073 and follow the recorded instructions.
Time Warner holders of record may submit their proxies:
. through the Internet by visiting a website established for that purpose
at http://www.eproxy.com/twx and following the instructions; or
. by telephone by calling the toll-free number 1-800-840-1208 in the
United States, Canada or Puerto Rico on a touch tone phone and following
the recorded instructions.
Solicitation of Proxies
America Online and Time Warner will equally share the expenses incurred in
connection with the printing and mailing of this joint proxy statement-
prospectus. America Online has retained Corporate Investor Communications,
Inc., for a fee of $20,000 plus additional charges related to telephone calls
and other services, to assist in the solicitation of proxies. Time Warner has
retained D.F. King & Co., Inc., at an estimated cost of $15,000 plus
reimbursement of expenses, to assist in the solicitation of proxies. America
Online, Time Warner and their respective proxy solicitors will also request
banks, brokers and other intermediaries holding shares of America Online or
Time Warner common stock beneficially owned by others to send this joint proxy
statement-prospectus to, and obtain proxies from, the beneficial owners and
will reimburse the holders for their reasonable expenses in so doing.
Solicitation of proxies by mail may be supplemented by telephone, telegram and
other electronic means, advertisements and personal solicitation by the
directors, officers or employees of America Online and Time Warner. No
additional compensation will be paid to directors, officers or employees for
such solicitation.
You should not send in any stock certificates with your proxy card. A
transmittal letter with instructions for the surrender of stock certificates
will be mailed to you as soon as practicable after completion of the merger.
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THE MERGER
This section of the joint proxy statement-prospectus describes material
aspects of the proposed merger, including the merger agreement, the stock
option agreements and the voting agreement. While we believe that the
description covers the material terms of the merger, this summary may not
contain all of the information that is important to you. You should read this
entire joint proxy statement-prospectus and the other documents we refer to
carefully for a more complete understanding of the merger. In addition, we
incorporate important business and financial information about each of us into
this joint proxy statement-prospectus by reference. You may obtain the
information incorporated by reference into this joint proxy statement-
prospectus without charge by following the instructions in the section entitled
"Where You Can Find More Information" that begins on page 137 of this joint
proxy statement-prospectus.
Background of the Merger
In September 1999, Stephen M. Case, Chairman and Chief Executive Officer of
America Online, and Gerald M. Levin, Chairman and Chief Executive Officer of
Time Warner, participated in a meeting of media and technology executives at
the Global Business Dialogue on E-Commerce in Paris. Later in September,
Messrs. Case and Levin participated in a number of meetings at the Fortune
Global Forum and related events, which took place in Shanghai and Beijing.
During the time they spent together at these conferences, Messrs. Case and
Levin discussed a variety of topics related to their businesses. They did not,
however, discuss the possibility of combining their businesses.
In mid-October, Mr. Case spoke with Mr. Levin to suggest that they consider
a business combination involving America Online and Time Warner. Mr. Case
proposed that the combination be accomplished through a stock-for-stock merger
of equals. In addition, Mr. Case proposed that he would serve as chairman of
the combined company and that Mr. Levin would serve as chief executive officer
of the combined company. On October 25, 1999, Messrs. Case and Levin had
another conversation to discuss further these matters.
On November 1, 1999, Messrs. Case and Levin met for dinner and continued
their discussion about a possible business combination, elaborating on the
mutual strategic benefits of a merger of equals and discussing the structure
and implementation of a business combination. That discussion included a
reaffirmation of the fundamental principles of the business combination first
outlined in the mid-October conversation, and ended with a mutual intention to
pursue discussions further.
In conjunction with the initial discussions, the companies began consulting
with various financial and legal advisors about issues raised in the
discussions among their executives. America Online retained Salomon Smith
Barney as its financial advisor and Simpson Thacher & Bartlett and Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., as its legal counsel. Time Warner
retained Morgan Stanley as its financial advisor and Cravath, Swaine & Moore as
its legal counsel. Working with these advisors, America Online and Time Warner
began conducting their due diligence investigations using publicly available
materials and began analyses of a possible combination. These consultations
continued throughout the remaining merger discussions.
Following the November 1, 1999 dinner meeting between Messrs. Case and Levin,
Kenneth J. Novack, Vice Chairman of America Online, and Miles Gilburne, then
the Senior Vice President, Corporate Development of America Online, had several
telephone conversations with Richard J. Bressler, Chairman and Chief Executive
Officer of Time Warner Digital Media, to discuss the structure and
implementation of a stock-for-stock merger of America Online and Time Warner.
Over the next two months, Messrs. Novack and Bressler had periodic telephone
conversations to discuss the proposed combination.
On November 9, 1999, Messrs. Novack, Gilburne and Bressler met to continue
to discuss the strategic rationale for a merger, the appropriate exchange ratio
and the governance and management structure of the resulting entity. The
discussions remained at a general level, and no agreement regarding the
specific terms of a possible stock-for-stock merger was reached.
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Following the November 9, 1999 meeting, Messrs. Novack and Bressler engaged
in numerous telephone discussions concerning a potential merger, culminating in
another meeting among Messrs. Novack, Gilburne and Bressler in New York on
November 16, 1999. During that meeting, there were again discussions, but no
agreement, about an appropriate exchange ratio and a governance and management
structure for the merged entity.
On November 17, 1999, Mr. Case met with R. E. Turner, the Vice Chairman of
Time Warner, to discuss the potential merger and its strategic rationale. Later
in the day, Messrs. Case and Levin met and discussed possible exchange ratios,
but they concluded the meeting at an impasse. The parties determined at this
point to discontinue discussions about a possible combination.
Mr. Novack and Mr. Bressler spoke by telephone on or about December 8, 1999,
concerning the companies' relative market performance and the possibility of
holding a meeting the following week to renew discussions. On December 10,
1999, America Online and Time Warner entered into a confidentiality agreement
which contained customary standstill provisions. On December 13, 1999, Mr.
Novack and a representative of Salomon Smith Barney met with Mr. Bressler and a
representative of Morgan Stanley in New York to discuss possible structures for
a transaction and pricing terms, including exchange ratios and whether a collar
would be used. The meeting concluded without agreement.
On the morning of December 23, 1999, Mr. Novack, and J. Michael Kelly, Chief
Financial Officer of America Online, and a representative of Salomon Smith
Barney met in Boston with Richard D. Parsons, President of Time Warner, Mr.
Bressler and a representative of Morgan Stanley to continue discussions
regarding a possible transaction. The exchange ratio for a possible merger was
again discussed, but the parties' positions were not materially different than
before, although alternative structures were discussed. The meeting concluded
with no agreement on terms of a possible combination and no additional meetings
or discussions were scheduled.
On January 5, 2000, Mr. Bressler and Mr. Novack renewed contact in a
telephone conversation. On January 6, 2000, Mr. Novack telephoned Mr. Bressler
to invite Mr. Levin and him to meet at Mr. Case's home in Virginia that
evening. The four met that evening for approximately five hours to discuss the
principal terms of a transaction. Messrs. Case and Levin agreed to fix the
ratio for exchanging shares of common stock of Time Warner for shares of common
stock of the combined company at 1.5 to 1, and they agreed in principle on
other principal terms of the merger, subject to the approval of each company's
board of directors and negotiation of definitive agreements.
Beginning on January 7, 2000, America Online, Time Warner and their
respective advisors intensified due diligence activities, communications
coordination and preparation of definitive documentation. On January 8 and 9,
2000, representatives of America Online, Time Warner and their respective
advisors met to conduct due diligence, negotiate the merger agreement and
related agreements, and plan and prepare for the announcement of the merger.
These activities continued throughout the weekend, with negotiations on the
merger agreement continuing through the evening of January 9, 2000.
On January 9, 2000, the board of directors of Time Warner met beginning at
2:00 p.m. at the offices of Cravath, Swaine & Moore to consider the proposed
transaction. At this meeting, Mr. Levin and other members of management
reviewed the transaction with the board, including the strategic reasons for
the proposed transaction, the principal terms of the proposed transaction, a
financial review of the proposed transaction, a review of America Online's
financial condition and business operations and the results of Time Warner's
due diligence review.
Time Warner's internal legal counsel and representatives of Cravath, Swaine
& Moore discussed the board's fiduciary duties in considering a strategic
business combination and further discussed the terms of the merger agreement
and related documents. Representatives of Morgan Stanley presented to Time
Warner's board of directors a summary of its analyses on the strategic
rationale for and financial analyses related to the proposed transaction. In
addition, Morgan Stanley delivered its opinion that the ratio for exchanging
shares of Time Warner common stock and series common stock for shares of common
stock and series common stock of
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AOL Time Warner pursuant to the merger agreement was fair, from a financial
point of view, to holders of Time Warner's common stock and series common
stock. Upon completing its deliberations, the board of directors of Time Warner
unanimously approved the merger agreement and the related agreements and the
transactions contemplated by those agreements, declared them advisable and
resolved to recommend that Time Warner's stockholders adopt the merger
agreement.
Also on January 9, 2000, the board of directors of America Online met
beginning at 5:00 p.m. at the offices of Simpson Thacher & Bartlett to consider
the proposed transaction. Dr. Thomas Middelhoff, Chairman and Chief Executive
Officer of Bertelsmann, AG, chose not to participate in the meeting due to the
potential conflict between the interests of America Online and Bertelsmann AG
on whether to approve the proposed transaction. At this meeting, Mr. Case and
other members of management reviewed the transaction with the board, including
the strategic reasons for the proposed transaction, the principal terms of the
proposed transaction, a financial review of the proposed transaction, a review
of Time Warner's financial condition and business operations and the results of
America Online's due diligence review.
America Online's internal legal counsel and representatives of Simpson
Thacher & Bartlett discussed the board's fiduciary duties in considering a
strategic business combination and further discussed the terms of the merger
agreement and related documents. Representatives of Salomon Smith Barney
presented to America Online's board of directors a summary of its analyses on
the strategic rationale for and financial analyses related to the proposed
transaction. In addition, Salomon Smith Barney delivered its opinion that the
ratio for exchanging shares of Time Warner common stock for shares of common
stock of AOL Time Warner contemplated by the merger agreement was fair, from a
financial point of view, to America Online. Upon completing its deliberations,
the board of directors of America Online, by action of those present at the
meeting, unanimously approved the merger agreement and related agreements and
the transactions contemplated by those agreements, declared them advisable and
resolved to recommend that America Online's stockholders adopt the merger
agreement.
At the conclusion of the respective board meetings, the boards of directors
of America Online and Time Warner had a brief telephone conference call.
After negotiation of the final terms of the merger agreement and related
agreements, representatives of America Online and representatives of Time
Warner executed the agreements. In addition, Mr. Turner and certain of his
affiliates entered into a voting agreement with America Online pursuant to
which they agreed to vote substantially all of their shares of common stock of
Time Warner in favor of adoption of the merger agreement.
On the morning of January 10, 2000, America Online and Time Warner issued a
joint press release announcing the proposed merger of America Online and Time
Warner.
America Online's Reasons for the Merger
America Online's merger with Time Warner will create the world's first fully
integrated Internet-powered media and communications company. America Online's
board of directors believes that AOL Time Warner will be uniquely positioned to
expand the interactive medium's penetration into consumers' everyday lives--
creating major new opportunities to deliver value to stockholders. By combining
the leading interactive services and media companies, AOL Time Warner will
advance the strategic goals of America Online and Time Warner and will provide
the potential for stronger operating and financial results than either company
could achieve on its own.
America Online's Internet resources will drive the digital transformation of
Time Warner's divisions, and Time Warner's resources will advance the
development of next-generation broadband and AOL Anywhere services, as well as
build subscription and advertising and e-commerce growth throughout America
Online's brands and products. With leading global brands, cost-efficient
infrastructure, technological expertise and a shared vision for the Internet
age, the two companies' complementary assets will act as catalysts to
accelerate the growth of both subscription and advertising/e-commerce revenues,
while also creating new business opportunities.
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America Online's success has been guided by the principle that mass market
consumers seek convenience, ease-of-use and trusted brands in their Internet
experience. AOL Time Warner will have an unmatched ability to provide these
through a full range of interactive services delivered across current and
emerging platforms. The combined company will be able to lead the next wave of
Internet growth as interactivity extends beyond the personal computer to the
television, wireless telephone and personal organizers, as well as other
Internet-enabled devices--allowing consumers to access the Internet from
anywhere and at anytime, and making the interactive experience even more
convenient and valuable to them.
America Online's board of directors believes that AOL Time Warner will be
the Internet company most capable of covering so many aspects and so many hours
of consumers' lives daily, thereby becoming increasingly integral and valuable
to mass market consumers.
America Online's board of directors believes the following are key specific
reasons that the merger will be beneficial to America Online and in the best
interest of its stockholders:
Create a Portfolio of World-Class Consumer Brands and Advance Multiple-Brand
Strategy. The board of directors of America Online believes that combining with
Time Warner will dramatically advance America Online's multiple-brand strategy.
Time Warner's leading global consumer brands cover the full spectrum of media
entertainment and information--reaching from broadcast and cable television to
film, music, publishing and the Internet. Together with America Online's family
of premier interactive brands, the combined company will have a valuable
portfolio of brands to deliver to consumers over multiple platforms.
Grow E-Commerce and Advertising Opportunities and Accelerate Multiple
Revenue Stream Strategy. The board of directors of America Online believes the
merger will advance America Online's strategy of multiple revenue streams by
combining with Time Warner, which has grown its revenues across three major
areas that reinforce America Online's: subscriptions, advertising and e-
commerce and content. Putting together Time Warner's content properties with
America Online's Internet and e-commerce infrastructure, AOL Time Warner will
be able to create and distribute e-commerce products and services based on
film, cable, broadcast, music, publishing and media properties. Recent
successful collaborations to promote "Austin Powers: The Spy Who Shagged Me"
with AOL MovieFone and on "You've Got Mail" with Warner Bros. are small
examples of what can be achieved in cross-promotion. The merger also will
expand the opportunities for advertising across platforms and brands, including
interactive properties, publishing, cable and broadcast television.
Advance AOL Anywhere Strategy to Extend and Enhance Communication and
Convenience through Next- Generation Technology. The board of directors of
America Online believes that combining with Time Warner will advance America
Online's utilization of technology to extend and enhance its AOL Anywhere
strategy to expand Internet communication, interactivity and convenience to
devices beyond the personal computer. Time Warner's cable systems will expand
the broadband delivery systems for America Online's interactive services and
act as a catalyst for the development of AOL Plus--America Online's next
generation multi-media/interactive services to personal computers. The
combination also will further America Online's AOL Anywhere strategy of
extending its interactive brands with their hallmark convenience and ease-of-
use to new devices through television, wireless telephone and personal
organizers as well as other companion devices. The merger also will provide a
communications platform that gives AOL Time Warner the capability to offer
instant messaging products and local telephony over cable systems.
Create Substantial Operating Synergies and New Business Opportunities. The
board of directors of America Online believes that the combined company will
benefit from substantial operating synergies as well as major new business
opportunities. The following are representative potential cost synergies and
revenue growth opportunities from the combination with Time Warner:
. revenue opportunities and synergies in areas such as advertising by
providing companies "one-stop" shopping for their online as well as
print and broadcast media advertising campaigns;
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. increased subscriber growth through cross-promotion and marketing
opportunities between Time Warner's brands and content and America
Online's brands and interactive services;
. efficiency in marketing across different platforms and distribution
systems, including cable, publishing and interactive services;
. cost synergies in areas such as technology and network infrastructure,
direct mail and interactive marketing, use of "evergreen" billing
systems, sales forces and other corporate services; and
. cost efficiencies in launching and operating interactive extensions of
Time Warner brands.
In all, management estimated for the board of directors of America Online
that total EBITDA synergies would be approximately $1 billion in the first full
year of operations, producing an EBITDA growth rate of approximately 30% in
that first year. It is anticipated that the combined company will have a
revenue base in excess of $40 billion and EBITDA of approximately $11 billion,
including synergies, in the first full year.
The board of directors also took note of the fact that the merger is with a
long-time business partner of America Online with a proven history of
successful collaborations, including cross-promotion and marketing activities
between the two companies. Both companies also have management teams with
demonstrated ability to manage the integration process of major business
combinations.
Information and Factors Considered by the America Online Board of
Directors. In connection with its approval of the merger, its determination
that the merger is fair to and in the best interest of America Online's
stockholders and its recommendation that stockholders adopt the merger
agreement, the board of directors of America Online consulted with its legal
advisors, including its General Counsel and representatives of Simpson Thacher
& Bartlett, outside counsel on the transaction, regarding the duties of the
members of the board, as well as with members of management and its financial
advisor. The America Online board also considered the following material
information and factors in reaching its determination to approve the merger, to
conclude that the merger is fair to and in the best interest of America
Online's stockholders, and to recommend that stockholders adopt the merger
agreement:
. the reasons described under "--America Online's Reasons for the Merger;"
. the exchange ratios being used in the merger and the resulting
continuing 55% ownership interest in AOL Time Warner by America Online's
stockholders and the history of the negotiations between America Online
and Time Warner;
. presentations by senior members of America Online's management regarding
the strategic advantages of combining with Time Warner, operational
aspects of the transaction, and the results of management's operational
and legal due diligence review;
. historical information concerning America Online's and Time Warner's
respective businesses, financial performance and condition, operations,
technology, management, competitive position, and stock performance;
. America Online management's view as to the financial condition, results
of operations and businesses of America Online and Time Warner before
and after giving effect to the merger based on management's due
diligence and publicly available earnings estimates;
. the strategic fit of America Online and Time Warner, including the
belief that the merger has the potential to enhance stockholder value
through the numerous growth opportunities and synergies resulting from
combining the two companies' complementary strengths and assets,
including additional opportunities for e-commerce, growth in
subscribers, cross-promotions, and operating efficiencies;
. the opportunities and alternatives available to America Online if the
merger were not to be undertaken, including pursuing an acquisition of
or business combination or joint venture with entities other than Time
Warner and the conclusion that a combination with Time Warner is
expected to yield greater benefits and is more feasible than the
alternatives;
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. the analyses and presentation of Salomon Smith Barney on the financial
aspects of the proposed merger, and their written opinion to the effect
that, as of January 9, 2000, and based on and subject to the various
considerations set forth in its opinion, the exchange ratio of AOL Time
Warner common stock for shares of Time Warner common stock was fair from
a financial point of view to America Online;
. the terms and conditions of the merger agreement, stock option
agreements and voting agreement, including the fact that the exchange
ratios are fixed, the agreement of R.E. Turner and certain of his
affiliates to vote in favor of the merger, the limitations on the
interim business operations of each of America Online and Time Warner,
the conditions to consummation of the merger, the right of the parties
to the merger agreement, under certain circumstances, to respond to,
evaluate and negotiate with respect to other business combination
proposals, the circumstances under which the merger agreement could be
terminated and the size and impact of termination fees associated with a
termination; the grant of reciprocal options to purchase shares of
common stock by each company, as well as the advice of America Online's
financial and legal advisors that these provisions were reasonable in
the context of the transaction;
. the corporate governance arrangements established for the transaction,
including the board composition, designation of key senior management
and the establishment of an integration committee, which are designed to
promote the continuity of management from each company and smooth
integration of the businesses;
. the fact that the merger likely will be completed, including the
likelihood that the merger will receive the necessary regulatory
approvals;
. the expected tax treatment of the merger for U.S. federal income tax
purposes;
. the accounting treatment of the transaction as a "purchase" transaction,
including the goodwill that will be recorded on the financial statements
of AOL Time Warner; and
. the interests of the officers and directors of America Online and Time
Warner in the merger, including the matters described under "--Interests
of Certain America Online Directors and Executive Officers in the
Merger," and the impact of the merger on America Online's stockholders,
customers and employees.
The America Online board also considered the potential adverse consequences
of other factors on the proposed merger, including:
. the challenges of combining the businesses, assets and workforces of two
major companies and the risks of not achieving the expected operating
efficiencies or growth;
. the risk of diverting management focus and resources from other
strategic opportunities and from operational matters while working to
implement the merger; and
. the risk that the merger will not be consummated.
This discussion of the information and factors considered by the America
Online board is not intended to be exhaustive, but includes the material
factors considered. The America Online board did not assign particular weight
or rank to the factors it considered in approving the merger. In considering
the factors described above, individual members of the America Online board may
have given different weight to various ones. The America Online board
considered all these factors as a whole, and overall considered them to be
favorable to and to support its determination.
Time Warner's Reasons for the Merger
The board of directors of Time Warner believes that the combination of Time
Warner and America Online will create a preeminent global company that, for the
first time, will fully integrate traditional and new media
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and communications businesses and technologies. The combined company, AOL Time
Warner, will be uniquely positioned to deliver branded information,
entertainment and communications services across rapidly converging media
platforms and to take full advantage of the emergence of the Internet and the
ongoing digital revolution.
In reaching the conclusion that the combination of Time Warner and America
Online is in the best interests of Time Warner and its stockholders, the board
of directors of Time Warner consulted with senior members of Time Warner's
management team regarding the strategic and operational aspects of the merger
and the results of the due diligence efforts undertaken by management. In
addition, the board of directors of Time Warner consulted with representatives
of Morgan Stanley, financial advisor to Time Warner, regarding selected
financial aspects of America Online's business and future prospects and
challenges facing Internet businesses in general and America Online in
particular, as well as the fairness, from a financial point of view, to Time
Warner's holders of common stock and series common stock of the proposed ratio
for exchanging shares of Time Warner common stock or series common stock for
shares of AOL Time Warner common stock or series common stock. The board of
directors of Time Warner also consulted with Time Warner's internal counsel and
with representatives of Cravath, Swaine & Moore, outside counsel to Time
Warner, regarding the duties of the members of the board of directors, legal
due diligence matters and the terms of the merger agreement and related
agreements. In considering the information provided by senior members of Time
Warner's management team, representatives of Morgan Stanley and representatives
of Cravath, Swaine & Moore, in analyzing the terms of the merger agreement, and
in coming to its endorsement of the merger, the board of directors of Time
Warner considered a variety of factors, a number of which are summarized below.
Strategic Advantages. The board of directors of Time Warner reviewed
presentations from senior members of Time Warner's management team regarding
the strategic advantages of the combination of Time Warner and America Online.
The Time Warner board of directors considered management's view that the
combination of Time Warner's world-class media brands, subscriber bases and
technologically advanced broadband delivery systems with America Online's
renowned consumer online brands, subscriber base and extensive Internet
infrastructure and expertise will provide AOL Time Warner with strengths and
synergies in all its businesses. The Time Warner board considered management's
view that AOL Time Warner's multiple brands, vast array of content, extensive
infrastructure and strong distribution capabilities will provide it with a
greater capacity to capitalize on and propel the convergence of media,
entertainment and communications than Time Warner, or America Online, alone.
The Time Warner board of directors also considered the strategic benefits of
combining Time Warner's broadband infrastructure with America Online's
established success in managing consumer migration online. The Time Warner
board of directors also noted that this strategic combination would accelerate
the digital transformation of Time Warner by infusing all of Time Warner's
businesses with a heightened digital focus.
Potential for Growth. The board of directors of Time Warner considered the
view of senior members of Time Warner's management team that the combination of
Time Warner and America Online is expected to strengthen the ability of these
companies to generate growth in revenue, earnings before interest, taxes and
amortization, or "EBITA," earnings before interest, taxes, depreciation and
amortization, or "EBITDA," and cash flow. In particular, the Time Warner board
of directors considered management's view that:
. America Online's extensive Internet infrastructure is expected to
provide a new and expanding distribution medium for Time Warner's
popular brands, thereby giving its content businesses increased access
to the consumer; and
. Time Warner's advanced broadband delivery systems are expected to
provide an important distribution platform for America Online's
interactive services, which is expected to result in incremental
subscriber growth.
In addition, the Time Warner board noted management's view that:
. in the music business, AOL Time Warner will bring together Time Warner's
prestigious labels and roster of established and new artists with
America Online's established e-commerce capabilities, and
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. in the publishing business, cross-marketing opportunities between Time
Warner's prominent brands and America Online's interactive services are
expected to provide new opportunities for subscriber growth.
Finally, the Time Warner board considered management's view that AOL Time
Warner will have enhanced advertising and revenue potential due to its ability
to offer promotional packages that include both traditional and online
components.
Strengthened International Position. The board of directors of Time Warner
considered the view of senior members of Time Warner's management team that the
combination of Time Warner's strong international presence with America
Online's global interactive services, will further strengthen the combined
company's position in the international marketplace.
Increased Benefits for Consumers. The board of directors of Time Warner
reviewed the potential for the combination of Time Warner and America Online to
provide increased benefits for consumers. The Time Warner board of directors
considered the view of senior members of Time Warner's management team that,
through the combination of Time Warner's programming capabilities with America
Online's Internet capabilities, AOL Time Warner is expected to be able to
provide consumers with enhanced access to a broad selection of high quality
content and interactive services. The Time Warner board of directors also
considered management's view that, through the cooperative efforts of employees
with creative and journalistic talents and employees with technological
expertise, AOL Time Warner is expected to offer new and innovative products and
services that are particularly suited to interactive media.
America Online's Business and Technology Infrastructure. In evaluating the
combination of Time Warner and America Online, the board of directors of Time
Warner considered information and analyses regarding the financial condition
and results of operations of America Online. The Time Warner board of directors
also considered information regarding America Online's Internet capacity and
capabilities. Finally, the Time Warner board of directors considered
information regarding prospects of and challenges facing Internet businesses in
general and America Online in particular, including the view that the future of
the Internet will be determined by companies that are able to take advantage of
the distribution channels created by the Internet through providing compelling
entertainment and informational content.
Expected Impact of the Combination. The board of directors of Time Warner
noted that the combination of Time Warner and America Online is expected to
strengthen the financial condition of both Time Warner and America Online. The
Time Warner board of directors also noted that the combination of Time Warner
and America Online would be accounted for as a purchase transaction.
Opinion of Morgan Stanley. The board of directors of Time Warner reviewed a
detailed presentation by representatives of Morgan Stanley regarding the
financial aspects of the proposed combination of Time Warner and America
Online, including the ratio of exchanging shares of Time Warner common stock
and series common stock for shares of AOL Time Warner common stock and series
common stock. The board of directors of Time Warner considered the opinion of
Morgan Stanley that the ratio for exchanging shares of Time Warner common stock
or series common stock for shares of AOL Time Warner common stock or series
common stock pursuant to the merger agreement was fair, from a financial point
of view, to the holders of common stock and series common stock of Time Warner.
Ratio of Exchanging Shares of Time Warner Common Stock for Shares of AOL
Time Warner Common Stock. The board of directors of Time Warner considered the
fact that the proposed ratio of exchanging shares of common stock of Time
Warner for shares of common stock of AOL Time Warner would provide Time
Warner's stockholders with a substantial premium as compared to Time Warner's
and America Online's stock market prices at the time of execution of the merger
agreement.
The board of directors of Time Warner considered the fact that the value of
the consideration to be received by holders of Time Warner's common stock could
change depending upon the performance of
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America Online's common stock between the time of the execution of the merger
agreement and the time of the completion of the merger, together with the fact
that the multiple of underlying measures of financial performance reflected in
the market price of America Online common stock differed from the multiple
reflected in the market price of Time Warner common stock. The Time Warner
board of directors also considered the fact that the merger agreement does not
contain any provisions that limit the effect of declines in the market price of
common stock of America Online prior to the completion of the merger on the
value of the consideration to be received by holders of common stock of Time
Warner in the merger. The Time Warner board of directors considered the absence
of these provisions to be acceptable in the context of a "merger of equals" in
which each of America Online and Time Warner will have the right to designate
half of the directors of AOL Time Warner to serve for the first year after the
merger is completed and the senior management of AOL Time Warner will be
comprised of executive officers of both Time Warner and America Online and
noted that, while the absence of these provisions exposes Time Warner
stockholders to some market risk, the risk is mitigated by several factors.
Holders of Time Warner's common stock will participate in any appreciation in
the value of America Online's common stock between the time of the execution of
the merger agreement and the time of the completion of the merger. In addition,
any protection against declines in the market price of America Online's common
stock would likely be coupled with a cap on the benefit Time Warner's
stockholders would enjoy as a result of increases in the market price of
America Online's common stock.
Continuing Equity Interest of Time Warner Stockholders in AOL Time
Warner. The board of directors of Time Warner considered the fact that, by
providing for the exchange of shares of common stock of Time Warner for shares
of common stock of AOL Time Warner, the merger agreement provides for holders
of Time Warner's common stock to participate in the value that may be generated
by the combination of Time Warner and America Online through their continued
equity participation in AOL Time Warner, while realizing through the exchange
of shares a premium for their Time Warner shares, based on stock market prices
at the time of execution of the merger agreement, and while obtaining tax-free
treatment. The Time Warner board of directors also noted that the proposed
ratio of exchanging shares of Time Warner common stock for shares of AOL Time
Warner common stock would result in holders of Time Warner's common stock
receiving a significant equity stake in AOL Time Warner, equal to approximately
45% of the common stock of AOL Time Warner after completion of the merger on a
fully diluted basis.
Corporate Governance Arrangements. The board of directors of Time Warner
noted that the merger agreement is structured as a "merger of equals" and
provides that the board of directors of AOL Time Warner will initially consist
of sixteen individuals, eight of whom will be designated by America Online and
eight of whom will be designated by Time Warner. In addition, the Time Warner
board of directors noted that the merger agreement provides that Stephen M.
Case, the Chairman of the Board and Chief Executive Officer of America Online,
will initially serve as Chairman of the Board of AOL Time Warner, and Gerald M.
Levin, the Chairman and Chief Executive Officer of Time Warner will initially
serve as Chief Executive Officer of AOL Time Warner. The Time Warner board of
directors also noted that the affirmative vote of 75% of the members of the
board of directors of AOL Time Warner will be required to change the size of
the board of directors and that, until December 31, 2003, the affirmative vote
of 75% of the members of the board of directors of AOL Time Warner will be
required to remove the chairman or chief executive officer. The Time Warner
board of directors concluded that these arrangements would reasonably assure
the continuity of the management of AOL Time Warner following completion of the
merger and allow a strong management team drawn from both Time Warner and
America Online to work together to integrate the two companies.
Alternatives to the Merger. The board of directors of Time Warner considered
information presented by senior members of Time Warner's management team that,
in seeking a digital transformation of Time Warner, they had explored
alternatives to the proposed combination of Time Warner and America Online,
including the internal development of an Internet distribution infrastructure
and growth through acquisitions. The Time Warner board of directors also
considered the view of senior members of Time Warner's management team that the
combination of Time Warner with America Online provides Time Warner with an
extensive Internet distribution infrastructure in a relatively brief period of
time and cost-effective manner. In addition, the Time Warner board of directors
considered management's view that the combination of Time Warner and America
Online accelerates Time Warner's Internet distribution plan by several years
and provides significant cost
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savings with greater distribution capabilities, opportunities for cross-
marketing products and potential to offer consumers new and innovative products
than would other potential avenues for exploiting the potential of the
Internet.
Integration of Time Warner and America Online. The board of directors of
Time Warner considered the fact that the combination of the businesses of Time
Warner and America Online would be challenging, and the success of the
combination is not certain. The Time Warner board of directors noted, however,
that the management teams of Time Warner and America Online have a shared
vision of the potential created by the combination of traditional and new
media. The Time Warner board of directors further noted that the businesses of
both Time Warner and America Online are based, in part, on the acquisition and
retention of subscribers. In addition, the Time Warner board of directors noted
that both management teams share a consumer and marketing focus, a new media
interactive service orientation and a sense of social commitment and
responsibility. The Time Warner board of directors then noted that these
similarities in experiences and views are likely to facilitate the efforts of
the management teams of Time Warner and America Online to integrate their
businesses effectively and efficiently.
Conditions, Termination Provisions, Termination Fee. The board of directors
of Time Warner reviewed the conditions to the completion of the merger and the
circumstances under which Time Warner or America Online would have the right to
terminate the merger agreement. In addition, the Time Warner board of directors
reviewed the provisions of the merger agreement that prohibit each of Time
Warner and America Online from soliciting any proposal or offer regarding any
acquisition of Time Warner or America Online, as the case may be. The board of
directors of Time Warner also reviewed the provisions of the merger agreement
that require the board of directors of each of Time Warner and America Online
to recommend adoption of the merger agreement by the stockholders of Time
Warner or America Online, as the case may be, and prohibit the board of
directors of each of Time Warner and America Online from withdrawing or
modifying its recommendation unless, subject to specified conditions, it has
received an unsolicited acquisition proposal which would, if completed, result
in a transaction that is more favorable to its stockholders than the merger and
which is reasonably capable of being completed. The Time Warner board of
directors also reviewed the various amounts that might be payable in the event
the merger agreement is terminated under specified circumstances. The Time
Warner board of directors noted that while these provisions could have an
impact on a third party considering an unsolicited acquisition proposal for
Time Warner, the provisions were reasonably necessary to protect both Time
Warner's and America Online's interests in the context of the proposed merger.
In addition, the Time Warner board of directors found reasonable the views of
its legal and financial advisors that the fees were within the range of fees
payable in comparable transactions and would not be expected to preclude an
unsolicited acquisition proposal for Time Warner.
Option Agreements and Voting Agreement. The board of directors of Time
Warner also considered the terms of the option agreements to be entered into by
Time Warner and America Online in connection with the merger agreement and
their potential impact on a third party considering an unsolicited acquisition
proposal for Time Warner. The Time Warner board of directors noted that America
Online had specified that an agreement to enter into the option agreements was
a condition to entering into the merger agreement. The Time Warner board of
directors also noted that the option agreements would have largely an
accounting impact on the structure of an unsolicited acquisition proposal for
Time Warner, and it found reasonable the views of its legal and financial
advisors that the agreements would not be expected to preclude an unsolicited
acquisition proposal for Time Warner. In addition, the Time Warner board of
directors considered the terms of the voting agreement to be entered into by
Mr. Turner in connection with the merger agreement. The Time Warner board of
directors noted that, under the voting agreement, Mr. Turner would agree to
vote substantially all of his shares of common stock of Time Warner,
representing approximately 9% of the outstanding shares, in favor of adoption
of the merger agreement.
Regulatory Matters. In addition to considering the various conditions that
must be satisfied prior to the completion of the merger, the board of directors
of Time Warner specifically considered the various regulatory filings and
approvals that would be necessary to complete the merger, including filings
with the Antitrust
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Division of the Department of Justice and Federal Trade Commission, the
approval of the Federal Communications Commission and the approval of numerous
state and local authorities and foreign regulators. The Time Warner board of
directors noted the view of members of senior management of Time Warner that
the various regulatory filings were expected to be timely made and that,
although the governmental entities from whom approvals are required may attempt
to condition their approval of the merger, or the transfer to the combined
company of licenses and other entitlements, on the imposition of regulatory
conditions, the various regulatory approvals were expected to be granted in due
course.
Potential Adverse Consequences of the Combination. The board of directors of
Time Warner considered several risks associated with the combination of Time
Warner and America Online that have the potential to create adverse
consequences for Time Warner. In particular, the Time Warner board of directors
considered the risk that the attention and efforts of senior members of Time
Warner's management team may be diverted from Time Warner's businesses while
they are working to implement the merger and that valuable strategic
opportunities may be lost. The Time Warner board of directors also considered
the risk that receipt of the various regulatory approvals necessary to complete
the merger may require the acceptance of certain regulatory conditions that may
have the effect of imposing additional costs on the combined company or
limiting the combined company's revenues and the risk that the combination of
Time Warner and America Online may not be completed.
This summary of the factors considered by the board of directors of Time
Warner in evaluating the merits of the combination of Time Warner and America
Online is not intended to be exhaustive but is believed to include all material
factors considered by the Time Warner board of directors. Due to the wide
variety of the factors that the Time Warner board of directors considered in
evaluating the merits of the combination of Time Warner and America Online, the
Time Warner board of directors did not find it practicable to, and did not
attempt to, quantify or otherwise assign relative weights to the specific
factors considered in its evaluation. In addition, the Time Warner board of
directors did not undertake to make any specific determination as to whether
any particular factor, or any aspect of any particular factor, should be
regarded as favorable or unfavorable; instead the Time Warner board of
directors analyzed all of the factors as a whole and determined that, overall,
the factors support its conclusion that the combination of Time Warner and
America Online is in the best interests of Time Warner and its stockholders.
Individual members of the Time Warner board of directors may have considered
some factors to be more important than other factors and may have considered
some factors, or aspects of some factors, to be favorable while other members
considered them to be unfavorable.
Recommendation of America Online's Board Of Directors
The America Online board of directors believes that the merger is fair to
and in the best interest of America Online's stockholders, and recommends the
adoption of the merger agreement.
In considering the recommendation of the America Online board of directors
with respect to the merger agreement, you should be aware that certain
directors and executive officers of America Online have interests in the merger
that are different from, or are in addition to, the interests of America Online
stockholders. Please see the section entitled "Interests of Certain America
Online Directors and Executive Officers in the Merger" that begins on page 56
of this joint proxy statement-prospectus.
Opinion of America Online's Financial Advisor
America Online retained Salomon Smith Barney to act as its financial advisor
in connection with a possible business combination transaction with Time
Warner. In connection with its engagement, America Online instructed Salomon
Smith Barney to evaluate the fairness, from a financial point of view, of the
Time Warner common stock exchange ratio to America Online. At the January 9,
2000 meeting of the board of directors of America Online, Salomon Smith Barney
delivered its written opinion to the board of directors of America Online to
the effect that, as of the date of such opinion and based upon the various
qualifications and assumptions set forth therein, the exchange ratio of 1.5
shares of AOL Time Warner common stock for each share of Time Warner common
stock is fair, from a financial point of view, to America Online.
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The full text of Salomon Smith Barney's opinion dated January 9, 2000 is
attached as Annex E to this joint proxy statement-prospectus. We urge you to
read this opinion in its entirety for assumptions made, procedures followed,
matters considered and limits of the review by Salomon Smith Barney in arriving
at its opinion. The summary of the opinion of Salomon Smith Barney is qualified
in its entirety by reference to the full text of Salomon Smith Barney's
opinion.
Salomon Smith Barney's opinion is directed only to the fairness, from a
financial point of view, of the Time Warner common stock exchange ratio to
America Online and is not intended and does not constitute a recommendation to
any stockholder of America Online as to how such stockholder should vote at the
America Online special meeting. No limitations were imposed by America Online
upon Salomon Smith Barney with respect to the investigations made or procedures
followed by it in rendering its opinion. Although Salomon Smith Barney
evaluated the financial terms of the merger and participated in discussions
concerning the determination of the Time Warner common stock exchange ratio,
Salomon Smith Barney was not asked to and did not recommend this exchange
ratio, which was the result of arm's length negotiations between America Online
and Time Warner.
In connection with rendering its opinion, Salomon Smith Barney, among other
things:
. reviewed a draft of the merger agreement;
. held discussions separately with certain senior officers and other
representatives and advisors of America Online and Time Warner
concerning the business, operations and prospects of America Online and
Time Warner, respectively;
. examined publicly available business and financial information relating
to America Online and Time Warner as well as certain estimates and other
data for America Online and Time Warner prepared by Salomon Smith
Barney's and Morgan Stanley's research analysts;
. examined information relating to some of the strategic implications and
operational benefits anticipated from the merger; and
. evaluated the potential pro forma financial impact of the merger on
America Online.
In addition, Salomon Smith Barney conducted other analyses and examinations
and considered other financial, economic and market criteria as it deemed
appropriate.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with it. Salomon Smith Barney relied on estimates prepared by
Salomon Smith Barney's research analysts, based on Salomon Smith Barney's own
independent evaluation of this information and indications by the management of
America Online that the estimates regarding America Online were reasonably
consistent with their own and indications by the management of Time Warner that
estimates regarding Time Warner prepared by Morgan Stanley's research analysts
were reasonably consistent with their own. Salomon Smith Barney determined that
its research analysts' estimates regarding Time Warner were generally
consistent with Morgan Stanley's research analysts' estimates regarding Time
Warner, which was acknowledged by the managements of America Online and Time
Warner. With respect to the anticipated strategic, financial and operational
benefits of the merger, Salomon Smith Barney assumed that the information
provided was reasonably prepared on bases reflecting the best currently
available estimates and judgments as to the strategic implications and
operational benefits anticipated to result from the merger. Salomon Smith
Barney assumed that the merger agreement would be substantially the same as the
draft which Salomon Smith Barney reviewed. Salomon Smith Barney further
assumed, with the consent of America Online, that the merger will be treated as
a tax-free "reorganization" for federal income tax purposes.
Salomon Smith Barney did not express any opinion as to what the value of AOL
Time Warner common stock actually will be when issued pursuant to the merger or
the price at which the AOL Time Warner common stock will trade subsequent to
the merger. Salomon Smith Barney did not make and was not provided with an
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independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of America Online or Time Warner nor did Salomon Smith Barney make
any physical inspection of the properties or assets of America Online or Time
Warner. Salomon Smith Barney was not requested to consider, and Salomon Smith
Barney's opinion does not address, the relative merits of the merger as
compared to any alternative business strategies that might exist for America
Online or the effect of any other transaction in which America Online might
engage.
Salomon Smith Barney's opinion was necessarily based on the information made
available to it, and financial, stock market and other conditions and
circumstances existing and disclosed to Salomon Smith Barney as of the date of
its opinion.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses. The following is a summary of the material
financial analyses performed by Salomon Smith Barney in connection with the
preparation of its opinion. These analyses were presented to the board of
directors of America Online at its meeting on January 9, 2000. The following
summary of the material financial analyses contains information in tabular
format. In order fully to understand the financial analyses used by Salomon
Smith Barney, the tables must be read in conjunction with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses.
Historical Stock Price Performance. Salomon Smith Barney reviewed the
relationship between movements of the America Online common stock, the Time
Warner common stock and the Standard & Poor's 400 Composite Index for the
period from and including January 7, 1999 through January 7, 2000, the average
closing prices for the Time Warner common stock and the America Online common
stock over various periods during the 3-year period ended January 7, 2000 as
set forth in the table below, and the trading volume and price history of the
America Outline common stock and the Time Warner common stock for the period
from and including January 7, 1999 through January 7, 2000.
<TABLE>
<CAPTION>
Period Average Share Price Average Share Price
(prior to January 7, 2000) of America Online of Time Warner
-------------------------- ------------------- -------------------
<S> <C> <C>
January 7, 2000...................... $73.75 $64.75
1 Week............................... $75.34 $67.50
1 Month.............................. $81.88 $67.45
3 Months............................. $74.03 $65.35
6 Months............................. $62.02 $65.99
1 Year............................... $58.78 $66.95
3 Years.............................. $22.56 $43.46
</TABLE>
Implied Historical Exchange Ratio Analysis. Salomon Smith Barney reviewed
the implied historical exchange ratio between the America Online common stock
and the Time Warner common stock determined by dividing the average and the
volume weighted average, respectively, prices per share of Time Warner common
stock by the average and the volume weighted average, respectively, prices per
share of America Online Common Stock over various periods during the three-year
period ended January 7, 2000. This review indicated the following implied
historical exchange ratios:
<TABLE>
<CAPTION>
Implied Exchange Ratios
-------------------------------
Period ending Average Volume Weighted
January 7, 2000 Share Price Average Share Price
--------------- ----------- -------------------
<S> <C> <C>
1 Week....................................... 0.896x 0.888x
1 Month...................................... 0.824 0.806
3 Months..................................... 0.883 0.887
6 Months..................................... 1.064 1.083
1 Year....................................... 1.139 1.159
3 Years...................................... 1.926 1.595
</TABLE>
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Implied Exchange Ratio Analysis. Salomon Smith Barney derived a range of
values for Time Warner and America Online by utilizing a sum-of-the-parts
valuation analysis which separately values distinct assets and businesses of a
company by applying various valuation methodologies to those assets and
businesses and uses the derived valuations to arrive at a range of values for
the consolidated entity. Salomon Smith Barney then used the derived valuation
ranges to determine the implied exchange ratios. The following are the three
principal valuation methodologies used by Salomon Smith Barney in this
analysis:
. Public Market Valuation Analysis. A public market analysis reviews a
business' operating performance and outlook relative to a group of
publicly traded peer companies to determine an implied unaffected market
trading valuation range.
. Private Market Valuation Analysis. A private market analysis provides a
valuation range based upon financial information of companies involved
in selected recent business combination transactions or in business
combination transactions that have been publicly announced and which are
in the same or similar industries as the business being valued.
. Discounted Cash Flow Analysis. A discounted cash flow analysis derives
the intrinsic value of a business based on the net present value of the
future free cash flow anticipated to be generated by the assets of the
business.
Salomon Smith Barney considered the values derived for various Time Warner
businesses from the public and private market valuations and the discounted
cash flow analyses under two scenarios. In the "100% Synergies" scenario,
Salomon Smith Barney included merger-related revenue enhancements and cost
savings, commonly referred to as "synergies", provided by the management of
America Online as well as tax savings estimated to be achieved through the
application by the combined company of existing and expected net operating
losses of America Online over five years. The synergies were discussed with
America Online and Time Warner managements, although Time Warner did not
participate in the quantification of the synergies. In the "No Synergies"
scenario, Salomon Smith Barney did not give effect to any synergies or to any
tax savings that may be achieved from the application of the net operating
losses. Salomon Smith Barney considered the values derived for various America
Online businesses from public market valuations and discounted cash flow
analyses. Salomon Smith Barney used the valuation ranges per share listed in
the table below in order to derive a range of implied exchange ratios for each
valuation methodology. Salomon Smith Barney calculated these valuation ranges
per share by dividing the aggregate equity values of Time Warner and America
Online derived as described under "Time Warner Valuation" and "America Online
Valuation" below by the respective number of each company's diluted shares
outstanding as of September 30, 1999.
<TABLE>
<CAPTION>
Low High
----------- -----------
Time Warner ("No Synergies" scenario)
- ------------------------------------- (per share) (per share)
<S> <C> <C>
Public market value................................... $69.58 $ 81.46
Private market value.................................. 83.47 92.37
Discounted cash flow.................................. 71.45 78.16
<CAPTION>
Time Warner ("100% Synergies" scenario)
- ---------------------------------------
<S> <C> <C>
Public market value................................... $90.85 $102.03
Private market value (does not reflect any synergy or
tax savings)......................................... 83.47 92.37
Discounted cash flow.................................. 92.72 99.44
<CAPTION>
America Online
- --------------
<S> <C> <C>
Public market value................................... $45.47 $136.28
Discounted cash flow.................................. 50.93 107.24
Synergies............................................. $20.22 $ 20.22
Net operating losses.................................. $ 1.05 $ 1.05
</TABLE>
43
<PAGE>
The implied exchange ratios which were derived from the above valuation
ranges per share are set forth in the table below.
<TABLE>
<CAPTION>
Implied Exchange Ratios
------------------------------------
"No Synergies" "100% Synergies"
Scenario Scenario
---------------- ------------------
Valuation Methodology Low High Low High
- --------------------- ------- ------- -------- --------
<S> <C> <C> <C> <C>
Time Warner public market valuation to
America Online public market
valuation.............................. 0.511x 1.792x 0.667x 2.260x
Time Warner discounted cash flow to
America Online discounted cash flow.... 0.666x 1.535x 0.865x 1.952x
Time Warner discounted cash flow to
America Online public market
valuation.............................. 0.524x 1.719x 0.680x 2.187x
Time Warner private market valuation to
America Online public market
valuation.............................. 0.612x 2.032x 0.612x 2.032x
</TABLE>
The low implied exchange ratios in these ranges were determined by dividing
the low Time Warner share value that had been calculated using the indicated
valuation methodology by the high America Online share value that had been
calculated using the indicated valuation methodology. Similarly, the high
implied exchange ratios in these ranges were determined by dividing the high
Time Warner share value that had been calculated using the indicated valuation
methodology range by the low America Online share value that had been
calculated using the indicated valuation methodology.
Time Warner Valuation
Salomon Smith Barney derived a valuation for Time Warner by performing
financial analysis with respect to the following consolidated and non-
consolidated assets and businesses of Time Warner:
. cable systems business;
. cable networks business;
. filmed entertainment business;
. publishing business;
. music business;
. WB network business; and
. non-consolidated investments of Time Warner, including:
. equity interest in the Road Runner joint venture;
. equity interest in cable joint ventures;
. equity interest in Time Warner Telecom Inc.;
. Comedy Central and Court TV business;
. Internet assets; and
. equity interests in other businesses.
Minority Interest. Part of Time Warner's cable, cable networks and filmed
entertainment businesses is held by TWE. In connection with deriving the public
and private market and discounted cash flow valuations of Time Warner's
interest in TWE, Salomon Smith Barney excluded the equity values in TWE of the
other partners of TWE. Salomon Smith Barney derived an implied value for TWE
using the same sum-of-the parts valuation methodology as for Time Warner but
applied a 20% minority discount to reflect the other partners' minority
interests.
44
<PAGE>
Public Market Analysis of Time Warner. Salomon Smith Barney reviewed and
compared various actual and forecasted financial, operating and stock market
information of the individual Time Warner businesses listed below, collectively
referred to as the "Time Warner businesses" and, together with the WB network
business, the "Time Warner consolidated businesses", with that of various
publicly traded companies in corresponding industries, which companies Salomon
Smith Barney believed are comparable in relevant respects to the applicable
Time Warner business:
. cable systems;
. cable networks;
. filmed entertainment;
. publishing; and
. music.
Salomon Smith Barney calculated various financial multiples for each of the
Time Warner businesses and for each of the applicable groups of comparable
companies including, in certain cases, firm value to historical EBITDA and to
estimated 2001 EBITDA. Salomon Smith Barney then calculated, among other
things, a range of estimated 2001 EBITDA multiples, as summarized in the table
below. Salomon Smith Barney utilized the multiples of the applicable comparable
companies for purposes of calculating the implied value of the Time Warner
businesses. The multiple ranges for the comparable companies that Salomon Smith
Barney deemed relevant to this analysis are summarized below.
<TABLE>
<CAPTION>
Public Market
2001E EBITDA
Multiples
---------------
Business Low High
- -------- ------ -------
<S> <C> <C>
Cable systems................................................... 16.0x 19.0x
Cable networks.................................................. 19.0 21.0
Filmed entertainment............................................ 16.0 19.0
Publishing...................................................... 14.0 16.0
Music........................................................... 12.0 14.0
</TABLE>
None of the comparable companies used in the public market valuation
analyses summarized above is identical to the applicable Time Warner business.
Accordingly, an examination of the results of the comparable companies used in
this analysis necessarily involved complex considerations of the businesses and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the public trading values or the acquisition
values of these companies. In addition, Salomon Smith Barney performed its
analyses using published analyst reports for forecasted financial and operating
information, including EBITDA estimates for the comparable companies. Actual
results may vary from such estimates and the variations may be material.
Salomon Smith Barney takes no responsibility for any of the published analyst
reports.
Private Market Valuation Analysis of Time Warner. Salomon Smith Barney
reviewed and analyzed certain financial, operating and stock market information
relating to comparable selected transactions in the cable systems, cable
networks, diversified media, filmed entertainment, publishing and music
industries. To the extent that the relevant information was publicly available,
Salomon Smith Barney calculated the multiples of firm value to estimated 2001
EBITDA represented by the transaction prices of the subject companies in the
cable systems industry and the multiples of firm value to last twelve month
revenue and firm value to last twelve month EBITDA represented by the
transaction prices of the subject companies in the other industries described
below. Using this information and other factors relevant in the valuation of
the Time Warner businesses, Salomon Smith Barney determined an estimated 2001
EBITDA multiple range for each of the Time
45
<PAGE>
Warner businesses and calculated an implied value of the Time Warner businesses
utilizing those multiples. The multiple ranges for the selected transactions
that Salomon Smith Barney deemed relevant to this analysis are summarized
below.
<TABLE>
<CAPTION>
Private Market
2001E EBITDA
Multiples
----------------
Business Low High
- -------- ------- -------
<S> <C> <C>
Cable systems................................................. 20.0x 22.0x
Cable networks................................................ 22.0 24.0
Filmed entertainment.......................................... 16.0 18.0
Publishing.................................................... 14.0 16.0
Music......................................................... 14.0 16.0
</TABLE>
No transaction used in the private market valuation analysis described above
is identical to the merger and none of the constituent companies are identical
to the respective Time Warner business being analyzed. Accordingly, any
analysis of the selected comparison transactions necessarily involved complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that would necessarily affect the value of
the given Time Warner business versus the values of the transactions to which
that business was being compared.
WB Network. Salomon Smith Barney calculated the implied firm value of
approximately $1.0 billion for the WB Network using published analyst reports.
This implied firm value was included by Salomon Smith Barney in its public and
private market valuations which derived the aggregate implied firm value of
Time Warner.
Discounted Cash Flow Analysis. Salomon Smith Barney performed a discounted
cash flow analysis of the various Time Warner consolidated businesses to
estimate ranges of intrinsic values for each of the Time Warner consolidated
businesses. Salomon Smith Barney applied a terminal value multiple ranges to
the forecasted EBITDA in calendar 2004 for each of the Time Warner consolidated
businesses. The ranges of terminal value multiples used for each of the Time
Warner consolidated businesses are set forth in the table below. The unlevered
free cash flows of each of the Time Warner consolidated businesses were then
discounted to present value using various discount rates. The ranges of
discount rates and multiples used for each of the Time Warner consolidated
businesses are set forth in the table below.
<TABLE>
<CAPTION>
Consolidated Business Discount Rates Terminal Values
- --------------------- -------------- ---------------
<S> <C> <C>
Cable systems.................................... 10.0%-12.0% 16.0x-18.0x
Cable networks................................... 10.0 -12.0 19.0 -21.0
Filmed entertainment............................. 11.0 -13.0 16.5 -18.5
Publishing....................................... 10.0 -12.0 14.0 -16.0
Music............................................ 11.0 -13.0 13.0 -15.0
WB television network............................ 10.0 -12.0 19.0 -21.0
</TABLE>
Time Warner Non-Consolidated Assets. Salomon Smith Barney reviewed and
compared various actual and forecasted financial, operating and stock market
information, as applicable, with respect to Time Warner's non-consolidated
investments identified below. For Time Warner's investments in publicly traded
companies, such as Time Warner Telecom, Salomon Smith Barney derived the
implied firm value using the current market trading prices of those companies'
securities. With respect to other non-consolidated investments, including the
unconsolidated cable and Road Runner joint ventures, Salomon Smith Barney
performed applicable analyses using subscriber multiples and other subscriber
information to derive an implied firm value. For the remaining non-consolidated
investments, Salomon Smith Barney calculated the implied firm value using
forecasted EBITDA and published analyst reports.
The aggregate implied firm value for Time Warner's non-consolidated
investments was included by Salomon Smith Barney in its public and private
market valuations and its discounted cash flow analyses in order to derive the
aggregate implied firm value ranges for Time Warner.
46
<PAGE>
Net Operating Losses. Based on management estimates of aggregate existing
and expected net operating losses of the combined company, assuming that these
net operating losses could be used without limitation through fiscal 2005, and
based upon a 35% federal tax rate and an 11% discount rate, Salomon Smith
Barney derived an implied present value of approximately $1.5 billion for the
tax savings estimated to be achieved from these net operating losses.
Synergies. Salomon Smith Barney considered the value of the net synergies
related to the merger provided by the management of America Online. The
synergies were discussed with America Online and Time Warner managements,
although Time Warner did not participate in the quantification of the
synergies. The net synergies are estimated to increase EBITDA by $1 billion in
fiscal 2001. The estimates of synergies are based on numerous estimates,
assumptions and judgments and are subject to significant uncertainties. In
addition, the actual synergies realized in the merger may vary materially from
the estimates used in Salomon Smith Barney's analysis.
America Online Valuation
Public Market Analysis of America Online. Salomon Smith Barney reviewed and
compared various actual and forecasted financial, operating and stock market
information of the individual America Online businesses listed below,
collectively referred to as the "America Online businesses", with that of
various publicly traded companies in corresponding industries, which companies
Salomon Smith Barney believed are comparable in relevant respects to the
applicable America Online business:
. internet access;
. online portals (advertising/e-commerce); and
. enterprise solutions.
Salomon Smith Barney calculated various financial multiples for the America
Online businesses and for each of the applicable groups of comparable companies
including firm value to historical revenues and to estimated forward revenues.
Salomon Smith Barney then calculated, among other things, a range of estimated
Year 2000 revenue multiples, as summarized in the table below. For purposes of
calculating the implied value of the America Online businesses, Salomon Smith
Barney utilized these multiples. The multiple ranges for the comparable
companies that Salomon Smith Barney deemed relevant to this analysis are
summarized below.
<TABLE>
<CAPTION>
Public Market
2000E
Business Revenue Multiples
- -------- -----------------
Low High
-------- ---------
<S> <C> <C>
Internet access.............................................. 6.0x 8.0x
Online portals (advertising/e-commerce)...................... 44.0x 171.0x
Enterprise solutions......................................... 13.0x 15.0x
</TABLE>
None of the comparable companies used in the public market valuation
analyses summarized above is identical to the applicable America Online
business. Accordingly, an examination of the results of the comparable
companies used in this analysis necessarily involved complex considerations of
the businesses and judgments concerning differences in financial and operating
characteristics and other factors that could affect the public trading values
or the acquisition values of these companies. In addition, Salomon Smith Barney
performed its analyses using published analyst reports for forecasted financial
and operating information, including EBITDA estimates for the comparable
companies. Actual results may vary from such estimates and the variations may
be material. Salomon Smith Barney takes no responsibility for any of the
published analyst reports.
Discounted Cash Flow Analysis. Salomon Smith Barney performed a discounted
cash flow analysis of America Online to estimate a range of intrinsic values of
America Online. Salomon Smith Barney applied a
47
<PAGE>
terminal value multiple range of 40.0x to 80.0x to America Online's forecasted
EBITDA for calendar 2004. The unlevered free cash flows were then discounted to
present value using various discount rates ranging from of 14.0% to 16.0%.
Contribution Analysis. Salomon Smith Barney performed an exchange ratio
analysis comparing the relative contributions of Time Warner and America Online
to the combined company. The following table displays each company's relative
contribution to the combined company's actual 1998 and estimated 1999, 2000 and
2001 revenues, EBITDA and net income, as well as the combined company's market
fully-diluted equity value as of January 7, 2000 and derived implied exchange
ratios from such relative contributions.
<TABLE>
<CAPTION>
% Contribution
-------------------------- Implied Exchange
Period America Online Time Warner Ratio
------------ -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Revenues.............. 1998A 11.2% 88.8% 12.6x
1999E 17.1 82.9 7.7
2000E 20.4 79.6 6.2
2001E 24.0 76.0 5.0
EBITDA................ 1998A 9.0% 91.0% 16.0x
1999E 15.3 84.7 8.9
2000E 21.7 78.3 5.7
2001E 29.0 71.0 3.9
Net Income............ 1998A NM NM NM
1999E 45.4% 54.6% 2.2x
2000E 55.3 44.7 1.5
2001E 57.5 42.5 1.4
At Market............. Equity Value 67.6% 32.4% 0.9x
</TABLE>
Pro Forma Earnings Per Share Impact to America Online. Salomon Smith Barney
reviewed certain pro forma financial effects of the merger on the estimated
earnings per share of America Online common stock. Using First Call estimates,
Salomon Smith Barney compared the earnings per share of America Online common
stock, on a stand-alone basis assuming the merger was not consummated to the
estimated earnings per share of America Online common stock following
consummation of the merger on a pro forma basis. Salomon Smith Barney's
analysis gave effect to the issuance of shares of AOL Time Warner common stock
to America Online and Time Warner stockholders pursuant to the merger agreement
and gave effect to the net estimated synergies. Based on such analysis, Salomon
Smith Barney determined that the merger would be: (a) dilutive to, or result in
a decrease in, the earnings per share of America Online common stock on a pro
forma basis by approximately 404.7% in calendar 2000 and approximately 267.0%
in calendar 2001 using First Call GAAP earnings per share estimates and (b)
accretive to, or result in an increase in, the earnings per share of America
Online common stock on a pro forma basis by approximately 63.6% in calendar
2000 and approximately 48.5% in calendar 2001 using cash earnings per share
estimates which are based on the First Call GAAP earnings per share estimates
and adding goodwill amortization per share.
Other Analyses. Salomon Smith Barney conducted such other analyses as it
deemed necessary, including reviewing selected investment research reports on,
and earnings estimates for, America Online and Time Warner.
Salomon Smith Barney is an internationally recognized investment banking
firm and was engaged as financial advisor to America Online in connection with
the merger because of its experience and expertise and its familiarity with
America Online. As part of its investment banking business, Salomon Smith
Barney is regularly engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
Pursuant to the terms of an engagement letter dated January 9, 2000, America
Online agreed to pay Salomon Smith Barney a financial advisory fee of: $5
million upon the execution of the merger agreement;
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<PAGE>
$7.5 million upon receipt of requisite shareholder approvals to complete the
merger; and $47.5 million upon completion of the merger. Additionally, America
Online has agreed to reimburse Salomon Smith Barney for reasonable out-of-
pocket expenses incurred by Salomon Smith Barney in performing its services,
including the fees and expenses of its legal counsel, and to indemnify Salomon
Smith Barney and related persons against certain liabilities, including
liabilities under the federal securities laws, arising out of Salomon Smith
Barney's engagement. In the ordinary course of business, Salomon Smith Barney
and its affiliates may actively trade or hold the securities of America Online
and Time Warner for their own account or for the account of customers and,
accordingly, may at any time hold a long or short position in such securities.
Salomon Smith Barney has in the past provided investment banking services to
America Online unrelated to the merger. From January 1, 1998 through January 6,
2000, Salomon Smith Barney received approximately $14.5 million for these
services. In addition, Salomon Smith Barney and its affiliates, including
Citigroup Inc. and its affiliates, may maintain relationships with America
Online or Time Warner.
Recommendation of Time Warner's Board of Directors
The Time Warner board of directors believes that the merger is fair to Time
Warner's stockholders and in their best interest, and recommends the adoption
of the merger agreement.
In considering the recommendation of the Time Warner board of directors with
respect to the merger agreement, you should be aware that certain directors and
executive officers of Time Warner have interests in the merger that are
different from, or are in addition to, the interests of Time Warner
stockholders. Please see the section entitled "Interests of Certain Time Warner
Directors and Executive Officers in the Merger" that begins on page 57 of this
joint proxy statement-prospectus.
Opinion of Time Warner's Financial Advisor
Time Warner retained Morgan Stanley to provide it with financial advisory
services and a financial fairness opinion in connection with the merger. The
Time Warner board of directors selected Morgan Stanley to act as Time Warner's
financial advisor based on Morgan Stanley's qualifications, expertise and
reputation and its knowledge of the business and affairs of Time Warner. At the
meeting of the Time Warner board on January 9, 2000, Morgan Stanley rendered
its oral opinion, subsequently confirmed in writing, that as of January 9,
2000, and subject to and based on the considerations in its opinion, the
exchange ratio pursuant to the merger agreement is fair from a financial point
of view to the holders of Time Warner common stock and series common stock.
The full text of Morgan Stanley's opinion, dated as of January 9, 2000,
which sets forth, among other things, the assumptions made, procedures
followed, matters considered and limitations on the review undertaken by Morgan
Stanley is attached as Annex F to this joint proxy statement-prospectus. We
urge you to read this opinion carefully and in its entirety. Morgan Stanley's
opinion is directed to the board of directors of Time Warner, addresses only
the fairness from a financial point of view of the exchange ratio pursuant to
the merger agreement to the holders of Time Warner common stock and series
common stock, and does not address any other aspect of the merger or constitute
a recommendation to any Time Warner stockholder as to how to vote at the
special meeting. This summary is qualified in its entirety by reference to the
full text of the opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
. reviewed certain publicly available financial statements and other
information of America Online and Time Warner;
. discussed the past and current operations and financial condition and
the prospects of America Online and Time Warner with senior executives
of America Online and Time Warner, respectively;
49
<PAGE>
. discussed with senior executives of America Online and Time Warner
certain strategic, financial and operational benefits they anticipate
from the merger;
. reviewed the reported prices and trading activity for America Online's
common stock and Time Warner's common stock;
. compared the financial performance of America Online and Time Warner and
the prices and trading activity of America Online's common stock and
Time Warner's common stock with those of other comparable publicly
traded companies and their securities;
. reviewed the financial terms, to the extent publicly available, of
precedent transactions that Morgan Stanley deemed relevant;
. participated in discussions and negotiations among representatives of
America Online and Time Warner and their financial and legal advisors;
. reviewed the draft of the merger agreement, the draft of the voting
agreement to be entered into between America Online and Mr. Turner and
his affiliates and the draft of the stock option agreements to be
entered into between America Online and Time Warner, each substantially
in the form of the draft dated January 9, 2000, and related documents;
and
. performed other analyses and considered other factors as Morgan Stanley
deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the
purposes of its opinion. Morgan Stanley did not receive financial forecasts for
America Online or Time Warner and instead relied on the publicly available
estimates of selected analysts, including those at Morgan Stanley, who report
on America Online and Time Warner. With respect to the anticipated strategic,
financial and operational benefits of the merger, including assumptions
regarding America Online's and Time Warner's existing and future products and
technologies, Morgan Stanley assumed that the information provided has been
reasonably prepared on the bases reflecting the best currently available
estimates and judgments of the future financial and operational performance of
America Online and Time Warner. Morgan Stanley did not make and did not assume
responsibility for making any independent valuation or appraisal of the assets
or liabilities of Time Warner or America Online, nor was Morgan Stanley
furnished with any appraisals of those assets and liabilities. Morgan Stanley
assumed that the executed versions of the merger agreement, the voting
agreement and the stock option agreements would not differ in any material
respect from the last drafts of these agreements reviewed by Morgan Stanley.
Morgan Stanley assumed that the merger will be completed in accordance with the
terms provided in the merger agreement without material modification or waiver
and that the merger will be a tax-free reorganization or exchange under the
Internal Revenue Code of 1986. The opinion of Morgan Stanley is necessarily
based on financial, economic, market and other conditions as in effect on, the
information made available to Morgan Stanley as of, and the financial condition
of Time Warner and America Online on, January 9, 2000.
The following is a summary of the material financial analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion. These summaries of financial analyses include information
presented in tabular format. In order to fully understand the financial
analyses used by Morgan Stanley, the tables must be read together with the text
of each summary. The tables alone do not constitute a complete description of
the financial analyses.
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<PAGE>
Historical Share Price Performance. Morgan Stanley reviewed the price
performance and trading volumes of the common stock of each of Time Warner and
America Online from January 7, 1999 through January 7, 2000. The table below
shows the twelve-month high and low closing prices during that period, compared
with a closing price on January 7, 2000 of $64.75 per share for the Time Warner
common stock and $73.75 per share for the America Online common stock:
<TABLE>
<CAPTION>
January 7, 1999 January 7, 1999
through through
January 7, 2000 January 7, 2000
High Low
--------------- ---------------
<S> <C> <C>
Time Warner.................................. $78.25 $58.50
America Online............................... $93.81 $35.11
</TABLE>
Morgan Stanley then compared the price performance of the Time Warner common
stock from January 7, 1999 through January 7, 2000 with that of the S&P 500
Index and of a group of selected media and entertainment companies and the
price performance of the America Online common stock over the same period with
that of the Nasdaq Composite Index and of a group of selected Internet
companies.
The group of selected media and entertainment companies included CBS
Corporation, Comcast Corporation, Viacom, Inc., News Corp. Ltd., Cablevision
Systems Corporation, Cox Communications Inc., The Seagram Company Ltd., The
Walt Disney Company and Fox Corporation. The group of selected Internet
companies included CNET, Inc., Yahoo! Inc., Lycos, Inc., eBay Inc., Excite,
Inc. and Amazon.com, Inc. Morgan Stanley selected CNET, Excite, Lycos and
Yahoo! because they are publicly traded companies with Internet portal
operations that, for purposes of this analysis, may be considered similar to
those of America Online. Morgan Stanley also selected Amazon.com and eBay
because they are publicly traded companies that are leaders in e-commerce
retail and because their leading positions in this market may be considered,
for purposes of this analysis, similar to America Online. None of the companies
utilized in this analysis as a comparison is identical to Time Warner or
America Online.
This analysis showed that the closing market prices during the period from
January 7, 1999 through January 7, 2000 appreciated as follows:
<TABLE>
<CAPTION>
Appreciation
------------
<S> <C>
Time Warner..................................................... 6.3%
S&P 500 Index................................................... 13.5%
Group of selected media and entertainment companies:
Mean.......................................................... 43.1%
<CAPTION>
Appreciation
------------
<S> <C>
America Online.................................................. 97.5%
Nasdaq Composite Index.......................................... 66.9%
Group of selected Internet companies:
Mean.......................................................... 104.2%
</TABLE>
Comparable Companies Analysis. Morgan Stanley calculated aggregate value,
i.e., equity value adjusted for capital structure, to EBITDA multiples for Time
Warner for fiscal years 1999 through 2001 based on publicly available Morgan
Stanley research estimates. Morgan Stanley then compared the EBITDA multiples
obtained for Time Warner with multiples obtained for a group of selected media
and entertainment companies. Morgan Stanley calculated aggregate value to
revenue multiples for America Online for fiscal years 1999 through 2001 based
on publicly available Morgan Stanley research estimates. Morgan Stanley then
compared the revenue multiples obtained for America Online with multiples
obtained for a group of selected Internet companies.
51
<PAGE>
The group of selected media and entertainment companies included Cablevision
Systems Corporation, The Walt Disney Company, Fox Corporation, News Corp. Ltd.,
The Seagram Company Ltd. and the combined Viacom/CBS Corporation entity. Morgan
Stanley selected these companies because they are publicly traded companies
with media and entertainment operations that for purposes of this analysis may
be considered similar to those of Time Warner.
The group of selected Internet companies included Excite, Inc., Lycos, Inc.,
Yahoo! Inc., Amazon.com, Inc. and eBay Inc. Morgan Stanley selected Excite,
Lycos and Yahoo! because they are publicly traded companies with Internet
portal operations that, for purposes of this analysis, may be considered
similar to those of America Online. Morgan Stanley also selected Amazon.com and
eBay because they are publicly traded leaders in e-commerce retail which,
because of their leading positions in this market, may be considered for
purposes of this analysis similar to America Online.
The analysis showed the following multiples:
<TABLE>
<CAPTION>
Estimated
Aggregate
Value/EBITDA
-----------------
1999 2000 2001
----- ----- -----
<S> <C> <C> <C>
Time Warner................................................ 19.4x 17.5x 15.4x
Group of selected media and entertainment companies:
Mean..................................................... 18.7x 15.8x 13.8x
Median................................................... 16.2x 14.7x 12.8x
<CAPTION>
Estimated
Aggregate
Value/Revenue
-----------------
1999 2000 2001
----- ----- -----
<S> <C> <C> <C>
America Online............................................. 33.6x 25.8x 21.1x
Excite, Lycos, Yahoo:
Mean..................................................... 89.9x 57.6x 40.1x
Median................................................... 38.8x 24.0x 16.8x
Amazon.com, eBay:
Mean..................................................... 48.5x 29.5x 20.3x
Median................................................... 48.5x 29.5x 20.3x
</TABLE>
Securities Research Analysts' Future Price Targets Analysis. Morgan Stanley
reviewed the 12-month price targets for the shares of common stock of each of
Time Warner and America Online as projected by analysts from various financial
institutions in recent reports. These targets reflected each analyst's estimate
of the future public market trading price of Time Warner common stock and
America Online common stock at the end of the particular period considered for
each estimate. Morgan Stanley then arrived at the present value for these
targets using an estimated equity discount rate of 12.7% for the Time Warner
common stock and 18.5% for the America Online common stock.
This analysis showed the following mean and median values for the Time
Warner and America Online common stock:
<TABLE>
<CAPTION>
12-Month Analysts'
Price Target
---------------------
Time Warner Nominal Present Value
----------- ------- -------------
<S> <C> <C>
Mean................................................... $ 82 $74
Median................................................. $ 81 $73
<CAPTION>
12-Month Analysts'
Price Target
---------------------
America Online Nominal Present Value
-------------- ------- -------------
<S> <C> <C>
Mean................................................... $ 97 $84
Median................................................. $108 $94
</TABLE>
52
<PAGE>
Morgan Stanley noted that the exchange ratio pursuant to the merger
agreement implied a value of $110.625 for the common stock of Time Warner
resulting from the merger, based on the trading price of the America Online
common stock on January 7, 2000.
Historical Exchange Ratio Analysis. Morgan Stanley reviewed the implied
historical exchange ratios for the shares of common stock of each of Time
Warner and America Online determined by dividing the price per share of Time
Warner common stock by the price per share of America Online common stock over
the three-year period from January 7, 1997 through January 7, 2000, and over
the twelve-month period from January 7, 1999 through January 7, 2000. Morgan
Stanley performed this analysis to compare the premium represented by the
exchange ratio in the merger with the premium/(discount) represented by
historical exchange ratios prevailing in the open market.
This analysis indicated the following premiums/(discounts) represented by
the average historical exchange ratios prevailing in the open market:
<TABLE>
<CAPTION>
Premium/(Discount)
Period Ending Over Average Historical
January 7, 2000 Exchange Ratio
--------------- -----------------------
<S> <C>
Last one month....................................... 81 %
Last three months.................................... 66 %
Last six months...................................... 34 %
Last one year........................................ 25 %
Last 18 months....................................... (16)%
Last two years....................................... (37)%
Last three years..................................... (61)%
</TABLE>
Morgan Stanley noted that the 1.5x exchange ratio in the merger agreement
implied a 71% premium to the market ratio implied by the trading prices of the
America Online and Time Warner common stock on January 7, 2000.
Relative Contribution Analysis. Morgan Stanley compared pro forma
contribution of each of Time Warner and America Online, based on publicly
available Morgan Stanley research estimates, to the resultant combined company
assuming completion of the merger. Morgan Stanley adjusted these statistics to
reflect each company's respective capital structures and then compared them to
the pro forma ownership by Time Warner stockholders of the common stock of the
combined company of approximately 45%, implied by the exchange ratio.
This analysis indicated the following equity contribution for Time Warner to
the combined company on a pro forma basis:
<TABLE>
<CAPTION>
Time Warner
Equity Contribution
-------------------
<S> <C>
Estimated Net Revenues:
2000................................................. 79%
2001................................................. 77%
Estimated EBITDA:
2000................................................. 79%
2001................................................. 74%
Estimated Net income (after preferred dividends):
2000................................................. 46%
2001................................................. 48%
Market equity value (based on 1/7/00 closing prices and
fully diluted shares using treasury method)........... 32%
</TABLE>
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<PAGE>
Pro Forma Merger Analysis. Morgan Stanley analyzed the pro forma effect of
the merger on each of Time Warner's and America Online's actual and projected
revenue and EBITDA for fiscal 1998 to fiscal 2001, based on publicly available
Morgan Stanley research estimates, compared to the revenue and EBITDA growth
rates of Time Warner and America Online on a standalone basis in each of the
selected years.
The analysis indicated that the merger would increase the revenue and EBITDA
growth rates of Time Warner compared to the revenue and EBITDA growth rates of
Time Warner on a standalone basis for the period selected as follows:
<TABLE>
<CAPTION>
Estimated 1999-
2001 Compound
Annual Growth Rate
------------------
<S> <C>
Revenue:
Time Warner............................................. 10.1%
America Online.......................................... 26.2%
Pro forma............................................... 13.0%
<CAPTION>
Estimated 1999-
2001 Compound
Annual Growth Rate
------------------
<S> <C>
EBITDA:
Time Warner............................................. 12.5%
America Online.......................................... 61.0%
Pro forma............................................... 20.1%
</TABLE>
Premiums Paid in Selected Precedent Transactions Analysis. Morgan Stanley
reviewed nine recent selected business combinations structured as mergers of
equals and analyzed the premiums/discounts paid in these transactions over
prevailing market prices before the announcement of these transactions. Morgan
Stanley selected these transactions because they were structured as mergers of
equals of large publicly-traded corporations and not because they involved
companies engaged in industries that would be similar or related to those in
which Time Warner or America Online operate.
These transactions are: the Viacom, Inc./CBS Corporation transaction, the
Vodafone PLC/AirTouch Communications, Inc. transaction, the British Petroleum
Company/Amoco Corporation transaction, the Bell Atlantic Corporation/GTE
Corporation transaction, the Norwest Corporation/Wells Fargo & Company
transaction, the SBC Communications Inc./Ameritech Corporation transaction, the
Daimler-Benz Aktiengesellschaft/Chrysler Corporation transaction, the
NationsBank Corporation/Bank of America Corporation transaction and the
Travelers Group Inc./Citicorp transaction.
The table below provides the high and low premiums/discounts at 30 days and
at one day before the announcement of these transactions, compared with the 71%
premium to be received by the shareholders of Time Warner in the merger, based
on the trading price for the America Online and Time Warner common stock as of
January 7, 2000:
<TABLE>
<CAPTION>
Premium/(Discount) Premium/(Discount)
to Stock Price at to Stock Price at
30 Days One Day
------------------ ------------------
<S> <C> <C>
Selected transactions:
High................................. 72.1 % 70.4 %
Low.................................. (4.5)% (1.5)%
</TABLE>
No company or transaction utilized in the peer group comparison analysis is
identical to Time Warner or America Online or the merger. In evaluating the
peer groups, Morgan Stanley made judgments and assumptions with regard to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Time
Warner or America Online, such as the impact of competition on the business of
Time Warner, America Online, or the industry generally, industry growth and
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<PAGE>
the absence of any adverse material change in the financial condition and
prospects of Time Warner, America Online or the industry or in the financial
markets in general, which could affect the public trading value of the
companies and the aggregate value of the transactions to which they are being
compared. Mathematical analysis, such as determining the mean or median, or the
high or the low, is not in itself a meaningful method of using peer group data.
In connection with the review of the merger by Time Warner's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to a partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor considered by it. Morgan
Stanley believes that the summary provided and the analyses described above
must be considered as a whole and that selecting portions of these analyses,
without considering all of them, would create an incomplete view of the process
underlying its analyses and opinion. In addition, Morgan Stanley may have given
various analyses and factors more or less weight than other analyses and
factors and may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuations resulting from any
particular analysis described above should therefore not be taken to be Morgan
Stanley's view of the actual value of Time Warner or America Online.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Time Warner or America
Online. Any estimates contained in Morgan Stanley's analysis are not
necessarily indicative of future results or actual values, which may be
significantly more or less favorable than those suggested by these estimates.
The analyses performed were prepared solely as a part of Morgan Stanley's
analysis of the fairness from a financial point of view to the holders of
common stock and series common stock of Time Warner of the exchange ratio
pursuant to the merger agreement and were conducted in connection with the
delivery by Morgan Stanley of its opinion dated January 9, 2000 to the board of
directors of Time Warner. Morgan Stanley's analyses do not purport to be
appraisals or to reflect the prices at which shares of common stock or series
common stock of Time Warner or America Online might actually trade. The
exchange ratio in the merger was determined through arm's length negotiations
between Time Warner and America Online and was approved by Time Warner's board
of directors. Morgan Stanley did not recommend any specific exchange ratio to
Time Warner or that any given exchange ratio constituted the only appropriate
exchange ratio for the merger.
Morgan Stanley is an internationally recognized investment banking and
advisory firm. Morgan Stanley, as part of its investment banking and financial
advisory business, is continuously engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the past, Morgan Stanley and its affiliates have provided
financial advisory and financing services for Time Warner and America Online
and have received customary fees for the rendering of these services. During
1998 and 1999, Morgan Stanley received approximately $23.8 million for services
provided to Time Warner and its affiliated entities. In the ordinary course of
business, Morgan Stanley may from time to time trade in the securities or
indebtedness of Time Warner and America Online for its own account, the
accounts of investment funds and other clients under the management of Morgan
Stanley and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in these securities or indebtedness.
Time Warner has agreed to pay Morgan Stanley a financial advisory fee of
$12.5 million upon execution of the merger agreement and, upon completion of
the merger, $47.5 million plus a contingent amount, not to exceed $15 million,
based on the enterprise value of Time Warner implied by the average trading
price of AOL Time Warner common stock for five days after completion of the
merger. Time Warner has also agreed to reimburse Morgan Stanley for its
expenses incurred in performing its services and to indemnify Morgan Stanley
and its affiliates, their respective directors, officers, agents and employees
and each person, if any, controlling Morgan Stanley or any of its affiliates
against certain liabilities and expenses, including certain
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<PAGE>
liabilities under federal securities laws, related to or arising out of Morgan
Stanley's engagement and any related transactions.
Interests of Certain America Online Directors and Executive Officers in the
Merger
In considering the recommendation of the board of directors of America
Online to vote for the proposal to adopt the merger agreement, stockholders of
America Online should be aware that members of the America Online board of
directors and members of America Online's management team have agreements or
arrangements that provide them with interests in the merger that differ from
those of America Online stockholders. The America Online board of directors was
aware of these agreements and arrangements during its deliberations of the
merits of the merger and in determining to recommend to the stockholders of
America Online that they vote for the proposal to adopt the merger agreement.
Governance Structure and Management Positions. Pursuant to the terms of the
merger agreement, upon completion of the merger:
. the board of directors of AOL Time Warner will be initially comprised of
sixteen individuals, eight of whom will be designated by America Online
and eight of whom will be designated by Time Warner; and
. each committee of the board of directors of AOL Time Warner will be
initially comprised of two directors designated by America Online and
two directors designated by Time Warner.
The merger agreement also provides that, upon completion of the merger:
. Stephen M. Case, Chairman and Chief Executive Officer of America Online,
will serve as Chairman of the Board of AOL Time Warner, and until
December 31, 2003, he cannot be removed from this position, except upon
a 75% vote of the entire AOL Time Warner board of directors;
. Robert W. Pittman, President and Chief Operating Officer of America
Online, will serve as Co-Chief Operating Officer of AOL Time Warner; and
. J. Michael Kelly, Senior Vice President and Chief Financial Officer of
America Online, will serve as Executive Vice President and Chief
Financial Officer of AOL Time Warner.
The chairman of the board of AOL Time Warner will have supervisory
responsibility over the functional areas of global public policy, particularly
with respect to the Internet, technology policy and future innovation, venture-
type investments and philanthropy, operating and discharging those
responsibilities with the assistance of the following officers reporting
directly to the chairman of the board: George Vradenburg, III, William J.
Raduchel and Kenneth J. Novack, and those officers may be appointed and removed
only with the chairman of the board's approval or upon action of the board of
directors of AOL Time Warner.
As of January 10, 2000, the directors and executive officers of America
Online beneficially owned 38,933,662 shares, including stock options
exercisable within 60 days of January 10, 2000, representing approximately 1.7%
of the outstanding shares of America Online common stock.
America Online Employee Stock Options and Restricted Shares. As a result of
the completion of the merger, substantially all America Online employee stock
options and shares of restricted stock outstanding on January 10, 2000, by
their terms, will vest and become exercisable or free of restrictions, as the
case may be, upon the earliest to occur of their normal vesting date, the first
anniversary of the completion of the merger and the employee's termination
without cause or constructive termination. Stock options granted to non-
employee directors are exercisable upon grant and the completion of the merger
will not affect the exercisability of these stock options. As of January 10,
2000, the number of unvested stock options or shares of restricted stock held
by executive officers of America Online totaled 44,062,667. Assuming the merger
is completed on November 1, 2000, the number of stock options or shares of
restricted stock held by executive officers of America Online that would vest
or become free of restrictions on November 1, 2001 would total 21,426,112, with
an average weighted exercise price of $18.78.
Pursuant to the terms of the merger agreement, each America Online employee
stock option outstanding immediately prior to the completion of the merger will
be converted, upon completion of the merger, into an
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<PAGE>
option to acquire, on the same terms and conditions, the same number of shares
of AOL Time Warner common stock at the same exercise price. Similarly, each
restricted share of America Online common stock outstanding immediately prior
to the completion of the merger will be converted, upon completion of the
merger, into the same number of restricted shares of AOL Time Warner common
stock.
Indemnification and Insurance. The merger agreement provides that, upon
completion of the merger, AOL Time Warner will indemnify and hold harmless, and
provide advancement of expenses to, all past and present directors, officers
and employees of America Online and its subsidiaries, in all of their
capacities:
. to the same extent they were indemnified or had the right to advancement
of expenses as of January 10, 2000, which is the date of the merger
agreement, pursuant to America Online's restated certificate of
incorporation, restated by-laws and indemnification agreements with any
directors, officers and employees of America Online and its
subsidiaries; and
. to the fullest extent permitted by law,
in each case for acts or omissions occurring at or prior to the completion of
the merger.
The merger agreement also provides that, upon completion of the merger, AOL
Time Warner will cause to be maintained, for a period of six years after
completion of the merger, the current policies of directors' and officers'
liability insurance and fiduciary liability insurance maintained by America
Online, or policies of at least the same coverage and amounts containing terms
and conditions which are, in the aggregate, no less advantageous to the
insured, with respect to claims arising from facts or events that occurred on
or before the completion of the merger, although AOL Time Warner will not be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by America Online for directors' and officers'
liability insurance and fiduciary liability insurance.
Interests of Certain Time Warner Directors and Executive Officers in the Merger
In considering the recommendation of the board of directors of Time Warner
to vote for the proposal to adopt the merger agreement, stockholders of Time
Warner should be aware that members of the Time Warner board of directors and
members of Time Warner's management team have agreements or arrangements that
provide them with interests in the merger that differ from those of Time Warner
stockholders. The Time Warner board of directors was aware of these agreements
and arrangements during its deliberations of the merits of the merger and in
determining to recommend to the stockholders of Time Warner that they vote for
the proposal to adopt the merger agreement.
Governance Structure and Management Positions. Pursuant to the terms of the
merger agreement, upon completion of the merger:
. the board of directors of AOL Time Warner will be comprised of sixteen
individuals, eight of whom will be designated by America Online and
eight of whom will be designated by Time Warner; and
. each committee of the board of directors of AOL Time Warner will be
comprised of two directors designated by America Online and two
directors designated by Time Warner.
Upon completion of the merger:
. Gerald M. Levin, Chairman and Chief Executive Officer of Time Warner,
will serve as Chief Executive Officer of AOL Time Warner, and until
December 31, 2003, cannot be removed from this position, except upon a
75% vote of the entire AOL Time Warner board of directors;
. R.E. Turner, Vice Chairman of Time Warner, will serve as Vice Chairman
and Senior Advisor of AOL Time Warner; and
. Richard D. Parsons, President of Time Warner, will serve as Co-Chief
Operating Officer of AOL Time Warner.
Time Warner Employee Stock Options and Restricted Shares. Upon approval by
the board of directors of Time Warner of the merger agreement, on January 9,
2000, all then outstanding Time Warner stock options, by their terms,
immediately vested and became exercisable, and all then outstanding restricted
shares of Time Warner common stock, by their terms, immediately vested and
became free of all restrictions. As a result of
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<PAGE>
these accelerations, on January 9, 2000, of the 16,210,068 options to purchase
shares of Time Warner common stock held by directors and executive officers of
Time Warner, options with respect to 3,399,652 shares, with an average weighted
exercise price of $48.92, vested and became exercisable, and all 81,224
restricted shares of Time Warner common stock issued to directors and executive
officers vested and became free of restrictions.
Pursuant to the terms of the merger agreement, each Time Warner employee
stock option outstanding immediately prior to the completion of the merger will
be converted, upon completion of the merger, into an option to acquire, on the
same terms and conditions, the number of shares of AOL Time Warner common stock
that is equal to the product of the number of shares of Time Warner common
stock that could have been acquired upon exercise of the option immediately
before completion of the merger multiplied by 1.5, rounded to the nearest whole
share. The exercise price of these AOL Time Warner stock options will be the
exercise price for the Time Warner stock option immediately before completion
of the merger divided by 1.5.
Indemnification and Insurance. The merger agreement provides that, upon
completion of the merger, AOL Time Warner will indemnify and hold harmless, and
provide advancement of expenses to, all past and present directors, officers
and employees of Time Warner and its subsidiaries in all of their capacities:
. to the same extent they were indemnified or had the right to advancement
of expenses as of January 10, 2000, which is the date of the merger
agreement, pursuant to Time Warner's restated certificate of
incorporation, by-laws and indemnification agreements with any
directors, officers and employees of Time Warner and its subsidiaries;
and
. to the fullest extent permitted by law, in each case for acts or
omissions occurring at or prior to the completion of the merger.
The merger agreement also provides that, upon completion of the merger, AOL
Time Warner will cause to be maintained, for a period of six years after
completion of the merger, the current policies of directors' and officers'
liability insurance and fiduciary liability insurance maintained by Time
Warner, or policies of at least the same coverage and amounts containing terms
and conditions which are, in the aggregate, no less advantageous to the
insured, with respect to claims arising from facts or events that occurred on
or before the completion of the merger, although AOL Time Warner will not be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by Time Warner for directors' and officers' liability
insurance and fiduciary liability insurance.
Completion and Effectiveness of the Merger
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, including the adoption of the merger agreement
by the stockholders of America Online and Time Warner. The merger will become
effective upon the filing of certificates of merger with the Secretary of State
of the State of Delaware.
We are working toward completing the merger as quickly as possible. We
expect to complete the merger during the fall of 2000.
Structure of the Merger and Conversion of America Online and Time Warner Stock
Structure. To accomplish the combination of their businesses, America Online
and Time Warner jointly formed a new company, AOL Time Warner, with two
subsidiaries, America Online Merger Sub and Time Warner Merger Sub. At the time
the merger is completed:
. America Online Merger Sub will be merged into America Online, and
America Online will be the surviving corporation; and
. Time Warner Merger Sub will be merged into Time Warner, and Time Warner
will be the surviving corporation.
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<PAGE>
As a result, America Online and Time Warner will each become a wholly owned
subsidiary of AOL Time Warner.
Conversion of America Online and Time Warner Stock. When the merger is
completed:
. America Online common stockholders will receive one share of AOL Time
Warner common stock for each share they own;
. Time Warner common stockholders will receive 1.5 shares of AOL Time
Warner common stock for each share they own;
. Time Warner series LMCN-V common stockholders will receive 1.5 shares of
substantially identical AOL Time Warner series LMCN-V common stock for
each share they own; and
. Time Warner preferred stockholders will receive one share of a
corresponding series of substantially identical AOL Time Warner
preferred stock for each share of each series of Time Warner preferred
stock they own.
The voting rights and conversion ratio of each series of AOL Time Warner
preferred stock will be adjusted as a result of the merger to reflect the 1.5
conversion ratio between shares of Time Warner common stock and shares of AOL
Time Warner common stock. The voting rights and conversion ratio of the AOL
Time Warner series LMCN-V common stock will not be adjusted.
The number of shares of AOL Time Warner stock issuable in the merger will be
proportionately adjusted for any stock split, stock dividend or similar event
with respect to the America Online common stock or Time Warner capital stock
effected between the date of the merger agreement and the date of completion of
the merger.
Exchange of Stock Certificates for AOL Time Warner Stock Certificates
When the merger is completed, the exchange agent will mail to you a letter
of transmittal and instructions for use in surrendering your America Online or
Time Warner stock certificates in exchange for statements indicating book-entry
ownership of AOL Time Warner common stock or, if requested, stock certificates.
When you deliver your stock certificates to the exchange agent along with a
properly executed letter of transmittal and any other required documents, your
stock certificates will be canceled and you will receive statements indicating
book-entry ownership of AOL Time Warner common stock or, if requested, stock
certificates representing the number of full shares of AOL Time Warner stock to
which you are entitled under the merger agreement. Time Warner stockholders
will receive payment in cash, without interest, in lieu of any fractional
shares of AOL Time Warner common stock or series common stock which would have
been otherwise issuable to them as a result of the merger.
You should not submit your America Online or Time Warner stock certificates for
exchange until you receive the transmittal instructions and a form of letter of
transmittal from the exchange agent.
You are not entitled to receive any dividends or other distributions on AOL
Time Warner common stock until the merger is completed and you have surrendered
your America Online or Time Warner stock certificates in exchange for AOL Time
Warner stock certificates.
If there is any dividend or other distribution on AOL Time Warner stock with
a record date after the date on which the merger is completed and a payment
date prior to the date you surrender your America Online or Time Warner stock
certificates in exchange for AOL Time Warner stock certificates, you will
receive the dividend or distribution with respect to the whole shares of AOL
Time Warner stock issued to you promptly after they are issued. If there is any
dividend or other distribution on AOL Time Warner stock with a record date
after the date on which the merger is completed and a payment date after the
date you surrender your America Online or Time Warner stock certificates in
exchange for AOL Time Warner stock certificates, you will receive the dividend
or distribution with respect to the whole shares of AOL Time Warner stock
issued to you promptly after the payment date.
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AOL Time Warner will only issue an AOL Time Warner stock certificate or a
check in lieu of a fractional share in a name other than the name in which a
surrendered America Online or Time Warner stock certificate is registered if
you present the exchange agent with all documents required to show and effect
the unrecorded transfer of ownership and show that you paid any applicable
stock transfer taxes.
Treatment of America Online and Time Warner Stock Options and Other Equity
Based Awards
When the merger is completed, each outstanding America Online employee stock
option will be converted into an option to purchase shares of AOL Time Warner
common stock at an exercise price per share equal to the exercise price per
share of America Online common stock subject to the option before the
conversion. In addition, each outstanding restricted share of America Online
common stock will be converted into one restricted share of AOL Time Warner
common stock. As a result of the completion of the merger, substantially all
America Online employee stock options, and shares of restricted stock
outstanding on January 10, 2000, by their terms, will vest and become
exercisable or free of restrictions, as the case may be, upon the earliest to
occur of their normal vesting date, the first anniversary of the completion of
the merger and the employee's termination without cause or constructive
termination.
Upon completion of the merger, each outstanding Time Warner stock option
will be converted into an option to purchase the number of shares of AOL Time
Warner common stock that is equal to the product of 1.5 multiplied by the
number of shares of Time Warner common stock that would have been obtained
before the merger upon the exercise of the option, rounded to the nearest whole
share. The exercise price per share will be equal to the exercise price per
share of Time Warner common stock subject to the option before the conversion
divided by 1.5. In addition, each outstanding restricted share of Time Warner
common stock will be converted into the number of restricted shares of AOL Time
Warner common stock that is equal to the product of 1.5 multiplied by the
shares of Time Warner common stock subject to the award. Each Time Warner stock
option outstanding on January 9, 2000, by its terms, accelerated and became
fully vested, and each share of restricted Time Warner common stock outstanding
on that date immediately vested, becoming free of restrictions.
The other terms of each America Online and Time Warner option and restricted
shares, referred to above will continue to apply.
AOL Time Warner will file a registration statement covering the issuance of
the shares of AOL Time Warner common stock subject to each America Online and
Time Warner option and restricted shares and will maintain the effectiveness of
that registration statement for as long as any of the options or restricted
shares remain outstanding.
Effect of the Merger on Outstanding America Online Convertible Notes
As of December 31, 1999, America Online had outstanding two series of
convertible subordinated notes: (1) $248,971,000 aggregate principal amount of
4% convertible subordinated notes due November 15, 2002, and (2) $2,267,533,000
aggregate principal amount at maturity of zero coupon convertible subordinated
notes due 2019. On December 31, 1999, the underwriters exercised the
overallotment option on the notes due in 2019. As a result, America Online sold
additional notes with an aggregate principal amount at maturity of
approximately $55.6 million.
The convertible notes due in 2002 were issued under an indenture dated as of
November 17, 1997 between America Online and State Street Bank and Trust
Company, as trustee. The indenture provides that after consummation of the
merger, the note holders will be entitled to convert their notes into the
number of shares of AOL Time Warner common stock that they would have received
in the merger if they had converted the notes into America Online common stock
immediately prior to the merger. If the notes are outstanding at the time the
merger is consummated, America Online and AOL Time Warner will enter into a
supplemental indenture to implement this modification in the conversion right
of the notes. The merger will not constitute a "change in control" as defined
in the indenture, which would give the note holders the right to require
America Online to repurchase the notes.
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The convertible notes due in 2019 were issued under an indenture dated as
of December 6, 1999, as supplemented by a supplemental indenture dated the
same date, between America Online and State Street Bank and Trust Company, as
trustee. Upon consummation of the merger, AOL Time Warner will enter into a
supplemental indenture providing that, subject to the terms and conditions of
the indenture, each note will thereafter be convertible into the number of
shares of AOL Time Warner common stock which the note holder would have
received in the merger if the note holder had converted the note immediately
prior to the merger.
Material United States Federal Income Tax Consequences of the Merger
The following summary discusses the material U.S. federal income tax
consequences of the merger to U.S. Holders of America Online and Time Warner
stock.
For purposes of this discussion, a U.S. Holder means:
. a citizen or resident of the United States;
. a corporation or other entity taxable as a corporation created or
organized under the laws of the United States or any of its political
subdivisions;
. a trust, if a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. fiduciaries have
the authority to control all substantial decisions of the trust; or
. an estate that is subject to U.S. federal income tax on its income
regardless of its source.
This discussion is based upon the Internal Revenue Code of 1986, as
amended, Treasury regulations, administrative rulings and judicial decisions
currently in effect, all of which are subject to change, possibly with
retroactive effect. The discussion assumes that America Online stockholders
hold their America Online common stock and will hold their AOL Time Warner
common stock, and that Time Warner stockholders hold their Time Warner capital
stock and will hold their AOL Time Warner capital stock, as a capital asset
within the meaning of Section 1221 of the Internal Revenue Code. Further, the
discussion does not address all aspects of U.S. federal income taxation that
may be relevant to a particular stockholder in light of his, her or its
personal investment circumstances or to stockholders subject to special
treatment under the U.S. federal income tax laws, including:
. insurance companies;
. tax-exempt organizations;
. dealers in securities or foreign currency;
. banks or trusts;
. persons that hold their America Online common stock or Time Warner
capital stock as part of a straddle, a hedge against currency risk or a
constructive sale or conversion transaction;
. persons that have a functional currency other than the U.S. dollar;
. investors in pass-through entities;
. stockholders who acquired their America Online common stock or Time
Warner capital stock through the exercise of options or otherwise as
compensation or through a tax-qualified retirement plan; or
. holders of options granted under any America Online or Time Warner
benefit plan.
Furthermore, this discussion does not consider the potential effects of any
state, local or foreign tax laws.
None of America Online, Time Warner or AOL Time Warner has requested a
ruling from the United States Internal Revenue Service with respect to any of
the U.S. federal income tax consequences of the merger
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and, as a result, there can be no assurance that the Internal Revenue Service
will not disagree with or challenge any of the conclusions described below.
Simpson Thacher & Bartlett, counsel to America Online, has delivered its
opinion to America Online and Cravath, Swaine & Moore, counsel to Time Warner,
has delivered its opinion to Time Warner to the effect that, on the basis of
the facts, representations and assumptions set forth in such opinion:
. the merger of America Online Merger Sub into America Online and the
merger of Time Warner Merger Sub into Time Warner will each constitute
an exchange to which Section 351 of the Internal Revenue Code applies or
a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code, or both;
. no gain or loss will be recognized by AOL Time Warner, America Online,
Time Warner, America Online Merger Sub or Time Warner Merger Sub as a
result of the merger;
. no gain or loss will be recognized by:
. U.S. Holders of America Online common stock on the exchange of their
America Online common stock for AOL Time Warner common stock; or
. U.S. Holders of Time Warner capital stock on the exchange of their
Time Warner capital stock for AOL Time Warner capital stock, except
with respect to cash received by U.S. Holders of Time Warner capital
stock in lieu of fractional shares of AOL Time Warner capital stock;
. the aggregate adjusted basis of the AOL Time Warner common stock
received in the merger by:
. a U.S. Holder of America Online common stock will be equal to the
aggregate adjusted basis of the U.S. Holder's America Online common
stock exchanged for that AOL Time Warner common stock; and
. a U.S. Holder of Time Warner capital stock will be equal to the
aggregate adjusted basis of the U.S. Holder's Time Warner capital
stock exchanged for that AOL Time Warner capital stock reduced by
any amount allocable to the fractional share interests in AOL Time
Warner capital stock for which cash is received; and
. the holding period of the AOL Time Warner common stock received in the
merger by:
. a U.S. Holder of America Online common stock will include the
holding period of the U.S. Holder's America Online common stock
exchanged for that AOL Time Warner common stock; and
. a U.S. Holder of Time Warner capital stock will include the holding
period of the U.S. Holder's Time Warner capital stock exchanged for
that AOL Time Warner capital stock.
Copies of these opinions are attached as exhibits 8.1 and 8.2 to the
registration statement of which this proxy statement-prospectus forms a part.
Any change in currently applicable law, which may or may not be retroactive, or
failure of any factual representations or assumptions to be true, correct and
complete in all material respects, could affect the continuing validity of the
Simpson tax opinion and the Cravath tax opinion.
Cash Instead of Fractional Shares. The receipt of cash instead of a
fractional share of AOL Time Warner capital stock by a U.S. Holder of Time
Warner capital stock will result in taxable gain or loss to such U.S. Holder
for U.S. federal income tax purposes based upon the difference between the
amount of cash received by such U.S. Holder and the U.S. Holder's adjusted tax
basis in the fractional share as set forth above. The gain or loss will
constitute capital gain or loss and will constitute long-term capital gain or
loss if the U.S. Holder's holding period is greater than 12 months as of the
date of the merger. For non-corporate U.S. Holders, this long-term capital gain
generally will be taxed at a maximum U.S. federal income tax rate of 20%. The
deductibility of capital losses is subject to limitations.
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Appraisal Rights. A holder of Time Warner series LMCN-V common stock or
Time Warner preferred stock who exercises appraisal rights generally will
recognize taxable capital gain or loss based upon the difference between the
amount of cash received by such U.S. Holder and the U.S. Holder's tax basis in
the shares of Time Warner capital stock exchanged.
Backup Withholding. Certain non-corporate Time Warner stockholders may be
subject to backup withholding at a 31% rate on cash payments received instead
of fractional shares of AOL Time Warner capital stock. Backup withholding will
not apply, however, to a Time Warner stockholder who:
. furnishes a correct taxpayer identification number and certifies that
he, she or it is not subject to backup withholding on the substitute
Form W-9 or successor form included in the letter of transmittal to be
delivered to Time Warner stockholders following the date of completion
of the merger;
. provides a certification of foreign status on Form W-8 or successor
form; or
. is otherwise exempt from backup withholding.
Reporting Requirements. A U.S. Holder of America Online common stock or
Time Warner capital stock receiving AOL Time Warner capital stock as a result
of the merger may be required to retain records related to such U.S. Holder's
America Online common stock and Time Warner capital stock, as the case may be,
and file with its federal income tax return, a statement setting forth facts
relating to the merger.
Dividends. It is anticipated that any dividends paid on AOL Time Warner
capital stock in the immediate future will exceed AOL Time Warner's current and
accumulated earnings and profits as of the end of the taxable year in which the
dividends are paid. If a dividend exceeds a stockholder's allocable share of
AOL Time Warner's current and accumulated earnings and profits for federal
income tax purposes, the excess will generally be treated first as a tax-free
return of capital to the extent of the stockholder's basis in its AOL Time
Warner capital stock, and after this basis is reduced to zero, as capital gain.
To the extent a dividend is treated as a tax-free return of capital or capital
gain, a corporate holder of AOL Time Warner capital stock will not be eligible
for the 70% or 80% "dividends-received" deduction with respect to such
dividend. AOL Time Warner does not currently intend to pay dividends on its
common stock. AOL Time Warner will pay dividends on each series of its
preferred stock in accordance with its terms.
This summary does not address tax consequences that may vary with, or are
contingent on, individual circumstances. Moreover, the summary does not address
any non-income tax or any foreign, state or local tax consequences of the
merger. The summary does not address the tax consequences of any transaction
other than the merger. Accordingly, each America Online and Time Warner
stockholder is strongly urged to consult with a tax advisor to determine the
particular federal, state, local or foreign income or other tax consequences of
the merger to the holder.
Accounting Treatment of the Merger
We intend to account for the merger under the purchase method of accounting
for business combinations. See "Pro Forma Consolidated Condensed Financial
Statements."
Regulatory Matters
We have summarized below the material regulatory requirements affecting the
merger. Although we have not yet received the required approvals we discuss, we
anticipate that we will receive regulatory approvals sufficient to complete the
merger by the fall of 2000.
Antitrust Considerations. The merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, which prevents specified
transactions from being completed until required information and materials are
furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and specified waiting periods are terminated or
expire. We have filed the required
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information and materials to notify the Department of Justice and the Federal
Trade Commission of the merger. The Federal Trade Commission has been
designated as the agency to review the merger. The Federal Trade Commission is
reviewing the information and material we filed with our notification as well
as additional information and documentary materials the Federal Trade
Commission requested we provide. The waiting period has been extended while
representatives of the Federal Trade Commission conduct their review. We are
cooperating with representatives of the Federal Trade Commission as they
conduct their review.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the merger on antitrust grounds, either before or
after expiration of the waiting period. Accordingly, at any time before or
after the completion of the merger, either the Antitrust Division of the
Department of Justice or the Federal Trade Commission could take action under
the antitrust laws as it deems necessary or desirable in the public interest,
or other persons could take action under the antitrust laws, including seeking
to enjoin the merger. Additionally, at any time before or after the completion
of the merger, notwithstanding that the applicable waiting period expired or
was terminated, any state could take action under the antitrust laws as it
deems necessary or desirable in the public interest. There can be no assurance
that a challenge to the merger will not be made or that, if a challenge is
made, we will prevail.
Under Regulation (EEC) No. [4064/89] of the Council of the European Union,
the merger may not be completed until the European Commission has granted its
approval. America Online and Time Warner filed the requisite notification with
respect to the merger with the European Commission in late April 2000. In
addition, America Online and Time Warner are required to make filings with
other international regulatory authorities in connection with the merger
including regulatory authorities in Argentina, Australia, Brazil, Canada,
Mexico and South Africa.
America Online and Time Warner are not aware of any other foreign
governmental approvals or actions that are required to complete the merger.
America Online and Time Warner conduct operations in a number of foreign
countries, some of which have voluntary and/or post-merger notification
systems. Should any other approval or action be required, America Online and
Time Warner currently plan to seek the approval or take the action. Failure to
obtain the approval or take the action is not anticipated to have a material
effect on the merger or on AOL Time Warner.
Federal Communications Commission. Pursuant to the Communications Act of
1934, the transfer of control of licenses issued by the Federal Communications
Commission typically requires prior Federal Communications Commission approval.
America Online and Time Warner each directly or indirectly hold Federal
Communications Commission licenses and intend to obtain any necessary approvals
from the Federal Communications Commission in connection with the mergers. On
February 11, 2000, America Online and Time Warner filed appropriate
applications with the Federal Communications Commission seeking approval for
the transfer of control to AOL Time Warner of the applicable Federal
Communications Commission licenses and authorizations. On March 21, 2000,
America Online and Time Warner filed additional information in support of this
filing. On May 11, 2000, the period of public comment in respect of this filing
expired.
State and Local Governmental Authorities. Affiliates of Time Warner hold
cable television franchises around the country for its cable television
operations. A substantial number of these cable franchise agreements may
require local governmental approval in connection with the merger, and a few
states may impose similar requirements. Similarly, a few state and local
approvals may be required in connection with the transfer of control of
authorizations for telephone or telecommunications services provided by
affiliates of Time Warner. Time Warner and AOL Time Warner have submitted
applications to appropriate state and local authorities where consents may be
required. Other state and local authorities have been provided notification of
the merger.
Restrictions on Sales of Shares by Affiliates of America Online and Time Warner
The shares of AOL Time Warner common stock to be issued in connection with
the merger or upon conversion of shares of AOL Time Warner series common stock
or AOL Time Warner preferred stock issued in connection with the merger will be
registered under the Securities Act of 1933 and will be freely transferable
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under the Securities Act, except for shares of AOL Time Warner common stock
issued to any person who is deemed to be an "affiliate" of either America
Online or Time Warner at the time of the special meetings. Persons who may be
deemed to be affiliates include individuals or entities that control, are
controlled by, or are under the common control of either America Online or Time
Warner and may include our executive officers and directors, as well as our
significant stockholders. Affiliates may not sell their shares of AOL Time
Warner common stock acquired in connection with the merger except pursuant to:
. an effective registration statement under the Securities Act covering
the resale of those shares;
. an exemption under paragraph (d) of Rule 145 under the Securities Act;
or
. any other applicable exemption under the Securities Act.
AOL Time Warner's registration statement on Form S-4, of which this joint
proxy statement-prospectus forms a part, does not cover the resale of shares of
AOL Time Warner common stock to be received by our affiliates in the merger.
New York Stock Exchange Listing of AOL Time Warner Common Stock to be Issued in
the Merger
AOL Time Warner will use reasonable best efforts to cause the shares of AOL
Time Warner common stock to be issued in connection with the merger to be
approved for listing on the New York Stock Exchange, subject to official notice
of issuance, before the completion of the merger.
Appraisal Rights
The following summary of the provisions of Section 262 of the Delaware
General Corporation Law is not intended to be a complete statement of the
provisions and is qualified in its entirety by reference to the full text of
Section 262 of the Delaware General Corporation Law, a copy of which is
attached to this joint proxy statement-prospectus as annex I and is
incorporated into this summary by reference.
Under Delaware law, America Online stockholders and Time Warner common
stockholders are not entitled to appraisal rights in connection with the
merger. However, holders of Time Warner series common stock and preferred stock
are entitled to appraisal rights under Delaware law.
If the merger is completed, each holder of Time Warner series common stock
and preferred stock who (1) files written notice with Time Warner of an
intention to exercise rights to appraisal of his, her or its shares prior to
the Time Warner special meeting, (2) in the case of a preferred stockholder,
does not vote in favor of the merger and (3) follows the procedures set forth
in Section 262, will be entitled to be paid for his or her Time Warner series
common stock or preferred stock by the surviving corporation the fair value in
cash of the shares of Time Warner series common stock or preferred stock, as
the case may be. The fair value of shares of Time Warner series common stock
and preferred stock will be determined by the Delaware Court of Chancery,
exclusive of any element of value arising from the merger. The shares of Time
Warner series common stock and preferred stock with respect to which holders
have perfected their appraisal rights in accordance with Section 262 and have
not effectively withdrawn or lost their appraisal rights are referred to in
this joint proxy statement-prospectus as the "dissenting shares."
Within ten days after the effective date of the merger, Time Warner, as the
surviving corporation in the merger, must mail a notice to all stockholders who
have complied with (1) and (2) above notifying such stockholders of the
effective date of the merger. Within 120 days after the effective date, holders
of Time Warner series common stock and preferred stock may file a petition in
the Delaware Court of Chancery for the appraisal of their shares, although they
may, within 60 days of the effective date, withdraw their demand for appraisal.
Within 120 days of the effective date, the holders of dissenting shares may
also, upon written request, receive from Time Warner a statement setting forth
the aggregate number of shares with respect to which demands for appraisals
have been received.
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Appraisal rights are available only to the record holder of shares. If you
wish to exercise appraisal rights but have a beneficial interest in shares
which are held of record by or in the name of another person, such as a broker
or nominee, you should act promptly to cause the record holder to follow the
procedures set forth in Section 262 to perfect your appraisal rights.
A demand for appraisal should be signed by or on behalf of the stockholder
exactly as the stockholder's name appears on the stockholder's stock
certificates. If the shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, the demand should be executed in that
capacity, and if the shares are owned of record by more than one person, as in
a joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a record holder;
however, in the demand the agent must identify the record owner or owners and
expressly disclose that the agent is executing the demand as an agent for the
record owner or owners. A record holder such as a broker who holds shares as
nominee for several beneficial owners may exercise appraisal rights for the
shares held for one or more beneficial owners and not exercise rights for the
shares held for other beneficial owners. In this case, the written demand
should state the number of shares for which appraisal rights are being
demanded. When no number of shares is stated, the demand will be presumed to
cover all shares held of record by the broker or nominee.
If any holder of Time Warner series common stock or preferred stock who
demands appraisal of his or her shares under Section 262 fails to perfect, or
effectively withdraws or loses the right to appraisal, his or her shares will
be converted into a right to receive a number of shares of AOL Time Warner
series common stock or preferred stock, as the case may be, in accordance with
the terms of the merger agreement. Dissenting shares lose their status as
dissenting shares if:
. the merger is abandoned;
. the dissenting stockholder fails to make a timely written demand for
appraisal;
. the dissenting shares are voted in favor of the merger;
. neither Time Warner nor the stockholder files a complaint or intervenes
in a pending action within 120 days after the effective date of the
merger; or
. the stockholder delivers to Time Warner, as the surviving corporation,
within 60 days of the effective date of the merger, or thereafter with
Time Warner's approval, a written withdrawal of the stockholder's demand
for appraisal of the dissenting shares, although no appraisal proceeding
in the Delaware Court of Chancery may be dismissed as to any stockholder
without the approval of the court.
Failure to follow the steps required by Section 262 of the Delaware General
Corporation Law for perfecting appraisal rights may result in the loss of
appraisal rights, in which event a Time Warner stockholder will be entitled to
receive the consideration with respect to the holder's dissenting shares in
accordance with the merger agreement. In view of the complexity of the
provisions of Section 262 of the Delaware General Corporation Law, Time Warner
stockholders who are considering objecting to the merger should consult their
own legal advisors.
Delisting and Deregistration of America Online and Time Warner Common Stock
after the Merger
When the merger is completed, America Online common stock and Time Warner
common stock will each be delisted from the New York Stock Exchange and will be
deregistered under the Securities Exchange Act of 1934.
Stockholder Lawsuits Challenging the Merger
Several complaints have been filed and remain pending in the Delaware Court
of Chancery naming as defendants one or more of America Online, the directors
of America Online, Time Warner and the directors of Time Warner. The complaints
purport to be filed on behalf of holders of America Online stock or Time Warner
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stock, as applicable, and allege breaches of fiduciary duty by the applicable
company and its directors or aiding and abetting breaches of fiduciary duty by
the other company and its directors in connection with the proposed merger of
America Online and Time Warner. The plaintiffs in each case seek to enjoin
completion of the merger and/or damages. Each of America Online and Time Warner
intends to defend against these lawsuits vigorously.
The Merger Agreement
The following summary of the merger agreement is qualified in its entirety
by reference to the complete text of the merger agreement, which is
incorporated by reference and attached as Annex A to this joint proxy
statement-prospectus. We urge you to read the full text of the merger
agreement.
Conditions to the Merger. Each of America Online's and Time Warner's
obligations to complete the merger are subject to the satisfaction or waiver of
specified conditions before completion of the merger, including the following:
. the adoption of the merger agreement by the affirmative vote of:
. the holders of a majority of the voting power of the outstanding
shares of Time Warner common stock and Time Warner preferred stock,
voting together as one group; and
. the holders of a majority of the outstanding shares of America
Online common stock;
. the absence of any law, order or injunction prohibiting completion of
the merger;
. the expiration or termination of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
. the approval of the merger by the European Commission and Canadian
governmental entities;
. the final approval of the Federal Communications Commission;
. the receipt of all approvals and consents of, and the completion of
filings with, or notices to, any state or local cable franchising
authorities or any state public service commissions necessary for
completion of the merger, the failure of which to obtain, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect, as described below, on AOL Time Warner after the merger;
. the approval for listing, by the New York Stock Exchange, of the shares
of AOL Time Warner common stock to be issued, or to be reserved for
issuance, in connection with the merger, subject to official notice of
issuance; and
. the declaration of effectiveness of the registration statement on Form
S-4, of which this joint proxy statement-prospectus forms a part, by the
Securities and Exchange Commission, and the absence of any stop order or
threatened or pending proceedings seeking a stop order.
"Material Adverse Effect," when used in reference to any entity, means any
event, change, circumstance or effect that is or is reasonably likely to be
materially adverse to:
. the business, financial condition or results of operations of the entity
and its subsidiaries, taken as a whole; or
. the ability of the entity to complete the merger.
However, there will be no Material Adverse Effect to the extent that any
event, change, circumstance or effect relates:
. to the economy or financial markets in general; or
. generally to the industries in which the entity operates.
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America Online's obligations to complete the merger relating to America
Online are subject to the satisfaction or waiver of the following additional
conditions before completion of the merger:
. Time Warner's representations and warranties, disregarding all
qualifications and exceptions contained in the merger agreement relating
to materiality or Material Adverse Effect, must be true and correct as
of the date of the merger agreement and as of the date of completion of
the merger, except for:
. representations and warranties that expressly address matters only
as of a particular date, which must be true and correct as of such
date; and
. any failure of such representations and warranties to be true and
correct that would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on Time Warner;
. Time Warner must have:
. performed or complied with all agreements and covenants required to
be performed by it under the merger agreement that are qualified as
to materiality or Material Adverse Effect; and
. performed or complied in all material respects with all other
material agreements and covenants required to be performed by it
under the merger agreement that are not so qualified;
. America Online must have received from Simpson Thacher & Bartlett, a
written opinion to the effect that for federal income tax purposes, each
merger will constitute an exchange to which Section 351 of the Internal
Revenue Code applies or a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, or both; and
. conditions for the benefit of Time Warner must have been satisfied or
waived by Time Warner.
Time Warner's obligations to complete the merger relating to Time Warner are
subject to the satisfaction or waiver of the following additional conditions
before completion of the merger:
. America Online's representations and warranties, disregarding all
qualifications and exceptions contained in the merger agreement relating
to materiality or Material Adverse Effect, must be true and correct as
of the date of the merger agreement and as of the date of completion of
the merger, except for:
. representations and warranties that expressly address matters only
as of a particular date, which must be true and correct as of such
date; and
. any failure of such representations and warranties to be true and
correct that would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on America Online;
. America Online must have:
. performed or complied with all agreements and covenants required to
be performed by it under the merger agreement that are qualified as
to materiality or Material Adverse Effect; and
. performed or complied in all material respects with all other
material agreements and covenants required to be performed by it
under the merger agreement that are not so qualified;
. Time Warner must have received from Cravath, Swaine & Moore, a written
opinion to the effect that for federal income tax purposes, each merger
will constitute an exchange to which Section 351 of the Internal Revenue
Code applies or a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code, or both; and
. conditions for the benefit of America Online must have been satisfied or
waived by America Online.
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No Other Transactions Involving America Online or Time Warner. The merger
agreement contains detailed provisions prohibiting America Online and Time
Warner from seeking an alternative transaction. Under these "no solicitation"
provisions, each of America Online and Time Warner has agreed that neither it
nor any of its subsidiaries, officers and directors, will, and that it will use
reasonable best efforts to ensure that its and its subsidiaries' employees,
agents and representatives, do not, directly or indirectly:
. initiate, solicit, encourage or knowingly facilitate any inquires or the
making of an Acquisition Proposal, as described below;
. have any discussion with, or provide any confidential information or
data to, any person relating to an Acquisition Proposal, or engage in
any negotiations concerning an Acquisition Proposal, or knowingly
facilitate any effort or attempt to make or implement an Acquisition
Proposal;
. approve or recommend, or propose publicly to approve or recommend, any
Acquisition Proposal; or
. approve or recommend, or propose to approve or recommend, or execute or
enter into, any letter of intent, agreement in principle, merger
agreement, acquisition agreement, option agreement or other similar
agreement or propose publicly or agree to do any of the foregoing
related to any Acquisition Proposal.
"Acquisition Proposal" means, with respect to any entity, any proposal or
offer with respect to, or a transaction to effect:
. a merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving that entity or any of its significant
subsidiaries;
. any purchase or sale of 20% or more of the consolidated assets of the
entity, including stock of its subsidiaries, taken as a whole; or
. any purchase or sale of, or tender or exchange offer for, the equity
securities of that entity that, if completed, would result in any person
beneficially owning securities representing 20% or more of the total
voting power of that entity, or of the surviving parent entity in the
transaction, or any of its significant subsidiaries.
However, the merger agreement does not prevent each of America Online and
Time Warner, or its board of directors from:
. engaging in any discussions or negotiations with, or providing any
information to, any person in response to an unsolicited bona fide
written Acquisition Proposal by that person, if and only to the extent
that its board of directors concludes in good faith that there is a
reasonable likelihood that the Acquisition Proposal could constitute a
Superior Proposal; or
. effecting a Change in Board Recommendation, as defined below, if and
only to the extent that it has received an unsolicited bona fide written
Acquisition Proposal from a third party and its board of directors
concludes in good faith that the Acquisition Proposal constitutes a
Superior Proposal, as described below.
However, America Online or Time Warner may only take such action if and only
to the extent that:
. the special meeting of its stockholders to vote on the adoption of the
merger agreement has not occurred;
. its board of directors, after consultation with outside counsel,
determines in good faith that the failure to effect a Change in Board
Recommendation or to engage in discussions or negotiations with, or
provide information to, the person, as the case may be, would be
inconsistent with its fiduciary duties under applicable law;
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. before providing any information or data to any person in connection
with an Acquisition Proposal by that person, its board of directors
receives from that person an executed confidentiality agreement with
customary provisions; except that if the confidentiality agreement
contains provisions that are less restrictive than the comparable
provision, or omits restrictive provisions, contained in the
confidentiality agreement between America Online and Time Warner, then
the confidentiality agreement between America Online and Time Warner
will be automatically amended to contain the less restrictive provisions
or to omit the restrictive provisions, as the case may be; and
. before providing any information or data to any person or entering into
discussions or negotiations with any person, it promptly notifies the
other party of:
. inquiries, proposals or offers received by, any information
requested from, or any discussions or negotiations sought to be
initiated or continued with, any of its representatives; and
. the name of the person and the material terms and conditions of any
inquiries, proposals or offers.
In addition, the merger agreement does not prevent America Online or Time
Warner from complying with Rule 14d-9 and Rule 14e-2 promulgated under the
Securities Exchange Act of 1934 with regard to an Acquisition Proposal.
"Change in Board Recommendation" means, with respect to any party to the
merger agreement:
. withdrawing, modifying or qualifying, or proposing to withdraw, modify
or qualify, in any manner adverse to the other party to the merger
agreement, the recommendation of that party's board of directors that
its stockholders vote in favor of the adoption of the merger agreement;
or
. taking any action or making any statement in connection with the special
meeting of the stockholders of that party that is inconsistent with the
recommendation of that party's board of directors.
However, an action or statement will not be a Change in Board
Recommendation so long as:
. the action or statement is taken or made pursuant to advice, in the
case of America Online, from Simpson Thacher & Bartlett, and, in the
case of Time Warner, from Cravath, Swaine & Moore, to the effect
that the action or statement is required by applicable law;
. if a Public Proposal, as described below, has been made and not
rescinded, the action or statement does not relate to the Public
Proposal other than any factual statement required by any regulatory
authority, and the action or statement includes a rejection of the
Public Proposal; and
. the action or statement also includes a reaffirmation of the
approval of the merger by that party's board of directors and the
recommendation to that party's stockholders to adopt the merger
agreement.
"Public Proposal" means, with respect to America Online or Time Warner, an
Acquisition Proposal that has been publicly announced or otherwise communicated
to the senior management, board of directors or stockholders of America Online
or Time Warner, as the case may be, at any time after January 10, 2000, the
date of the merger agreement.
The board of directors of America Online or Time Warner may only change
their respective recommendations of the merger as provided in the "no
solicitation" provision of the merger agreement.
"Superior Proposal" means a bona fide written proposal made to America
Online or Time Warner, as the case may be, which is for a merger,
reorganization, consolidation, share exchange, business combination,
recapitalization or similar transaction involving America Online or Time
Warner; and
. as a result of which the person making the proposal or its stockholders
will own 40% or more of the combined voting power of the entity
surviving or resulting from the transaction, or its ultimate parent
entity; and
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. is on terms which the board of directors of America Online or Time
Warner, as the case may be, in good faith concludes, following receipt
of the advice of its financial advisors and outside counsel, taking into
account, among other things, all legal, financial, regulatory and other
aspects of the proposal and the person making the proposal:
. would, if completed, result in a transaction that is more favorable
to the stockholders of America Online or Time Warner, as the case may
be, from a financial point of view, than the merger; and
. is reasonably capable of being completed.
Each of America Online and Time Warner has agreed under the provisions of
the merger agreement that:
. it will promptly keep the other party informed of the status and terms
of any proposals, offers, discussions or negotiations covered by the "no
solicitation" provisions of the merger agreement;
. it will, and its officers, directors and representatives will,
immediately cease and terminate any activities, discussions or
negotiations existing as of January 10, 2000, the date of the merger
agreement, with any parties conducted before that date with respect to
any Acquisition Proposal;
. it will use reasonable best efforts to promptly inform its directors,
officers, key employees, agents and representatives of the obligations
of the "no solicitation" provisions of the merger agreement; and
. it will not submit to the vote of its stockholders any Acquisition
Proposal other than the merger between America Online and Time Warner.
Nothing contained in the "no solicitation" provisions of the merger
agreement will:
. permit America Online or Time Warner to terminate the merger agreement,
except as specifically provided in the merger agreement; or
. affect any other obligation of America Online or Time Warner under the
merger agreement.
Termination. The merger agreement may be terminated at any time prior to
the completion of the merger, whether before or after the stockholder
approvals have been obtained:
. by mutual written consent of America Online and Time Warner;
. by either America Online or Time Warner if the merger is not completed
on or before May 31, 2001, except that this right to terminate the
merger agreement will not be available to any party whose failure to
fulfill any obligation under the merger agreement has been the cause of,
or has resulted in, the failure of the merger to be completed by May 31,
2001;
. by either America Online or Time Warner if any governmental entity:
. issues an order, decree or ruling or takes any other action
permanently restraining, enjoining or otherwise prohibiting the
merger, and the order, decree, ruling or other action becomes final
and nonappealable; or
. fails to issue an order, decree or ruling or to take any other
action, and the denial of a request to issue an order, decree, ruling
or take any other action becomes final and nonappealable,
in each case, which is necessary to fulfill the conditions to the
completion of the merger relating to:
. the expiration or termination of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
. the approval of the merger by the European Commission and Canadian
governmental entities;
. the final approval of the Federal Communications Commission;
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. the receipt of all approvals and consents of, and the completion
of filings with, or notices to, any state cable franchising
authorities or any state public service commissions necessary for
completion of the merger, the failure of which to obtain,
individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on AOL Time Warner
after the merger;
except that this right to terminate the merger agreement will not be
available to any party whose failure to comply with the provisions of the
merger agreement relating to the use of reasonable best efforts to do all
things necessary, proper or advisable under the merger agreement and
applicable laws and regulations to complete the merger is the cause of the
action or inaction;
. by either America Online or Time Warner if the approval of either
party's stockholders is not obtained because of the failure to obtain
the required vote to adopt the merger agreement at a duly held meeting
of America Online's or Time Warner's stockholders;
. by either America Online or Time Warner if:
. the board of directors of the other party fails to recommend that
the stockholders of that party vote in favor of the adoption of the
merger agreement or effects a Change in Board Recommendation,
whether or not permitted by the terms of the merger agreement; or
. the other party materially breaches its obligations under the merger
agreement because of a failure to call a special meeting of its
stockholders to vote on the adoption of the merger agreement or a
failure to mail this joint proxy statement-prospectus to its
stockholders; or
. by either America Online or Time Warner if the other party breaches or
fails to perform any of its representations, warranties, covenants or
other agreements contained in the merger agreement in such a way as to
render the conditions to the completion of the merger relating to the
accuracy of representations and warranties and the performance of or
compliance with agreements and covenants contained in the merger
agreement incapable of being satisfied on or before May 31, 2001.
Effect of Termination. As set forth in more detail below, the merger
agreement requires each of America Online and Time Warner to pay a termination
fee to the other in specified circumstances in amounts, depending on the
circumstances surrounding the termination, equal either to 2.75% or 1% of its
fully diluted number of shares multiplied by the closing price of America
Online's common stock on January 7, 2000, further multiplied, in the case of
Time Warner, by 1.5.
Time Warner Termination Fee. If either party terminates the merger agreement
because:
. the approval of the stockholders of Time Warner is not obtained; or
. the merger is not completed on or before May 31, 2001 and the special
meeting of Time Warner's stockholders to vote on the adoption of the
merger agreement has not occurred; and
. an Acquisition Proposal with respect to Time Warner has been
publicly announced or otherwise communicated to the senior
management, board of directors or stockholders of Time Warner at any
time after January 10, 2000, the date of the merger agreement, and
before the date of termination of the merger agreement; and
. within 12 months of the termination of the merger agreement, Time
Warner or any of its subsidiaries enters into any definitive
agreement with respect to, or consummates, an Acquisition Proposal
involving 40% or more of the consolidated assets of Time Warner and
its subsidiaries, taken as a whole, or 40% or more of the total
voting power of Time Warner, or of the surviving parent entity in
the transaction, or any of its significant subsidiaries; or
if America Online terminates the merger agreement because:
. the board of directors of Time Warner fails to recommend that the
stockholders of Time Warner vote in favor of the adoption of the merger
agreement or effects a Change in Board Recommendation; or
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. Time Warner materially breaches its obligations under the merger
agreement because of its failure to call a special meeting of its
stockholders to vote on the adoption of the merger agreement or its
failure to mail this joint proxy statement-prospectus to its
stockholders;
then Time Warner must pay America Online an amount equal to 2.75% of the Time
Warner Termination Amount, as described below, less any amount paid in
connection with the termination of the agreement as described in the next
sentence. Time Warner must pay America Online an amount equal to 1% of the Time
Warner Termination Amount if either party terminates the merger agreement
because the approval of the stockholders of Time Warner is not obtained; except
that this amount need not be paid if the termination fee has otherwise been
paid in connection with the termination of the merger agreement as described in
the previous sentence.
"Time Warner Termination Amount" means an amount equal to the product of:
(x) the number of shares of common stock of Time Warner outstanding as
of January 10, 2000, the date of the merger agreement, assuming the
exercise of all outstanding options, other than the option granted to
America Online, and the conversion into Time Warner common stock of all
securities of Time Warner convertible into Time Warner common stock;
multiplied by
(y) 1.5; multiplied by
(z) the last sale price of common stock of America Online on the New
York Stock Exchange on January 7, 2000.
For example, consider the case in which either America Online or Time Warner
terminates the merger agreement because the approval of the Time Warner
stockholders is not obtained. Time Warner must pay to America Online:
. 2.75% of the Time Warner Termination Amount, equal to approximately $4.4
billion, if:
. at any time prior to the termination of the merger agreement, an
Acquisition Proposal with respect to Time Warner was publicly
announced or otherwise communicated to Time Warner; and
. within 12 months after the termination of the merger agreement, Time
Warner or any of its subsidiaries enters into a definitive agreement
with respect to, or consummates, an Acquisition Proposal involving
40% or more of consolidated assets of Time Warner and its
subsidiaries or 40% or more of the total voting power of Time
Warner, or the surviving or parent entity in the transaction, or any
of its significant subsidiaries;
otherwise
. 1% of the Time Warner Termination Amount, equal to approximately $1.6
billion, unless Time Warner has previously paid a termination fee to
America Online, in which case no additional fee will be payable.
Next, consider the case in which either America Online or Time Warner
terminates the merger agreement because the merger is not completed on or
before May 31, 2001 and the Time Warner special meeting has not occurred, Time
Warner must pay to America Online 2.75% of the Time Warner Termination Amount,
equal to approximately $4.4 billion, if:
. at any time prior to the termination of the merger agreement, an
Acquisition Proposal with respect to Time Warner was publicly announced
or otherwise communicated to Time Warner; and
. within 12 months after the termination of the merger agreement, Time
Warner or any of its subsidiaries enters into a definitive agreement
with respect to, or consummates, an Acquisition Proposal involving 40%
or more of consolidated assets of Time Warner and its subsidiaries or
40% or more of the total voting power of Time Warner, or the surviving
or parent entity in the transaction, or any of its significant
subsidiaries.
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Finally, consider the case in which America Online terminates the merger
agreement because the Time Warner board of directors fails to recommend that
the stockholders of Time Warner vote in favor of the adoption of the merger
agreement or effects a Change in Board Recommendation or because Time Warner
materially breaches its obligations under the merger agreement by failing to
call the Time Warner special meeting or to mail this joint proxy statement-
prospectus to its stockholders. Time Warner must pay to America Online 2.75%
of the Time Warner Termination Amount, equal to approximately $4.4 billion.
America Online Termination Fee. Similarly, if either party terminates the
merger agreement because:
. the approval of the stockholders of America Online is not obtained; or
. the merger is not completed on or before May 31, 2001 and the special
meeting of America Online's stockholders to vote on the adoption of the
merger agreement has not occurred; and
. an Acquisition Proposal with respect to America Online has been
publicly announced or communicated to the senior management, board
of directors or stockholders of America Online at any time after
January 10, 2000, the date of the merger agreement, and before the
date of termination of the merger agreement; and
. within 12 months of the termination of the merger agreement, America
Online or any of its subsidiaries enters into any definitive
agreement with respect to, or consummates, an Acquisition Proposal
involving 40% or more of the consolidated assets of America Online
and its subsidiaries, taken as a whole, or 40% or more of the total
voting power of America Online, or of the surviving parent entity in
the transaction, or any of its significant subsidiaries; or
if Time Warner terminates the merger agreement because:
. the board of directors of America Online fails to recommend that the
stockholders of America Online vote in favor of the adoption of the
merger agreement or effects a Change in Board Recommendation; or
. America Online materially breaches its obligations under the merger
agreement because of its failure to call a special meeting of its
stockholders to vote on the adoption of the merger agreement or its
failure to mail this joint proxy statement-prospectus to its
stockholders;
then America Online must pay Time Warner an amount equal to 2.75% of the
America Online Termination Amount, as described below, less any amount paid in
connection with the termination of the agreement as described in the next
sentence. America Online must pay Time Warner an amount equal to 1% of the
America Online Termination Amount if either party terminates the merger
agreement because the approval of the stockholders of America Online is not
obtained; except that this amount need not be paid if the termination fee has
otherwise been paid in connection with the termination of the merger
agreement, as described in the previous sentence.
"America Online Termination Amount" means an amount equal to the product
of:
(x) the number of shares of common stock of America Online outstanding
as of January 10, 2000, the date of the merger agreement, assuming the
exercise of all outstanding options, other than the option granted to Time
Warner, and the conversion into America Online common stock of all
securities of America Online convertible into America Online common stock;
multiplied by
(y) the last sale price of common stock of America Online on the New
York Stock Exchange on January 7, 2000.
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For example, consider the case in which either America Online or Time Warner
terminates the merger agreement because the approval of the America Online
stockholders is not obtained. America Online must pay to Time Warner:
. 2.75% of the America Online Termination Amount, equal to approximately
$5.4 billion, if:
. at any time prior to the termination of the merger agreement, an
Acquisition Proposal with respect to America Online was publicly
announced or otherwise communicated to America Online; and
. within 12 months after the termination of the merger agreement,
America Online or any of its subsidiaries enters into a definitive
agreement with respect to, or consummates, an Acquisition Proposal
involving 40% or more of consolidated assets of America Online and
its subsidiaries or 40% or more of the total voting power of America
Online, or the surviving or parent entity in the transaction, or any
of its significant subsidiaries;
otherwise
. 1% of the America Online Termination Amount, equal to approximately $2.0
billion, unless America Online has previously paid a termination fee to
Time Warner, in which case no additional fee will be payable.
As in this first case, each of the other two cases in which America Online
must pay a termination fee to Time Warner are analogous to the corresponding
case in which Time Warner must pay a termination fee to America Online.
Conduct of Business Pending the Merger. Under the merger agreement, each of
America Online and Time Warner has agreed that, during the period before
completion of the merger, except as expressly contemplated or permitted by the
merger agreement and the stock option agreements, or to the extent that the
other party consents in writing, it will carry on its respective business in
the usual, regular and ordinary course in all material respects, substantially
in the same manner as previously conducted, and will use its reasonable best
efforts to preserve intact its present line of business and its relationships
with third parties. Each of America Online and Time Warner has also agreed that
it will not, and it will not permit any of its subsidiaries to, enter into any
new material line of business or incur or commit any capital expenditures or
any obligations or liabilities in connection with such capital expenditures,
other than as previously disclosed to the other party or in the ordinary course
of business consistent with past practice.
In addition to these agreements regarding the conduct of business generally,
each of America Online and Time Warner has agreed to some specific restrictions
relating to the following:
. the declaration or payment of dividends;
. the alteration of share capital, including, among other things, stock
splits, combinations or reclassifications;
. the repurchase or redemption of capital stock;
. the issuance or sale of capital stock, any voting debt or other equity
interests;
. the amendment of its certificate of incorporation or by-laws;
. the acquisition of assets or other entities;
. the disposition of assets;
. the extension of loans, advances, capital contributions or investments;
. the incurrence or the guarantee of debt;
. the sale of debt securities, warrants or other rights to acquire debt
securities;
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. the taking of actions that would prevent or impede the merger from
qualifying as an exchange under Section 351 of the Internal Revenue Code
and as a reorganization under Section 368 of the Internal Revenue Code;
. compensation of directors, executive officers and key employees;
. accounting policies and procedures;
. entrance into certain types of agreements including:
. material agreements that restrict the ability of America Online or
Time Warner or any of their subsidiaries or affiliates to
distribute, promote, market or otherwise offer Internet and
interactive services, programming or functionality on the cable
systems owned by Time Warner or its subsidiaries or affiliates;
. agreements that limit or restrict, or after completion of the
merger, could limit or restrict America Online, Time Warner or any
of their subsidiaries or affiliates, including AOL Time Warner, from
engaging or competing in any line of business or in any geographic
area, which limitation would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on AOL Time
Warner and its subsidiaries, taken together, after the merger; and
. actions that would result, or would reasonably be expected to result, in
any of the conditions to the merger not being satisfied, or a material
delay in the satisfaction of any of the conditions to the merger.
Additional Agreements. Each of America Online and Time Warner has agreed to
cooperate with each other and to use its reasonable best efforts to take all
actions and do all things necessary, proper and advisable under the merger
agreement and applicable laws to complete the merger as soon as practicable
after January 10, 2000, which is the date of the merger agreement. Accordingly,
each has agreed to use its reasonable best efforts to:
. as promptly as practicable, prepare and file all applications, notices,
petitions, filings, tax ruling requests and other documents, and to
obtain all consents, waivers, licenses, orders registrations, approvals,
permits, rulings, authorizations and clearances from any third party or
any domestic or foreign governmental entity necessary to complete the
merger; and
. take all reasonable steps to obtain all necessary consents and required
approvals, including those required under applicable antitrust laws.
America Online's and Time Warner's cooperation may also include using its
reasonable best efforts, including selling, holding separate or disposing of,
or agreeing to sell, hold separate or otherwise dispose of their respective
businesses in a specified manner, or permitting the sale, holding separate or
other disposition of their assets in a specified manner, to contest and resist
actions challenging the merger as illegal and laws or orders making the merger
illegal or prohibiting or materially impairing or delaying the merger. Neither
America Online nor Time Warner will be required to divest or hold separate any
business or assets or take any other action if doing so would, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
AOL Time Warner or if the action is not conditional on the completion of the
merger.
The merger agreement also contains covenants relating to the cooperation
between America Online and Time Warner in the preparation of this joint proxy
statement-prospectus and additional agreements between them relating to, among
other things, access to information, mutual notice of specified matters and
public announcements.
Amendment, Extension and Waiver. The merger agreement may be amended by the
parties, by action taken or authorized by their respective boards of directors,
at any time before or after approval of the merger by the stockholders of
America Online and Time Warner has been obtained. After the approval has been
obtained, no amendment may be made which by law or in accordance with the rules
of the New York Stock Exchange requires further approval by the stockholders of
America Online or Time Warner, as the case may be, without the further
approval. All amendments to the merger agreement must be in writing signed by
each party.
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At any time before the completion of the merger, the parties may, by action
taken or authorized by their respective boards of directors, to the extent
legally allowed:
. extend the time for the performance of any of the obligations or other
acts of the other parties;
. waive any inaccuracies in the representations and warranties contained
in the merger agreement or in any document delivered pursuant to the
merger agreement; and
. waive compliance with any of the agreements or conditions contained in
the merger agreement.
All extensions and waivers must be in writing and signed by the party
against whom the waiver is to be effective.
Expenses. Whether or not the merger is completed, all expenses and fees
incurred in connection with the merger agreement and the merger will be paid by
the party incurring the expenses or fees, except:
. if the merger is completed, the surviving corporation of each merger
will pay any property or transfer taxes imposed in connection with the
merger;
. all expenses and fees incurred in connection with the filing, printing
and mailing of this joint proxy statement-prospectus and the
registration statement of which it is a part will be shared equally by
Time Warner and America Online; and
. expenses incurred by a party in successfully seeking a judgment
requiring the other party to pay a termination fee will be paid by the
party owing the termination fee.
Representations and Warranties. The merger agreement contains customary
representations and warranties of America Online and Time Warner relating to,
among other things:
. corporate organization and similar corporate matters;
. subsidiaries;
. capital structure;
. authorization and absence of conflicts;
. documents filed with the SEC and financial statements included in those
documents;
. information supplied in connection with this joint proxy statement-
prospectus and the registration statement of which it is a part;
. board approval and applicable state takeover laws;
. the stockholder vote required to adopt the merger agreement;
. litigation;
. compliance with applicable laws;
. absence of specified changes or events;
. intellectual property;
. brokers and finders;
. opinions of financial advisors;
. taxes;
. specified contracts;
. stockholder rights plans; and
. employee benefits.
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AOL Time Warner Charter and By-laws
Upon completion of the merger, the restated certificate of incorporation for
AOL Time Warner will be in substantially the form set forth in Annex G to this
joint proxy statement-prospectus and the restated by-laws of AOL Time Warner
will be substantially in the form set forth in Annex H to this joint proxy
statement-prospectus. For a summary of the material provisions of the restated
certificate of incorporation and restated by-laws of AOL Time Warner, and the
rights of stockholders of AOL Time Warner under the restated certificate of
incorporation and restated by-laws, see the section entitled "Description of
AOL Time Warner Capital Stock."
Stock Option Agreements
The following summary of the stock option agreements is qualified in its
entirety by reference to the complete text of the stock option agreements,
which are incorporated by reference and attached as Annexes B and C to this
joint proxy statement-prospectus. We urge you to read the full text of the
stock option agreements.
In connection with the execution and delivery of the merger agreement,
America Online and Time Warner entered into:
. the Time Warner stock option agreement, under which Time Warner granted
to America Online an irrevocable option to purchase, in whole or in
part, an aggregate of up to 233,263,204 shares of Time Warner common
stock at a price of $110.63 per share; and
. the America Online stock option agreement, under which America Online
granted to Time Warner an irrevocable option to purchase, in whole or in
part, an aggregate of up to 452,535,148 shares of America Online common
stock at a price of $73.75 per share.
Exercise of the Options. The option granted by Time Warner to America Online
pursuant to the Time Warner stock option agreement may be exercised, in whole
or in part, at any time, after the date on which America Online becomes
unconditionally entitled to receive the larger of the two Time Warner
termination fees pursuant to the merger agreement. Similarly, the option
granted by America Online to Time Warner pursuant to the America Online stock
option agreement may be exercised, in whole or in part, at any time, after the
date on which Time Warner becomes unconditionally entitled to receive the
larger of the two America Online termination fees pursuant to the merger
agreement.
The right to purchase shares of common stock under each of the Time Warner
stock option agreement and the America Online stock option agreement will
expire on the first to occur of:
. the completion of the merger;
. written notice of termination of the Time Warner stock option agreement
by America Online or written notice of termination of the America Online
stock option agreement by Time Warner, as the case may be;
. in the case of the Time Warner stock option agreement, 12 months after
the date on which America Online becomes unconditionally entitled to
receive the larger of the two Time Warner termination fees and, in the
case of the America Online stock option agreement, 12 months after the
date on which Time Warner becomes unconditionally entitled to receive
the larger of the two America Online termination fees; or
. the date of termination of the merger agreement, unless:
. in the case of the Time Warner stock option agreement, America
Online has the right to receive the larger Time Warner termination
fee either upon or following the termination of the merger agreement
upon the occurrence of certain events, in which case the right to
purchase shares of common stock under the Time Warner stock option
agreement will not terminate until the later of:
. 15 business days after the option becomes exercisable; and
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. the expiration of the period in which America Online has the
right to receive the larger Time Warner termination fee; and
. in the case of the America Online stock option agreement, Time Warner
has the right to receive the larger America Online termination fee
either upon or following the termination of the merger agreement upon
the occurrence of certain events, in which case the right to purchase
shares of common stock under the America Online stock option agreement
will not terminate until the later of:
. 15 business days after the option becomes exercisable; and
. the expiration of the period in which Time Warner has the right to
receive the larger America Online termination fee.
Any purchase of shares of Time Warner common stock by America Online under
the Time Warner stock option agreement and any purchase of shares of America
Online common stock by Time Warner under the America Online stock option
agreement will occur only if:
. the purchase would not otherwise violate any applicable material law,
statute, ordinance, rule or regulation, including the Hart-Scott-Rodino
Antitrust Improvements Act and the Communications Act of 1934; and
. no material judgment, order, writ, injunction, ruling or decree of any
governmental entity is promulgated, enacted, entered into or enforced by
any governmental entity which prohibits the delivery of the shares of
common stock subject to the applicable stock option agreement.
Each of America Online and Time Warner has agreed, in each stock option
agreement, to use their reasonable best efforts to:
. Promptly make and process all necessary filings and applications, obtain
all consents, and approvals, and comply with all applicable laws; and
. have any judgment, order, writ, injunction, ruling or decree of any
governmental entity vacated or reversed.
Adjustments Upon Changes in Capitalization and Substitute Option. The number
and kind of securities subject to each stock option agreement and the exercise
price will be adjusted for any change in the number of issued and outstanding
shares of common stock of the issuer of the option in the event of any change
in the corporate or capital structure of the issuer which would have the effect
of diluting or otherwise diminishing the optionholder's rights under the stock
option agreement. Accordingly, the optionholder will receive, upon exercise of
the option, the number and kind of shares or other securities or property that
the optionholder would have received if the option had been exercised
immediately before the event or record date for the event, as applicable. In
addition, if additional shares of common stock of the issuer of each option
become outstanding after January 10, 2000, the date of each option agreement,
the total number of shares of that issuer's common stock subject to the option
shall be increased to 19.9% of all the issued and outstanding shares of that
issuer's common stock.
In the event that the issuer of either option enters into any agreement:
. to consolidate with or merge into any person other than the optionholder
or any of its subsidiaries, and the issuer of the option will not be the
continuing or surviving corporation in the consolidation or merger;
. to permit any person, other than the optionholder or any of its
subsidiaries, to merge into the issuer of the option and the issuer of
the option will be the continuing or surviving or acquiring corporation
but, in connection with the merger,
. the then outstanding shares of common stock of the issuer of the
option will be changed into or exchanged for stock or other
securities of any other person or cash or any other property; or
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. the outstanding shares of common stock of the issuer of the option
will, after the merger, represent less than 50% of the outstanding
voting securities of the merged or acquiring company;
. to sell or otherwise transfer all or substantially all of its assets to
any person, other than the optionholder and its subsidiaries,
then, in each case, the agreement governing the transaction must contain a
provision that, unless exercised earlier by the optionholder, the option
granted under the stock option agreement will, upon completion of the
transaction and upon specified terms and conditions, be converted into, or
exchanged for, an option with identical terms appropriately adjusted, to
acquire the number and class of shares or other securities or property that the
optionholder would have received under the stock option agreement if the option
had been exercised immediately before the consolidation, merger, or sale, as
applicable.
Cash Payment in Respect of the Option. Under each of the stock option
agreements, the optionholder has the right, at any time after the option has
become exercisable, to elect to receive a cash payment in an amount equal to
the product of:
(x) the difference between:
. the higher of:
. the highest price per share proposed to be paid by any other
person in connection with any Acquisition Proposal; and
. the highest closing price of the stock during the six-month
period immediately preceding the date on which the optionholder
gives notice of the election to receive cash; and
. the exercise price; multiplied by
(y) the number of shares of the issuer's common stock designated by the
optionholder.
Profit Limitations. The Time Warner stock option agreement provides that in
no event will America Online's total profit under the Time Warner stock option
agreement, plus any termination fee paid by Time Warner under the merger
agreement, exceed in the aggregate, an amount equal to 2.75% of the product of:
. the number of shares of Time Warner's common stock outstanding as of
January 10, 2000, the date of each stock option agreement, calculated as
described above for termination fees under the merger agreement;
multiplied by
. 1.5; multiplied by
. the last sale price of America Online's common stock on the New York
Stock Exchange on January 7, 2000.
Similarly, the America Online stock option agreement provides that in no
event will Time Warner's total profit under the America Online stock option
agreement, plus any termination fee paid by America Online under the merger
agreement, exceed in the aggregate an amount equal to 2.75% of the product of:
. the number of shares of America Online's common stock outstanding as of
January 10, 2000, the date of each stock option agreement, calculated as
described above for termination fees under the merger agreement;
multiplied by
. the last sale price of America Online's common stock on the New York
Stock Exchange on January 7, 2000.
If the total profit that would otherwise be received by the optionholder
exceeds the maximum amount permissible, the optionholder must, in its sole
discretion:
. reduce the number of shares subject to the stock option agreement;
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. deliver to the issuer for cancellation shares previously purchased;
. reduce the amount to be paid by the optionholder;
. pay cash to the issuer of the option; or
. take any combination of these actions, so that its total profit does not
exceed the maximum amount.
Registration Rights and Listing. Each of the stock option agreements
provides that the optionholder has specified rights to require the issuer to
register, under the Securities Act of 1933 and any applicable state law, all
shares purchased by the optionholder pursuant to the stock option agreement.
Each of the stock option agreements also provides that the optionholder has
specified rights to require that the issuer list the shares purchased by the
optionholder pursuant to the stock option agreement on the New York Stock
Exchange or other national securities exchange or trading system on which
shares of the issuer's common stock are listed for trading or quotation.
Assignability. Neither of the stock option agreements, nor any of the
rights, interests or obligations under them may be assigned by either of the
parties without the prior written consent of the other party.
Effect of Stock Option Agreements. The stock option agreements are intended
to increase the likelihood that the merger will be completed on the terms set
forth in the merger agreement. Consequently, the stock option agreements may
discourage persons who might be interested in acquiring all or a significant
interest in America Online or Time Warner before completion of the merger from
considering or proposing an acquisition, even if those persons were prepared to
offer higher consideration per share of Time Warner capital stock or America
Online common stock than the consideration implicit in the merger or a higher
price per share of Time Warner common stock or America Online common stock than
the stock market price.
Voting Agreement
The following summary of the voting agreement is qualified in its entirety
by reference to the complete text of the voting agreement, which is
incorporated by reference and attached as Annex D to this joint proxy
statement-prospectus. We urge you to read the full text of the voting
agreement.
In connection with the execution and delivery of the merger agreement,
America Online entered into a voting agreement with R.E. Turner, Vice Chairman
of Time Warner, Turner Partners, L.P., Robert E. Turner Charitable Remainder
Unitrust No. 2 and Turner Outdoor, Inc. under which these principal
stockholders agreed to vote substantially all their shares of Time Warner
common stock in favor of the adoption of the merger agreement. As of the record
date for the special meeting, these stockholders owned shares of Time Warner
common stock representing approximately 8.2% of the total voting power of the
outstanding shares of Time Warner capital stock.
The voting agreement prohibits, subject to limited exceptions, any
stockholder from selling, transferring, pledging, encumbering, assigning or
otherwise disposing of any shares of Time Warner capital stock, except to a
person who agrees in writing to be bound by the terms of the voting agreement.
The stockholders collectively may sell, transfer, pledge, encumber, assign or
otherwise dispose of an aggregate of up to 5% of the shares of Time Warner
common stock held of record by the stockholders collectively as of January 10,
2000, the date of the voting agreement, without complying with the restrictions
on transfers contained in the voting agreement.
The voting agreement terminates upon the earlier to occur of the completion
of the merger and the termination of the merger agreement in accordance with
its terms.
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PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following pro forma consolidated condensed financial statements are
presented to illustrate the effects of the merger on the historical financial
position and operating results of America Online and Time Warner. Because
America Online and Time Warner have different fiscal years, and the combined
company will adopt the calendar year-end of Time Warner, pro forma operating
results are presented on two different bases: (1) a June 30 fiscal-year basis,
which is consistent with America Online's historical fiscal year-end and (2) a
December 31 calendar-year basis, which is consistent with both Time Warner's
historical fiscal year-end and that of AOL Time Warner going forward.
Management believes that it is meaningful to present pro forma financial
information based on the calendar year-end of the combined company to
facilitate an analysis of the pro forma effects of the merger.
The following pro forma consolidated condensed balance sheet of AOL Time
Warner at March 31, 2000 gives effect to the merger as if it occurred as of
that date. On a June 30 fiscal-year basis, the pro forma consolidated condensed
statements of operations of AOL Time Warner for the nine months ended March 31,
2000 and the year ended June 30, 1999 give effect to the merger as if it
occurred as of July 1, 1998. On a December 31 calendar-year basis, the pro
forma consolidated condensed statements of operations of AOL Time Warner for
the three months ended March 31, 2000 and the year ended December 31, 1999 give
effect to the merger as if it occurred as of January 1, 1999. In addition, the
pro forma consolidated condensed statement of operations of AOL Time Warner for
the year ended June 30, 1999 also gives effect to Time Warner's consolidation
of the operating results of the entertainment group, which were formerly
accounted for under the equity method of accounting, as described more fully in
Time Warner's Current Report on Form 8-K dated August 3, 1999.
The pro forma consolidated condensed financial statements have been derived
from, and should be read in conjunction with, the historical consolidated
financial statements, including the notes thereto, of each of America Online,
Time Warner and TWE. For America Online, those financial statements are
included in America Online's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000, as amended, and its Annual Report on Form 10-K for the
year ended June 30, 1999, which are incorporated in this joint proxy statement-
prospectus by reference, and which have been adjusted for a 2-for-1 common
stock split in November 1999. For Time Warner and TWE, those financial
statements are included in Time Warner's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 and its Annual Report on Form 10-K for the year
ended December 31, 1999, which are incorporated in this joint proxy statement-
prospectus by reference.
The pro forma consolidated condensed financial statements are presented for
informational purposes only and are not necessarily indicative of the financial
position or results of operations of AOL Time Warner that would have occurred
had the merger been consummated as of the dates indicated. In addition, the pro
forma consolidated condensed financial statements are not necessarily
indicative of the future financial condition or operating results of AOL Time
Warner.
The Merger
The merger will be structured as a stock-for-stock exchange and is described
under the "Merger--Structure of the Merger and Conversion of America Online and
Time Warner Stock."
As a result of the merger, it is anticipated that the former stockholders of
America Online will have an approximate 55% interest in AOL Time Warner and
that the former stockholders of Time Warner will have an approximate 45%
interest in AOL Time Warner, expressed on a fully diluted basis. The merger is
expected to be accounted for by AOL Time Warner as an acquisition of Time
Warner under the purchase method of accounting for business combinations.
82
<PAGE>
Pro forma adjustments for the merger include:
. the issuance of approximately 2.0 billion shares of AOL Time Warner
common stock and AOL Time Warner series LMCN-V common stock in exchange
for all of the 1.3 billion outstanding shares of Time Warner common
stock and series LMCN-V common stock;
. the issuance of approximately 5.4 million shares of AOL Time Warner
preferred stock in exchange for all of the 5.4 million outstanding
shares of Time Warner preferred stock;
. the issuance of options to purchase approximately 196 million shares of
AOL Time Warner common stock in exchange for all of the outstanding
options to purchase 131 million shares of Time Warner common stock; and
. the incurrence of approximately $300 million of transaction costs by
America Online and Time Warner, including legal, investment banking and
registration fees.
No pro forma adjustments are necessary to reflect the merger of America
Online into a separate wholly owned subsidiary of AOL Time Warner because
America Online's net assets will be recorded at their historical cost basis and
the exchange ratio for America Online common stock is one to one. America
Online agreed to acquire MapQuest.com, Inc., and Time Warner has agreed to form
a global music joint venture with EMI Group plc. Because these transactions are
not significant to the consolidated condensed balance sheet of AOL Time Warner
or to pro forma net income of AOL Time Warner for any of the periods presented
in this joint proxy statement-prospectus, they have not been reflected in these
pro forma financial statements.
Management expects that the strategic benefits of the merger will result in
incremental revenue opportunities for the combined company. Those opportunities
include, but are not limited to, the ability to cross-promote the combined
company's products and services and the ability to offer consumers expanded
broadband and online services. However, such incremental revenues have not been
reflected in the accompanying pro forma consolidated condensed statements of
operations of AOL Time Warner.
Under the purchase method of accounting, the estimated cost of approximately
$147 billion to acquire Time Warner, including transaction costs, will be
allocated to its underlying net assets in proportion to their respective fair
values. Any excess of the purchase price over the estimated fair value of the
net assets acquired will be recorded as goodwill. As more fully described in
the notes to the pro forma consolidated condensed financial statements, a
preliminary allocation of the excess of the purchase price, including
transaction costs, over the book value of the net assets to be acquired has
been made to goodwill and other intangible assets. Management expects that the
other intangible assets, and their respective weighted-average amortization
periods, will include:
<TABLE>
<CAPTION>
Amortization
period
------------
<S> <C>
Film libraries, cable television franchises and music
catalogue and copyrights................................. 20-25 years
Trademarks and brands..................................... 35-40 years
Other identifiable intangible assets...................... 3-10 years
</TABLE>
83
<PAGE>
At this time, the work needed to provide the basis for estimating these fair
values and related amortization periods has not been completed. As a result,
the final allocation of the excess of purchase price over the book value of the
net assets acquired could differ materially. The pro forma consolidated
condensed financial statements reflect a preliminary allocation to goodwill and
other intangible assets assuming a weighted-average amortization period of
twenty-five years. The final purchase price allocation may result in a
different weighted-average amortization period for intangible assets than that
presented in these pro forma consolidated condensed financial statements.
Accordingly, a change in the amortization period would impact the amount of
annual amortization expense. The following table shows the effect on pro forma
loss applicable to common shares for a range of weighted-average useful lives:
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Year Ended Ended Year Ended
Weighted-average useful March 31, June 30, March 31, December 31,
life 2000 1999 2000 1999
----------------------- ----------- ---------- ------------ ------------
(in millions)
<S> <C> <C> <C> <C>
Twenty-five years
(as disclosed in these pro
forma financial
statements)............... $(2,116) $(4,329) $(1,044) $(2,574)
Twenty years............... $(3,254) $(5,846) $(1,424) $(4,091)
Thirty years............... $(1,358) $(3,318) $ (791) $(1,563)
</TABLE>
AOL Time Warner will periodically review the carrying value of the acquired
goodwill for acquired businesses to determine whether an impairment may exist.
AOL Time Warner will consider relevant cash flow information, including
estimated future operating results, trends and other available information, in
assessing whether the carrying value of goodwill can be recovered. If it is
determined that the carrying value of goodwill will not be recovered from the
undiscounted future cash flows of acquired businesses, the carrying value of
such goodwill would be considered impaired and reduced by a charge to
operations in the amount of the impairment. An impairment charge is measured as
any deficiency in the amount of estimated undiscounted cash flows of acquired
businesses available to recover the carrying value related to goodwill.
Accounting Changes
Revenue Classification Changes
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
which will be effective for Time Warner in the quarter ended June 30, 2000. SAB
101 will not be effective for America Online until the quarter ended September
30, 2000. SAB 101 clarifies certain existing accounting principles for the
timing of revenue recognition and its classification in financial statements.
While America Online's and Time Warner's existing revenue policies regarding
the timing of revenue recognition are consistent with the provisions of SAB
101, the new rules are expected to result in some changes as to how the filmed
entertainment industry classifies its revenue, particularly relating to
distribution arrangements for third-party and co-financed joint venture
product. As a result, America Online and Time Warner are in the process of
evaluating the overall impact of SAB 101 on their respective consolidated
financial statements. It is expected that both annual revenues and costs of
Time Warner's filmed entertainment businesses will be reduced by an equal
amount of approximately $1.5 to $2 billion as a result of these classification
changes. However, other aspects of SAB 101 are not expected to have a
significant effect on AOL Time Warner's pro forma consolidated condensed
financial statements.
Impact of Changes in Accounting for Employee Stock Options
AOL Time Warner is expected to account for its stock option plans in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation, which contains rules designed to clarify the application of APB
Opinion No. 25. FASB Interpretation No. 44 will be effective on July 1, 2000
and AOL Time Warner will adopt it at that time.
84
<PAGE>
Among other matters, the provisions of FASB Interpretation No. 44 will
change the accounting for an exchange of unvested employee stock options and
restricted stock awards in a purchase business combination. The new rules
require the intrinsic value of the unvested awards to be allocated to unearned
compensation and recognized as noncash compensation cost over the remaining
future vesting period. The ultimate amount to be allocated to unearned
compensation will be based on the stock price of America Online common stock
and the number of Time Warner's unvested employee stock options and restricted
stock awards on the date the merger is completed. Based on the March 31, 2000
market price of America Online common stock, and the number of Time Warner's
unvested employee stock options and restricted stock awards at that date, these
new provisions would increase pro forma net loss and net loss per common share
by $26 million and $0.01 per common share for the nine months ended March 31,
2000; $34 million and $0.01 per common share for the year ended June 30, 1999;
$9 million and less than $0.01 per common share for the three months ended
March 31, 2000; and $34 million and $0.01 per common share for the year ended
December 31, 1999.
85
<PAGE>
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
March 31, 2000
(in millions, unaudited)
<TABLE>
<CAPTION>
AOL
Time Pro Forma Time Warner
AOL(a) Warner(b) Adjustments(c) Pro Forma
------- --------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents.............. $ 2,655 $ 848 $ -- $ 3,503
Other current assets.............. 1,545 8,028 -- 9,573
------- ------- -------- --------
Total current assets............ 4,200 8,876 -- 13,076
Noncurrent inventories............ -- 4,233 -- 4,233
Investments....................... 4,791 2,134 -- 6,925
Property, plant and equipment,
net.............................. 991 8,933 -- 9,924
Goodwill and other intangibles,
net.............................. 432 24,507 174,386 199,325
Other assets...................... 375 1,530 -- 1,905
------- ------- -------- --------
Total assets.................... $10,789 $50,213 $174,386 $235,388
======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities......... $ 2,323 $ 8,649 $ 300 $ 11,272
Long-term debt and other
obligations(/1/)................. 1,625 19,554 -- 21,179
Deferred income taxes............. -- 4,033 34,476 38,509
Other long-term liabilities....... 422 4,548 -- 4,970
Minority interests................ -- 3,165 -- 3,165
Shareholders' Equity
Preferred stock................... -- 1 -- 1
Series LMCN-V common stock........ -- 1 -- 1
Common stock...................... 23 12 6 41
Paid-in capital................... 4,283 14,745 135,109 154,137
Accumulated earnings (deficit).... 1,051 (4,553) 4,553 1,051
Accumulated other comprehensive
income........................... 1,062 58 (58) 1,062
------- ------- -------- --------
Total shareholders' equity...... 6,419 10,264 139,610 156,293
------- ------- -------- --------
Total liabilities and
shareholders' equity........... $10,789 $50,213 $174,386 $235,388
======= ======= ======== ========
</TABLE>
- --------
(/1/)For Time Warner, includes $1.245 billion of borrowings against future
stock option proceeds and $575 million of mandatorily redeemable preferred
securities of subsidiaries.
See accompanying notes.
86
<PAGE>
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited)
(a) Reflects the historical financial position of America Online at March 31,
2000.
(b) Reflects the historical financial position of Time Warner at March 31,
2000.
(c) Pro forma adjustments to record the merger as of March 31, 2000 reflect:
. an increase in equity of $133.671 billion relating to the issuance of
1.973 billion shares of AOL Time Warner common stock, including the
issuance of 171.2 million shares relating to the conversion of 114.1
million outstanding shares of Time Warner's series LMCN-V common stock
into an identical class of AOL Time Warner series LMCN-V common stock,
$0.01 par value per share, in exchange for approximately 1.315 billion
outstanding shares of Time Warner common stock, based on an exchange
ratio of 1.5 to 1. The AOL Time Warner common stock to be issued was
valued based on a price per share of $67.75, which is the average market
price of the America Online common stock for a few days before and after
the date the merger was announced;
. an increase in equity of $2.270 billion relating to the issuance of
approximately 5.361 million shares of AOL Time Warner preferred stock,
$0.10 par value per share, in exchange for all outstanding shares of
Time Warner preferred stock. The shares of AOL Time Warner preferred
stock to be issued, which will each be convertible into 6.24792 shares
of AOL Time Warner common stock, were valued based on their common
equivalent value of $423.30 per share;
. an increase in equity of $10.409 billion relating to the issuance of
options to purchase 196.182 million shares of AOL Time Warner common
stock in exchange for all of the 130.788 million outstanding options to
purchase shares of Time Warner common stock, based on a weighted-average
fair value of $53.06 for all options. The fair value of the options was
determined using the Black-Scholes option-pricing model and was based on
the following weighted-average assumptions: expected volatility--46.3%;
expected lives--5 years; a risk-free interest rate--6.37%; and expected
dividend yield--0%;
. an increase in accrued expenses of approximately $300 million relating
to the incurrence of transaction costs by America Online and Time
Warner, including legal, investment banking and registration fees;
. the elimination of approximately $15.319 billion of Time Warner's pre-
existing goodwill;
. a reduction of $3.524 billion in deferred income tax liabilities and a
corresponding increase in paid-in capital relating to the elimination of
America Online's deferred tax valuation allowance against stock option-
related tax benefits that will become realizable as a direct result of
the merger;
. a decrease in stockholders' equity of $10.264 billion relating to the
elimination of Time Warner's historical shareholders' equity; and
. the preliminary allocation of the excess of the $146.650 billion
purchase price, including transaction costs, over the book value of the
net assets acquired to:
. goodwill in the amount of $94.705 billion;
. other intangible assets in the amount of $95 billion; and
. deferred income taxes in the amount of $38 billion.
87
<PAGE>
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET--(Continued)
(unaudited)
The final allocation of the purchase price will be determined after the
completion of the merger and will be based on a comprehensive final evaluation
of the fair value of Time Warner's tangible and identifiable intangible assets
acquired and liabilities assumed at the time of the merger. The preliminary
allocation is summarized in the following table:
Calculation of Purchase Price:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Common stock............................. $133,671
Preferred stock.......................... 2,270
Stock options............................ 10,409
Transaction costs........................ 300
--------
Total purchase price.................... $146,650
========
</TABLE>
Allocation of Purchase Price:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Assets:
Time Warner's historical assets........ $ 50,213
Eliminate Time Warner's historical
goodwill.............................. (15,319)
New goodwill........................... 94,705
Other intangible assets................ 95,000
Liabilities:
Time Warner's historical liabilities... (39,949)
Deferred income taxes.................. (38,000)
--------
Total purchase price.................... $146,650
========
</TABLE>
Time Warner's other assets and liabilities have not been adjusted because
their cost approximates fair value in all material respects.
A reconciliation of the above adjustments to reflect the merger is set forth
below:
<TABLE>
<CAPTION>
Elimination
Issuance of Elimination of Allocation of Elimination of of
Common Stock Increase Time Warner's Excess AOL's Deferred Time Warner's Total
Preferred Stock in Accrued Historical Purchase Tax Valuation Historical Pro Forma
and Options Expenses Goodwill Price Allowance Equity Adjustments
--------------- ---------- -------------- ------------- -------------- ------------- -----------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Goodwill and other
intangibles, net....... $ -- $ -- $(15,319) $189,705 $ -- $ -- $174,386
Total current
liabilities............ -- 300 -- -- -- -- 300
Deferred income taxes... -- -- -- 38,000 (3,524) -- 34,476
Preferred stock......... 1 -- -- -- -- (1) --
Series LMCN-V common
stock.................. 1 -- -- -- -- (1) --
Common stock............ 18 -- -- -- -- (12) 6
Paid in capital......... 146,330 -- -- -- 3,524 (14,745) 135,109
Accumulated earnings
(deficit).............. -- -- -- -- -- 4,553 4,553
Accumulated other
comprehensive income... -- -- -- -- -- (58) (58)
</TABLE>
88
<PAGE>
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended March 31, 2000
(in millions, except per share amounts, unaudited)
<TABLE>
<CAPTION>
AOL
Time Pro Forma Time Warner
AOL(d) Warner (e) Adjustments(f) Pro Forma
------ ---------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues........................ $4,924 $21,260 $ -- $26,184
Cost of revenues(/1/)........... (2,558) (11,756) -- (14,314)
Selling, general and
administrative(/1/)............ (1,272) (5,753) -- (7,025)
Amortization of goodwill and
other intangible assets........ (55) (992) (5,278) (6,325)
Gain on sale or exchange of
cable systems and investments.. -- 1,504 -- 1,504
Gain on sale of interest in
CanalSatellite................. -- 97 -- 97
Merger, restructuring and other
charges........................ (5) (106) -- (111)
------ ------- ------- -------
Business segment operating
income (loss)(g)............... 1,034 4,254 (5,278) 10
Interest and other, net......... 533 (1,861) -- (1,328)
Corporate expenses.............. (74) (126) -- (200)
Minority interest............... -- (199) -- (199)
------ ------- ------- -------
Income (loss) before income
taxes.......................... 1,493 2,068 (5,278) (1,717)
Income tax benefit (provision).. (583) (935) 1,140 (378)
------ ------- ------- -------
Income (loss) before
extraordinary item............. 910 1,133 (4,138) (2,095)
Preferred dividend
requirements................... -- (21) -- (21)
------ ------- ------- -------
Income (loss) applicable to
common shares before
extraordinary item............. $ 910 $ 1,112 $(4,138) $(2,116)
====== ======= ======= =======
Income (loss) per common share
before extraordinary item:
Basic......................... $ 0.40 $ 0.86 $ (0.50)
====== ======= =======
Diluted....................... $ 0.35 $ 0.84 $ (0.50)
====== ======= =======
Average common shares:
Basic......................... 2,255 1,293 4,195
====== ======= =======
Diluted....................... 2,593 1,395 4,195
====== ======= =======
- --------
(/1/) Includes depreciation ex-
pense of:...................... $ 211 $ 954 $ -- $ 1,165
====== ======= ======= =======
</TABLE>
See accompanying notes.
89
<PAGE>
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended June 30, 1999
(in millions, except per share amounts, unaudited)
<TABLE>
<CAPTION>
AOL
Time Pro Forma Time Warner
AOL(d) Warner(h) Adjustments(f) Pro Forma
------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues....................... $ 4,777 $ 26,482 $ -- $ 31,259
Cost of revenues(/1/).......... (2,657) (14,638) -- (17,295)
Selling, general and
administrative(/1/)........... (1,431) (7,162) -- (8,593)
Amortization of goodwill and
other intangible assets....... (65) (1,272) (7,055) (8,392)
Gain on sale or exchange of
cable systems and
investments................... -- 795 -- 795
Gain on early termination of
video distribution agreement.. -- 215 -- 215
Merger, restructuring and other
charges....................... (95) -- -- (95)
------- -------- ------- --------
Business segment operating
income (loss)(g).............. 529 4,420 (7,055) (2,106)
Interest and other, net........ 638 (2,040) -- (1,402)
Corporate expenses............. (71) (164) -- (235)
Minority interest.............. -- (485) -- (485)
------- -------- ------- --------
Income (loss) before income
taxes......................... 1,096 1,731 (7,055) (4,228)
Income tax benefit
(provision)................... (334) (871) 1,520 315
------- -------- ------- --------
Net income (loss).............. 762 860 (5,535) (3,913)
Preferred dividend
requirements.................. -- (416) -- (416)
------- -------- ------- --------
Net income (loss) applicable to
common shares................. $ 762 $ 444 $(5,535) $ (4,329)
======= ======== ======= ========
Net income (loss) per common
share:
Basic........................ $ 0.37 $ 0.36 $ (1.10)
======= ======== ========
Diluted...................... $ 0.30 $ 0.36 $ (1.10)
======= ======== ========
Average common shares:
Basic........................ 2,081 1,231 3,928
======= ======== ========
Diluted...................... 2,555 1,231 3,928
======= ======== ========
- --------
(/1/) Includes depreciation ex-
pense of:..................... $ 233 $ 1,230 $ -- $ 1,463
======= ======== ======= ========
</TABLE>
See accompanying notes.
90
<PAGE>
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(d) Reflects the historical operating results of America Online for the nine
months ended March 31, 2000 and the year ended June 30, 1999. Outstanding
share and per share information for America Online have been restated to
reflect a 2-for-1 common stock split which occurred in November 1999.
Finally, various reclassifications have been made to conform to AOL Time
Warner's combined financial statement presentation.
(e) Reflects the historical operating results of Time Warner for the nine
months ended March 31, 2000, including various reclassifications that have
been made to conform to AOL Time Warner's combined financial statement
presentation.
(f) Pro forma adjustments to record the merger for the nine months ended March
31, 2000 and the year ended June 30, 1999 reflect:
. increases of $5.691 billion and $7.588 billion, respectively, in
amortization of goodwill and other intangible assets relating to the
amortization of the excess of the purchase price to acquire Time Warner
over the book value of its net assets acquired, which has been allocated
to goodwill and other intangible assets, and are each amortized on a
straight-line basis over a twenty-five year weighted-average period;
. decreases of $413 million and $533 million, respectively, in
amortization of goodwill and other intangible assets relating to the
elimination of Time Warner's amortization of pre-existing goodwill; and
. increases of $1.140 billion and $1.520 billion, respectively, in income
tax benefits, provided at a 40% tax rate, on the aggregate pro forma
reduction in pretax income before goodwill amortization.
In addition, pro forma net income (loss) per common share has been adjusted
to reflect the issuance of additional shares of AOL Time Warner common stock
in the merger, based on Time Warner's historical weighted average shares
outstanding for the periods presented and an exchange ratio of 1.5 to 1.
Because the effect of stock options and other convertible securities would
be antidilutive to AOL Time Warner, dilutive per share amounts on a pro
forma basis are the same as basic per share amounts.
(g) EBITDA consists of business segment operating income (loss) before
depreciation and amortization. AOL Time Warner considers EBITDA an
important indicator of the operational strength and performance of its
businesses, including the ability to provide cash flows to service debt
and fund capital expenditures. EBITDA, however, should not be considered
an alternative to operating or net income as an indicator of the
performance of AOL Time Warner, or as an alternative to cash flows from
operating activities as a measure of liquidity, in each case determined in
accordance with generally accepted accounting principles. This definition
of EBITDA may not be comparable to similarly titled measures reported by
other companies.
Pro forma EBITDA for AOL Time Warner includes a number of significant and
nonrecurring items. Set forth below for each period is a reconciliation of
pro forma EBITDA to a normalized measure of pro forma EBITDA that excludes
the effect of the significant and nonrecurring items.
<TABLE>
<CAPTION>
Nine Months Year Ended
Ended March June 30,
31, 2000 1999
----------- ----------
(in millions)
<S> <C> <C>
Pro forma EBITDA................................... $7,500 $7,749
====== ======
Increase in pro forma EBITDA....................... $1,490 $ 890
====== ======
Adjusted EBITDA.................................... $6,010 $6,859
====== ======
</TABLE>
See Selected Historical Financial Data elsewhere in this joint proxy statement-
prospectus for further references.
91
<PAGE>
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS--
(Continued)
(unaudited)
(h) Reflects the historical operating results of Time Warner for the year
ended June 30, 1999, as adjusted to reflect Time Warner's consolidation
for all periods prior to 1999. In order to conform Time Warner's fiscal
year-end from a calendar year basis to America Online's June 30 year-end,
Time Warner's historical operating results have been derived from the
combination of Time Warner's quarterly historical operating results for
the year ended June 30, 1999. In addition, Time Warner's historical
operating results for this period have been adjusted to reflect Time
Warner's consolidation of the entertainment group for the six-month period
ended December 31, 1998. During this period, Time Warner accounted for the
entertainment group under the equity method of accounting. Operating
results for the year ended June 30, 1999 have been derived from the
compilation of:
. the results for the six months ended June 30, 1999 included in Time
Warner's Current Report on Form 8-K dated August 3, 1999;
. the three month pro forma results for the quarter ended September 30,
1998 included in Time Warner's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999; and
. the three month pro forma results for the quarter ended December 31,
1998 included in Time Warner's Current Report on Form 8-K dated February
2, 2000, which is incorporated in this joint proxy statement-prospectus
by reference.
A complete description of Time Warner's consolidation of the entertainment
group and the nature of the pro forma adjustments are included in Time Warner's
Current Report on Form 8-K dated August 3, 1999.
92
<PAGE>
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Months Ended March 31, 2000
(in millions, except per share amounts, unaudited)
<TABLE>
<CAPTION>
AOL
Time Pro Forma Time Warner
AOL(i) Warner(j) Adjustments(k) Pro Forma
------ --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues......................... $1,836 $ 6,549 $ -- $ 8,385
Cost of revenues(/1/)............ (937) (3,661) -- (4,598)
Selling, general and
administrative(/1/)............. (471) (1,745) -- (2,216)
Amortization of goodwill and
other intangible assets......... (20) (330) (1,760) (2,110)
Gain on sale or exchange of cable
systems and investments......... -- 28 -- 28
------ ------- ------- -------
Business segment operating income
(loss)(l)....................... 408 841 (1,760) (511)
Interest and other, net.......... 336 (808) -- (472)
Corporate expenses............... (27) (43) -- (70)
Minority interest................ -- (54) -- (54)
------ ------- ------- -------
Income tax benefit (provision)... 717 (64) (1,760) (1,107)
Income (loss) before income
taxes........................... (280) (32) 380 68
------ ------- ------- -------
Income (loss) before
extraordinary item.............. 437 (96) (1,380) (1,039)
Preferred dividend requirements.. -- (5) -- (5)
------ ------- ------- -------
Income (loss) applicable to
common shares before
extraordinary item.............. $ 437 $ (101) $(1,380) $(1,044)
====== ======= ======= =======
Income (loss) per common share
before extraordinary item:
Basic.......................... $ 0.19 $ (0.08) $ (0.25)
====== ======= =======
Diluted........................ $ 0.17 $ (0.08) $ (0.25)
====== ======= =======
Average common shares:
Basic.......................... 2,287 1,302 4,240
====== ======= =======
Diluted........................ 2,595 1,302 4,240
====== ======= =======
(/1/Includes)depreciation expense
of:.......................... $ 89 $ 308 $ -- $ 397
====== ======= ======= =======
</TABLE>
- --------
See accompanying notes.
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AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1999
(in millions, except per share amounts, unaudited)
<TABLE>
<CAPTION>
AOL-
Time Pro Forma Time Warner
AOL(i) Warner(j) Adjustments(k) Pro Forma
------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues....................... $ 5,718 $ 27,333 $ -- $ 33,051
Cost of revenues(/1/).......... (3,055) (14,943) -- (17,998)
Selling, general and
administrative(/1/)........... (1,572) (7,513) -- (9,085)
Amortization of goodwill and
other intangible assets....... (68) (1,279) (7,046) (8,393)
Gain on sale or exchange of
cable systems and
investments................... -- 2,247 -- 2,247
Gain on early termination of
video distribution agreement.. -- 215 -- 215
Gain on sale of interest in
CanalSatellite................ -- 97 -- 97
Merger, restructuring and other
charges....................... (98) (106) -- (204)
------- -------- ------- --------
Business segment operating
income (loss)(/1/)............ 925 6,051 (7,046) (70)
Interest and other, net........ 814 (1,913) -- (1,099)
Corporate expenses............. (88) (163) -- (251)
Minority interest.............. -- (475) -- (475)
------- -------- ------- --------
Income (loss) before income
taxes......................... 1,651 3,500 (7,046) (1,895)
Income tax benefit
(provision)................... (607) (1,540) 1,520 (627)
------- -------- ------- --------
Income (loss) before
extraordinary item............ 1,044 1,960 (5,526) (2,522)
Preferred dividend
requirements.................. -- (52) -- (52)
------- -------- ------- --------
Income (loss) applicable to
common shares before
extraordinary item............ $ 1,044 $ 1,908 $(5,526) $ (2,574)
======= ======== ======= ========
Income (loss) per common share
before extraordinary item:
Basic........................ $ 0.48 $ 1.51 $ (0.63)
======= ======== ========
Diluted...................... $ 0.41 $ 1.43 $ (0.63)
======= ======== ========
Average common shares:
Basic........................ 2,189 1,267 4,090
======= ======== ========
Diluted...................... 2,587 1,398 4,090
======= ======== ========
- --------
(/1/) Includes depreciation ex-
pense of:..................... $ 248 $ 1,231 $ -- $ 1,479
======= ======== ======= ========
</TABLE>
See accompanying notes.
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<PAGE>
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS--
(Continued)
(unaudited)
(i) Reflects the historical operating results of America Online for the three
months ended March 31, 2000 and the year ended December 31, 1999. In order
to conform America Online's fiscal year end of June 30 to a calendar-year
basis, these operating results have been derived from the combination of
America Online's quarterly historical operating results for these periods.
In addition, outstanding share and per share information for America Online
has been restated to reflect a 2-for-1 common stock split which occurred in
November 1999. Finally, various reclassifications have been made to conform
to AOL Time Warner's combined financial statement presentation.
(j) Reflects the historical operating results of Time Warner for the three
months ended March 31, 2000 and the year ended December 31, 1999, including
various reclassifications that have been made to conform to AOL Time
Warner's combined financial statement presentation.
(k) Pro forma adjustments to record the merger for the three months ended March
31, 2000 and the year ended December 31, 1999 reflect:
. increases of $1.897 billion and $7.588 billion, respectively, in
amortization of goodwill and other intangible assets relating to the
amortization of the excess of the purchase price to acquire Time Warner
over the book value of its net assets acquired, which has been allocated
to goodwill and other intangible assets and are amortized on a straight-
line basis over a twenty-five year weighted-average period;
. decreases of $137 million and $542 million, respectively, in
amortization of goodwill and other intangible assets relating to the
elimination of Time Warner's amortization of pre-existing goodwill; and
. increases of $380 million and $1.520 billion, respectively, in income
tax benefits, provided at a 40% tax rate, on the aggregate pro forma
reduction in pretax income before goodwill amortization.
In addition, pro forma net income (loss) per common share has been adjusted
to reflect the issuance of additional shares of AOL Time Warner common
stock in the merger, based on Time Warner's historical weighted average
shares outstanding for the periods presented and an exchange ratio of 1.5
to 1. Because the effect of stock options and other convertible securities
would be antidilutive to AOL Time Warner, dilutive per share amounts on a
pro forma basis are the same as basic per share amounts.
(l) EBITDA consists of business segment operating income (loss) before
depreciation and amortization. AOL Time Warner considers EBITDA an
important indicator of the operational strength and performance of its
businesses, including the ability to provide cash flows to service debt and
fund capital expenditures. EBITDA, however, should not be considered an
alternative to operating or net income as an indicator of the performance
of AOL Time Warner, or as an alternative to cash flows from operating
activities as a measure of liquidity, in each case determined in accordance
with generally accepted accounting principles. This definition of EBITDA
may not be comparable to similarly titled measures reported by other
companies.
Pro forma EBITDA for AOL Time Warner includes a number of significant and
nonrecurring items. Set forth below is a reconciliation of pro forma EBITDA
to a normalized measure of pro forma EBITDA that excludes the effect of the
significant and nonrecurring items.
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, December 31,
2000 1999
------------ ------------
(in millions)
<S> <C> <C>
Pro forma EBITDA................................ $1,996 $9,802
====== ======
Increase in pro forma EBITDA.................... $ 28 $2,330
====== ======
Adjusted EBITDA................................. $1,968 $7,472
====== ======
</TABLE>
See Selected Historical Financial Data elsewhere in this joint proxy
statement-prospectus for further references.
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<PAGE>
DESCRIPTION OF AOL TIME WARNER CAPITAL STOCK
This section of the joint proxy statement-prospectus describes the material
terms of the capital stock of AOL Time Warner under the restated certificate of
incorporation and restated by-laws that will be in effect immediately after the
merger is completed. This section also summarizes relevant provisions of the
Delaware General Corporation Law, which we refer to as "Delaware law." The
terms of the AOL Time Warner restated certificate of incorporation and by-laws,
as well as the terms of Delaware law, are more detailed than the general
information provided below. Therefore, you should carefully consider the actual
provisions of these documents. The AOL Time Warner restated certificate of
incorporation is attached as Annex G to this joint proxy statement-prospectus,
and the AOL Time Warner restated by-laws are attached as Annex H to this joint
proxy statement-prospectus.
Authorized Capital Stock
Total Shares. AOL Time Warner initially will have authority to issue a total
of 27,550,000,000 shares of capital stock consisting of:
. 25,000,000,000 shares of common stock, par value $0.01 per share;
. 1,800,000,000 shares of series common stock, par value $0.01 per share;
and
. 750,000,000 shares of preferred stock, par value $0.10 per share.
Common Stock. Following completion of the merger, we anticipate that
approximately 4,100,000,000 shares of AOL Time Warner common stock will be
outstanding.
Series Common Stock. The AOL Time Warner series common stock will consist of
two series, designated as AOL Time Warner series LMC common stock and AOL Time
Warner series LMCN-V common stock, and the authorized number of shares of each
series will be:
. 210,000,000 shares of AOL Time Warner series LMC common stock; and
. 210,000,000 shares of AOL Time Warner series LMCN-V common stock.
Following completion of the merger, we anticipate that no shares of AOL Time
Warner series LMC common stock will be outstanding and that 171,185,826 shares
of AOL Time Warner series LMCN-V common stock will be outstanding.
Preferred Stock. The preferred stock of AOL Time Warner will consist of four
series, designated as AOL Time Warner series E convertible preferred stock, AOL
Time Warner series F convertible preferred stock, AOL Time Warner series I
convertible preferred stock and AOL Time Warner series J convertible preferred
stock, and the authorized number of shares of each series will be:
. 3,250,000 shares of AOL Time Warner series E preferred stock;
. 20,000 shares of AOL Time Warner series F preferred stock;
. 700,000 shares of AOL Time Warner series I preferred stock; and
. 1,700,000 shares of AOL Time Warner series J preferred stock.
Following completion of the merger, we anticipate that the approximate
number of outstanding preferred shares in each series will be:
. 3,124,829 shares of AOL Time Warner series E preferred stock;
. 4,496 shares of AOL Time Warner series F preferred stock;
. 700,000 shares of AOL Time Warner series I preferred stock; and
. 188,657 shares of AOL Time Warner series J preferred stock.
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<PAGE>
Listing. AOL Time Warner intends to apply to list its common stock on the
New York Stock Exchange under the symbol "AOL." No other capital stock of AOL
Time Warner will be listed.
Preemptive Rights. The holders of AOL Time Warner common stock, AOL Time
Warner series common stock and AOL Time Warner preferred stock will not have
preemptive rights to purchase or subscribe for any stock or other securities of
AOL Time Warner.
AOL Time Warner Common Stock
Voting Rights. Each outstanding share of AOL Time Warner common stock will
be entitled to one vote per share.
Dividends. Holders of AOL Time Warner common stock will be entitled to
receive dividends or other distributions when and if declared by the AOL Time
Warner board of directors. The right of the AOL Time Warner board of directors
to declare dividends, however, will be subject to the rights of the holders of
any outstanding AOL Time Warner series common stock and AOL Time Warner
preferred stock and the availability of sufficient funds under Delaware law to
pay dividends. For a description of the dividend rights of the holders of AOL
Time Warner series common stock, see "AOL Time Warner Series Common Stock--
Series LMC Common Stock--Cash Dividends" and "AOL Time Warner Series Common
Stock--Series LMCN-V Common Stock--Cash Dividends." For a description of the
dividend rights of holders of AOL Time Warner preferred stock, see "AOL Time
Warner Preferred Stock."
Liquidation Rights. In the event of the liquidation of AOL Time Warner,
subject to the rights, if any, of the holders of any outstanding shares of AOL
Time Warner series common stock or AOL Time Warner preferred stock, the holders
of AOL Time Warner common stock will be entitled to receive the assets of AOL
Time Warner available for distribution to its stockholders ratably in
proportion to the number of shares held by them. For a description of the
liquidation rights of holders of AOL Time Warner series common stock, see "AOL
Time Warner Series Common Stock--Series LMC Common Stock--Liquidation Rights"
and "AOL Time Warner Series Common Stock--Series LMCN-V Common Stock--
Liquidation Rights." For a description of the liquidation rights of holders of
AOL Time Warner preferred stock, see "AOL Time Warner Preferred Stock."
Regulatory Restrictions. Outstanding shares of AOL Time Warner common stock
may be redeemed by action of the board of directors to the extent necessary to
prevent the loss of any governmental license or franchise, the holding of which
is conditioned upon stockholders possessing prescribed qualifications.
AOL Time Warner Series Common Stock
Series LMC Common Stock
LMC Formula Number. Shares of AOL Time Warner series LMC common stock will
be attributed a "formula number" that will be used to calculate the dividend,
voting, conversion and liquidation rights for each share of AOL Time Warner
series LMC common stock. We refer to this formula number as the "LMC formula
number." The LMC formula number will be initially set at 1.00, and it will be
subject to adjustment for stock splits, reverse stock splits, stock dividends
and other similar corporate events affecting the AOL Time Warner common stock.
Voting Rights. Each outstanding share of AOL Time Warner series LMC common
stock will be entitled to a number of votes that is equal to the product of the
number of votes per share that may be cast by holders of AOL Time Warner common
stock multiplied by the LMC formula number in effect at the time of the vote.
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<PAGE>
Holders of AOL Time Warner series LMC common stock will be entitled to vote
on all matters on which holders of AOL Time Warner common stock will be
entitled to vote. Holders of AOL Time Warner series LMC common stock will vote
together as one group with holders of AOL Time Warner common stock. A vote of
at least two-thirds of the voting power of all shares of AOL Time Warner series
LMC common stock that are outstanding will be necessary in order to amend,
alter or repeal any of the provisions of the AOL Time Warner restated
certificate of incorporation, including the certificate of designations
relating to the AOL Time Warner series LMC common stock, to:
. amend, alter or repeal any of the powers, preferences or rights of the
AOL Time Warner series LMC common stock or series LMCN-V common stock;
or
. adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, of the AOL Time Warner
series LMC common stock or series LMCN-V common stock.
In addition, the affirmative vote of holders of shares of AOL Time Warner
series LMC common stock representing 100% of the aggregate voting power of the
outstanding shares of AOL Time Warner series LMC common stock is required to
amend, alter or repeal the provisions of the certificate of designations that
prohibit AOL Time Warner from, at its option, redeeming the shares of AOL Time
Warner series LMC common stock.
The vote of the holders of shares of AOL Time Warner series LMC common stock
will not be required for AOL Time Warner to:
. create any indebtedness;
. authorize or issue any class of capital stock that is senior to, or
on a parity with, AOL Time Warner series LMC common stock with
respect to the payment of dividends or any other distribution of
assets;
. approve any amendment to the AOL Time Warner restated certificate of
incorporation that would increase or decrease the aggregate number
of authorized shares of AOL Time Warner series common stock or AOL
Time Warner common stock; or
. authorize any increase or decrease in the number of shares
constituting the AOL Time Warner series LMC common stock.
Cash Dividends. Holders of AOL Time Warner series LMC common stock will be
entitled to receive cash dividends when and if declared by the AOL Time Warner
board of directors, but only to the extent that regularly scheduled cash
dividends are declared and paid on AOL Time Warner common stock. When declared,
cash dividends on each share of AOL Time Warner series LMC common stock will
equal the product of:
. the amount of the regularly scheduled cash dividend to be paid on
one share of AOL Time Warner common stock; multiplied by
. the LMC formula number in effect on the dividend payment date.
Distributions. If AOL Time Warner distributes to the holders of its common
stock any assets or property, in each case not including a distribution upon
the liquidation of AOL Time Warner, a regularly scheduled cash dividend or a
common stock dividend that results in an adjustment of the LMC formula number,
then AOL Time Warner must at the same time distribute the same assets or
property pro rata to the holders of AOL Time Warner series LMC common stock in
an amount equal to the amount that the holders of AOL Time Warner series LMC
common stock would have been entitled to receive had they converted their
shares of AOL Time Warner series LMC common stock into shares of AOL Time
Warner common stock immediately prior to the record date for the distribution.
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<PAGE>
Conversion Rights. Holders of AOL Time Warner series LMC common stock will
have the right to convert each of their shares, at any time, into:
. a number of shares of AOL Time Warner common stock equal to the LMC
formula number in effect on the conversion date; or
. one share of AOL Time Warner series LMCN-V common stock.
Each holder of AOL Time Warner series LMC common stock may convert shares of
AOL Time Warner series LMC common stock into shares of AOL Time Warner common
stock or AOL Time Warner series LMCN-V common stock only to the extent that the
ownership by the converting holder of shares of AOL Time Warner common stock or
AOL Time Warner series LMCN-V common stock upon conversion would not violate
the federal communications laws.
Conversion Rate Adjustment. If AOL Time Warner consolidates or merges with
another entity such that AOL Time Warner is not the surviving entity or the
transaction results in a change in AOL Time Warner common stock, or if AOL Time
Warner sells all or substantially all of its property and assets to another
entity, each share of AOL Time Warner series LMC common stock will be
convertible into the number of shares of capital stock or other property
received by the holder of a number of shares of AOL Time Warner common stock
into which the shares of AOL Time Warner series LMC common stock could have
been converted immediately before the transaction.
Liquidation Rights. In the event of the liquidation of AOL Time Warner, the
holders of AOL Time Warner series LMC common stock will be entitled to receive,
at the same time as any distribution to holders of AOL Time Warner common
stock, an aggregate amount per share equal to the product of:
. the aggregate amount to be distributed per share to holders of AOL Time
Warner common stock; and
. the LMC formula number in effect on the date of the distribution.
Transfer Restriction. Holders of AOL Time Warner series LMC common stock
will be subject to a transfer restriction that prevents these holders, without
obtaining prior consent from AOL Time Warner, from transferring their shares of
AOL Time Warner series LMC common stock to any person other than a "permitted
transferee." The term "permitted transferee" means:
. Liberty Media Corporation, which is commonly referred to as "LMC," and
any affiliate that is controlled by LMC; or
. Tele-Communications Inc. and any affiliate that is controlled by Tele-
Communications, so long as Tele-Communications is an affiliate of LMC.
In addition, the transfer restriction provides that any permitted transferee
must agree to be subject to the transfer restriction for subsequent transfers.
The transfer restriction applicable to AOL Time Warner series LMC common
stock will not prevent any holder of AOL Time Warner series LMC common stock
from:
. entering into an arrangement providing for the prompt conversion of
the shares of AOL Time Warner series LMC common stock into shares of
AOL Time Warner common stock and the immediate sale or transfer of
AOL Time Warner common stock received upon the conversion of shares
of the AOL Time Warner series LMC common stock; or
. pledging shares of AOL Time Warner series LMC common stock, so long
as the terms of the pledge provide that, in the event of a
foreclosure on the shares of AOL Time Warner series LMC common
stock, the foreclosing party will deliver the forfeited AOL Time
Warner series LMC common stock to AOL Time Warner for conversion
into AOL Time Warner common stock.
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<PAGE>
Series LMCN-V Common Stock
LMCN-V Formula Number. Shares of AOL Time Warner series LMCN-V common stock
will be attributed a formula number that will be used to calculate the
dividend, voting, conversion and liquidation rights for each share of AOL Time
Warner series LMCN-V common stock. We refer to this formula number as the
"LMCN-V formula number." The LMCN-V formula number will be initially set at
1.00, and it will be subject to adjustment for stock splits, reverse stock
splits, stock dividends and other similar corporate events affecting the AOL
Time Warner common stock.
Voting Rights. Holders of AOL Time Warner series LMCN-V common stock will be
entitled to vote together as one group with holders of AOL Time Warner common
stock in the election of directors of AOL Time Warner, and they will have the
right to cast a number of votes per share that is equal to:
. the product of the number of votes per share that may be cast by holders
of AOL Time Warner common stock multiplied by the LMCN-V formula number
in effect at the time of the vote; divided by
. 100.
A vote of at least two-thirds of the voting power of all shares of AOL Time
Warner series LMCN-V common stock that are outstanding will be necessary in
order to amend, alter or repeal any of the provisions of the AOL Time Warner
restated certificate of incorporation, including the certificate of
designations relating to the AOL Time Warner series LMCN-V common stock, to:
. amend, alter or repeal any of the powers, preferences or rights of the
AOL Time Warner series LMCN-V common stock or series LMC common stock;
or
. adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions, of the AOL Time Warner
series LMCN-V common stock or series LMC common stock.
In addition, the affirmative vote of holders of shares of AOL Time Warner
series LMCN-V common stock representing 100% of the aggregate voting power of
the outstanding shares of AOL Time Warner series LMCN-V common stock is
required to amend, alter or repeal the provisions of the certificate of
designations that prohibit AOL Time Warner from, at its option, redeeming the
shares of AOL Time Warner series LMCN-V common stock.
The vote of the holders of shares of AOL Time Warner series LMCN-V common
stock will not be required for AOL Time Warner to:
. create any indebtedness;
. authorize or issue any class of capital stock that is senior to, or on a
parity with, AOL Time Warner series LMCN-V common stock with respect to
the payment of dividends or any other distribution of assets;
. approve any amendment to the AOL Time Warner restated certificate of
incorporation that would increase or decrease the aggregate number of
authorized shares of AOL Time Warner series common stock or AOL Time
Warner common stock; or
. authorize any increase or decrease in the number of shares constituting
the AOL Time Warner series LMCN-V common stock.
Cash Dividends. Holders of AOL Time Warner series LMCN-V common stock will
be entitled to receive cash dividends when and if declared by the AOL Time
Warner board of directors, but only to the extent
100
<PAGE>
that regularly scheduled cash dividends are declared and paid on AOL Time
Warner common stock. When declared, cash dividends on each share of AOL Time
Warner series LMCN-V common stock will equal the product of:
. the amount of the regularly scheduled cash dividend to be paid on one
share of AOL Time Warner common stock; multiplied by
. the LMCN-V formula number in effect on the dividend payment date.
Distributions. If AOL Time Warner distributes to the holders of its common
stock any assets or property, in each case not including a distribution upon
the liquidation of AOL Time Warner, a regularly scheduled cash dividend or a
common stock dividend that results in an adjustment of the LMCN-V formula
number, then AOL Time Warner must at the same time distribute the same assets
or property pro rata to the holders of AOL Time Warner series LMCN-V common
stock in an amount equal to the amount that the holders of AOL Time Warner
series LMCN-V common stock would have been entitled to receive had they
converted their shares of AOL Time Warner series LMCN-V common stock into
shares of AOL Time Warner common stock immediately prior to the record date
for the distribution.
Conversion Rights. Holders of AOL Time Warner series LMCN-V common stock
will have the right to convert each of their shares, at any time, into:
. a number of shares of AOL Time Warner common stock equal to the LMCN-V
formula number in effect on the conversion date; or
. one share of AOL Time Warner series LMC common stock.
Each holder of AOL Time Warner series LMCN-V common stock may convert shares
of AOL Time Warner series LMCN-V common stock into shares of AOL Time Warner
common stock or AOL Time Warner series LMC common stock only to the extent
that the ownership by the converting holder of shares of AOL Time Warner
common stock or AOL Time Warner series LMC common stock upon conversion would
not violate the federal communications laws.
Conversion Rate Adjustment. If AOL Time Warner consolidates or merges with
another entity such that AOL Time Warner is not the surviving entity or the
transaction results in a change in AOL Time Warner common stock, or if AOL
Time Warner sells all or substantially all of its property and assets to
another entity, each share of AOL Time Warner series LMCN-V common stock will
be convertible into the number of shares of capital stock or other property
received by the holder of a number of shares of AOL Time Warner common stock
into which the shares of AOL Time Warner series LMCN-V common stock could have
been converted immediately before the transaction.
Liquidation Rights. In the event of the liquidation of AOL Time Warner, the
holders of AOL Time Warner series LMCN-V common stock will be entitled to
receive, at the same time as any distribution to holders of AOL Time Warner
common stock, an aggregate amount per share equal to the product of:
. the aggregate amount to be distributed per share to holders of AOL Time
Warner common stock; and
. the LMCN-V formula number in effect on the date of the distribution.
Transfer Restriction. Holders of AOL Time Warner series LMCN-V common stock
will be subject to a transfer restriction that prevents these holders, without
obtaining prior consent from AOL Time Warner, from transferring their shares
of AOL Time Warner series LMCN-V common stock to any person other than a
"permitted transferee." The transfer restriction applicable to holders of AOL
Time Warner series LMCN-V common stock is identical to the transfer
restriction applicable to holders of AOL Time Warner series LMC common stock.
See "AOL Time Warner Series LMC Common Stock--Transfer Restriction."
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<PAGE>
AOL Time Warner Preferred Stock
Series E Preferred Stock
Cash Dividends. Prior to January 4, 2001, holders of AOL Time Warner series
E preferred stock will be entitled to receive, when declared by the board of
directors of AOL Time Warner out of funds legally available for payment, cash
dividends payable quarterly in a per share amount equal to the greater of:
. $0.9375, which is the equivalent of $3.75 per year; and
. the product of the conversion rate in effect on the dividend payment
date multiplied by the per share amount of regularly scheduled cash
dividends paid on the AOL Time Warner common stock during the dividend
period.
Dividends payable before January 4, 2001 will be cumulative and will accrue,
whether or not there are funds of AOL Time Warner legally available for the
payment of dividends and whether or not declared.
After January 4, 2001, holders of AOL Time Warner series E preferred stock
will be entitled to receive, when declared by the AOL Time Warner board of
directors out of funds legally available for payment, cash dividends payable
quarterly in a per share amount equal to the product of the conversion rate in
effect on the dividend payment date multiplied by the amount of regularly
scheduled cash dividends paid on the AOL Time Warner common stock during the
dividend period. Dividends payable on and after January 4, 2001 will be
cumulative but will accrue only to the extent that regularly scheduled cash
dividends are declared on the AOL Time Warner common stock.
Holders of AOL Time Warner series E preferred stock will be entitled to
receive full accumulated cash dividends for all quarterly dividend periods
before any dividends are declared or paid on AOL Time Warner common stock or
any other stock of AOL Time Warner that is junior to the AOL Time Warner series
E preferred stock as to dividends.
Distributions. If AOL Time Warner distributes to the holders of its common
stock any assets or property, in each case not including a distribution upon
the liquidation of AOL Time Warner, a regularly scheduled cash dividend or a
common stock dividend that results in an adjustment of the conversion rate,
then AOL Time Warner must at the same time distribute the same assets or
property pro rata to the holders of AOL Time Warner series E preferred stock in
an amount equal to the amount that the holders of AOL Time Warner series E
preferred stock would have been entitled to receive had they converted their
shares of AOL Time Warner series E preferred stock into shares of AOL Time
Warner common stock immediately prior to the record date for the distribution.
Rank. The AOL Time Warner series E preferred stock will rank on parity as to
dividends and upon liquidation with the shares of the AOL Time Warner series F
preferred stock, AOL Time Warner series I preferred stock, AOL Time Warner
series J preferred stock and any AOL Time Warner capital stock that is
designated as sharing ratably with the AOL Time Warner series E preferred stock
as to dividends or upon liquidation. The AOL Time Warner series E preferred
stock will have a preference as to dividends and upon liquidation over AOL Time
Warner common stock, AOL Time Warner series LMC common stock, AOL Time Warner
series LMCN-V common stock and any AOL Time Warner capital stock that is
designated as junior to the AOL Time Warner series E preferred stock as to
dividends or upon liquidation.
Voting Rights; Ability to Appoint Directors. Each outstanding share of AOL
Time Warner series E preferred stock initially will be entitled to six votes
per share, subject to adjustment in the same manner as the conversion rate.
Holders of AOL Time Warner series E preferred stock will be entitled to vote
on all matters on which holders of AOL Time Warner common stock will be
entitled to vote. Holders of AOL Time Warner series E preferred stock will vote
together as one group with holders of AOL Time Warner common stock and any
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other class or series of AOL Time Warner capital stock that is entitled to vote
with AOL Time Warner common stock. A vote of at least two-thirds of the voting
power of all shares of AOL Time Warner series E preferred stock that are
outstanding will be necessary in order to:
. authorize any AOL Time Warner capital stock that will be senior to the
AOL Time Warner series E preferred stock, or reclassify, by merger,
consolidation or otherwise, any AOL Time Warner capital stock that is
junior to, or on a parity with, the AOL Time Warner series E preferred
stock, to be senior to the AOL Time Warner series E preferred stock with
respect to the payment of dividends or any other distribution of assets;
. merge or consolidate with any entity where the surviving corporation
will have any newly authorized capital stock that is senior to the AOL
Time Warner series E preferred stock with respect to the payment of
dividends or any other distribution of assets; or
. amend, alter or repeal any of the provisions of the AOL Time Warner
restated certificate of incorporation, including the certificate of
designations relating to the AOL Time Warner series E preferred stock,
in such a way to adversely affect the voting powers, designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions, of the AOL Time
Warner series E preferred stock.
The vote of the holders of shares of AOL Time Warner series E preferred
stock will not be required for AOL Time Warner to:
. create any indebtedness;
. authorize or issue any class of capital stock that is junior to, or on a
parity with, AOL Time Warner series E preferred stock with respect to
the payment of dividends or any other distribution of assets;
. under specified circumstances, authorize, designate or issue additional
shares of AOL Time Warner series E preferred stock; or
. authorize or issue any other shares of AOL Time Warner preferred stock.
In the event the dividends payable on shares of AOL Time Warner series E
preferred stock have been in arrears and unpaid in an aggregate amount equal to
or exceeding the amount of dividends payable on the AOL Time Warner series E
preferred stock for six quarterly dividend periods, then the number of
directors constituting the AOL Time Warner board of directors will increase by
two and the holders of AOL Time Warner series E preferred stock, voting
together as one group with any shares of stock on a parity with the AOL Time
Warner series E preferred stock as to which dividends are similarly in arrears,
will have the right to elect two directors to the AOL Time Warner board of
directors. This right to elect two directors will continue until all dividends
in arrears on the AOL Time Warner series E preferred stock have been paid in
full and all dividends payable on the shares of AOL Time Warner series E
preferred stock have been paid in full, or funds have been set aside for
payment, for four subsequent consecutive dividend periods.
Conversion Rights. The AOL Time Warner series E preferred stock will be
convertible at any time at the option of the holder into shares of AOL Time
Warner common stock. Each share of AOL Time Warner series E preferred stock
will be initially convertible into 6.24792 shares of AOL Time Warner common
stock. In addition, upon conversion, each share of AOL Time Warner series E
preferred stock will be entitled to receive a number of shares of AOL Time
Warner common stock with a value equal to the amount of accrued and unpaid
dividends to the most recent scheduled dividend payment date for that share.
AOL Time Warner may, at its option, pay cash or issue AOL Time Warner common
stock for any accrued and unpaid dividends or fractional shares. The conversion
price of the series E preferred stock will be the liquidation value, which
initially will be $100, divided by the conversion rate in effect at the time of
the conversion.
Conversion Rate Adjustments. The conversion rate will be subject to
adjustment upon the occurrence of specified events, including:
. the payment by AOL Time Warner of dividends with respect to AOL Time
Warner common stock that are payable in shares of AOL Time Warner common
stock; and
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. combinations, subdivisions and reclassifications of AOL Time Warner
common stock.
In the event of a change of control with respect to AOL Time Warner, the
conversion rate will be adjusted in one of two ways. If the change of control
event involves a qualifying change in the AOL Time Warner board of directors,
then the conversion rate will be adjusted to reflect any decrease in the market
value of AOL Time Warner common stock that preceded the change of control
event. If the change of control event involves the acquisition by a person of
40% or more of the outstanding shares of AOL Time Warner common stock, then the
conversion rate will adjusted in the same manner specified in the preceding
sentence or, if greater, it will be adjusted so that holders of AOL Time Warner
series E preferred stock will receive, upon conversion, that number of
additional shares of AOL Time Warner common stock representing the premium
paid, if any, to holders of AOL Time Warner common stock in connection with the
change of control event.
If AOL Time Warner consolidates or merges with another entity such that AOL
Time Warner is not the surviving entity or that results in a change in AOL Time
Warner common stock, or if AOL Time Warner sells all or substantially all of
its property and assets to another entity, each share of AOL Time Warner series
E preferred stock will be convertible into the number of shares of capital
stock or other property received by the holder of a number of shares of AOL
Time Warner common stock into which the share of AOL Time Warner series E
preferred stock could have been converted immediately before the transaction.
Liquidation Rights. In the event of a liquidation of AOL Time Warner, the
holders of AOL Time Warner series E preferred stock will be entitled to
receive, before any distribution is made to the holders of AOL Time Warner
common stock, AOL Time Warner series LMC common stock, AOL Time Warner series
LMCN-V common stock or any other stock ranking junior to the AOL Time Warner
series E preferred stock upon liquidation, a $100 per share liquidation
preference, plus accrued and unpaid dividends.
Redemption or Exchange of Shares. AOL Time Warner will have the right, on or
after January 4, 2001, to:
. redeem all, or any part, of the outstanding shares of AOL Time Warner
series E preferred stock for a cash redemption price equal to the
liquidation value, plus any accrued and unpaid dividends; or
. exchange a number of shares of AOL Time Warner common stock for all of
the outstanding shares of AOL Time Warner series E preferred stock at a
rate equal to the conversion rate, plus either cash or AOL Time Warner
common stock equal to the amount of accrued and unpaid dividends.
On the date fixed for redemption or exchange, AOL Time Warner may redeem the
AOL Time Warner series E preferred stock, exchange the AOL Time Warner series E
preferred stock or effectuate any combination of a redemption and exchange.
If less than all of the outstanding shares of AOL Time Warner series E
preferred stock are to be redeemed, the shares to be redeemed will be selected
by lot or pro rata or by any other method as may be determined by the AOL Time
Warner board of directors to be equitable.
Series F Preferred Stock
Cash Dividends. Holders of AOL Time Warner series F preferred stock will be
entitled to receive, when declared by the AOL Time Warner board of directors
out of funds legally available for payment, cash dividends payable quarterly in
a per share amount equal to the product of:
. the conversion rate in effect on the dividend payment date; multiplied
by
. the amount of regularly scheduled dividends paid on the shares of AOL
Time Warner common stock during the dividend period.
Dividends will be cumulative but will accrue only to the extent that regularly
scheduled cash dividends are declared on the AOL Time Warner common stock.
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Holders of AOL Time Warner series F preferred stock will be entitled to
receive full accumulated cash dividends for all quarterly dividend periods
before any dividends are declared or paid on AOL Time Warner common stock or
any other stock of AOL Time Warner that is junior to the AOL Time Warner series
F preferred stock as to dividends.
Distributions. Holders of AOL Time Warner series F preferred stock will be
entitled to the same distribution rights as holders of AOL Time Warner series E
preferred stock. For a description of these rights, see "AOL Time Warner
Preferred Stock--Series E Preferred Stock--Distributions."
Rank. The AOL Time Warner series F preferred stock will rank on parity as to
dividends and upon liquidation with the shares of the AOL Time Warner series E
preferred stock, AOL Time Warner series I preferred stock, AOL Time Warner
series J preferred stock and any AOL Time Warner capital stock that is
designated as sharing ratably with the AOL Time Warner series F preferred stock
as to dividends or upon liquidation. The AOL Time Warner series F preferred
stock will have a preference as to dividends and upon liquidation over AOL Time
Warner common stock, AOL Time Warner series LMC common stock, AOL Time Warner
series LMCN-V common stock and any AOL Time Warner capital stock that is
designated as junior to the AOL Time Warner series F preferred stock as to
dividends or upon liquidation.
Voting Rights; Ability to Appoint Directors. Holders of AOL Time Warner
series F preferred stock will be entitled to the same voting rights and rights
to appoint directors as holders of AOL Time Warner series E preferred stock.
For a description of these rights, see "AOL Time Warner Preferred Stock--Series
E Preferred Stock--Voting Rights; Ability to Appoint Directors."
Conversion Rights. Holders of AOL Time Warner series F preferred stock will
be entitled to the same conversion rights as holders of AOL Time Warner series
E preferred stock. For a description of these rights, see "AOL Time Warner
Preferred Stock--Series E Preferred Stock--Conversion Rights."
Conversion Rate Adjustments. The conversion rate adjustments applicable to
the AOL Time Warner series F preferred stock will be the same as those
applicable to the conversion rate for the AOL Time Warner series E preferred
stock. For a description of these adjustments, see "AOL Time Warner Preferred
Stock--Series E Preferred Stock--Conversion Rate Adjustments."
Liquidation Rights. Holders of AOL Time Warner series F preferred stock will
be entitled to the same liquidation rights as holders of AOL Time Warner series
E preferred stock. For a description of these rights, see "AOL Time Warner
Preferred Stock--Series E Preferred Stock--Conversion Rights."
Redemption or Exchange of Shares. AOL Time Warner will have the right to
redeem all, or any part, of the outstanding shares of AOL Time Warner series F
preferred stock at any time on or after January 4, 2001. AOL Time Warner will
have the right to exchange AOL Time Warner common stock for all of the
outstanding shares of AOL Time Warner series F preferred stock at any time. In
addition, AOL Time Warner may engage in a combination of a redemption and an
exchange at any time on or after January 4, 2001.
The redemption price for each share of AOL Time Warner series F preferred
stock called for redemption will be equal to the liquidation value, plus any
accrued and unpaid dividends. The exchange rate for each share of AOL Time
Warner series F preferred stock will equal the conversion rate, plus either
cash or AOL Time Warner common stock equal to the amount of accrued and unpaid
dividends.
On the date fixed for redemption or exchange, AOL Time Warner may redeem the
AOL Time Warner series F preferred stock, exchange the AOL Time Warner series F
preferred stock or effectuate any combination of a redemption and exchange.
If less than all of the outstanding shares of AOL Time Warner series F
preferred stock are to be redeemed, the shares to be redeemed will be selected
by lot or pro rata or by any other method as may determined by the AOL Time
Warner board of directors to be equitable.
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Series I Preferred Stock
Cash Dividends. Holders of AOL Time Warner series I preferred stock will be
entitled to the same cash dividend rights as holders of AOL Time Warner series
F preferred stock. For a description of these rights, see "AOL Time Warner
Preferred Stock--Series F Preferred Stock--Cash Dividends."
Distributions. Holders of AOL Time Warner series I preferred stock will be
entitled to the same distribution rights as holders of AOL Time Warner series F
preferred stock. For a description of these rights, see "AOL Time Warner
Preferred Stock--Series E Preferred Stock--Distributions."
Rank. The AOL Time Warner series I preferred stock will rank on parity as to
dividends and upon liquidation with the shares of the AOL Time Warner series E
preferred stock, AOL Time Warner series F preferred stock, AOL Time Warner
series J preferred stock and any AOL Time Warner capital stock that is
designated as sharing ratably with the AOL Time Warner series I preferred stock
as to dividends or upon liquidation. The AOL Time Warner series I preferred
stock will have a preference as to dividends and upon liquidation over AOL Time
Warner common stock, AOL Time Warner series LMC common stock, AOL Time Warner
series LMCN-V common stock and any AOL Time Warner capital stock that is
designated as junior to the AOL Time Warner series I preferred stock as to
dividends or upon liquidation.
Voting Rights; Ability to Appoint Directors. Holders of AOL Time Warner
series I preferred stock will be entitled to the same voting rights and rights
to appoint directors as holders of AOL Time Warner series E preferred stock,
with the exception that the vote of the holders of AOL Time Warner series I
preferred stock will not be required for AOL Time Warner to authorize,
designate or issue additional shares of AOL Time Warner series I preferred
stock under any circumstances. For a description of these rights, see "AOL Time
Warner Preferred Stock--Series E Preferred Stock--Voting Rights; Ability to
Appoint Directors."
Conversion Rights. The AOL Time Warner series I preferred stock will be
convertible at any time at the option of the holder into shares of AOL Time
Warner common stock. Each share of AOL Time Warner series I preferred stock
will be initially convertible into 6.24792 shares of AOL Time Warner common
stock plus a number of shares of AOL Time Warner common stock equal to the
ratio of:
. the accrued and unpaid dividends on the share of AOL Time Warner series
I preferred stock, adjusted either to:
. subtract a proportionate amount of any regular quarterly dividends
paid in cash on shares of AOL Time Warner common during the most
recent dividend period; or
. add a proportionate amount of any regular quarterly dividends to be
paid in cash on shares of AOL Time Warner common stock prior to the
conversion date; divided by
. the closing price of shares of AOL Time Warner common stock on the last
trading day prior to the conversion date.
AOL Time Warner may, at its option, pay cash rather than issue shares of AOL
Time Warner common stock for any accrued and unpaid dividends or fractional
shares.
Conversion Rate Adjustments. The conversion rate adjustments applicable to
the AOL Time Warner series I preferred stock will be substantially the same as
those applicable to the conversion rate for the AOL Time Warner series E
preferred stock. For a description of these adjustments, see "AOL Time Warner
Preferred Stock--Series E Preferred Stock--Conversion Rate Adjustments."
Liquidation Rights. Holders of AOL Time Warner series I preferred stock will
be entitled to liquidation rights that are substantially the same as those of
holders of AOL Time Warner series E preferred stock. For a description of these
rights, see "AOL Time Warner Preferred Stock--Series E Preferred Stock--
Liquidation Rights."
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Redemption or Exchange of Shares. AOL Time Warner will have the right to
redeem or exchange the AOL Time Warner series I preferred stock in the same
manner and under the same circumstances as it may redeem or exchange the AOL
Time Warner series E preferred stock, although AOL Time Warner will have the
right to redeem or exchange the AOL Time Warner series I preferred stock at any
time, and it will be required to deliver cash for all dividends that are in
arrears. For a description of the redemption and exchange provisions relating
to the AOL Time Warner series E preferred stock, see "AOL Time Warner Preferred
Stock--Series E Preferred Stock--Redemption or Exchange of Shares."
Holders of shares of AOL Time Warner series I preferred stock will have the
right to require AOL Time Warner to repurchase a pro rata portion of their
shares in the event of a repurchase of shares of AOL Time Warner common stock.
Series J Preferred Stock
Cash Dividends. Holders of AOL Time Warner series J preferred stock will be
entitled to the same cash dividend rights as holders of AOL Time Warner series
F preferred stock. For a description of these rights, see "AOL Time Warner
Preferred Stock--Series F Preferred Stock--Cash Dividends."
Distributions. Unlike holders of AOL Time Warner series E preferred stock,
AOL Time Warner series F preferred stock and AOL Time Warner series I preferred
stock, holders of AOL Time Warner series J preferred stock will not be entitled
to receive a pro rata distribution in the event AOL Time Warner distributes to
the holders of its common stock any assets or property, other than a
distribution upon the liquidation of AOL Time Warner, a regularly scheduled
cash dividend or a common stock dividend that results in an adjustment of the
conversion rate.
Rank. The AOL Time Warner series J preferred stock will rank on parity as to
dividends and upon liquidation with the shares of the AOL Time Warner series E
preferred stock, AOL Time Warner series F preferred stock, AOL Time Warner
series I preferred stock and any AOL Time Warner capital stock that is
designated as sharing ratably with the AOL Time Warner Series J preferred stock
as to dividends or upon liquidation. The AOL Time Warner Series J preferred
stock will have a preference as to dividends and upon liquidation over AOL Time
Warner common stock, AOL Time Warner series LMC common stock, AOL Time Warner
series LMCN-V common stock and any AOL Time Warner capital stock that is
designated as junior to the AOL Time Warner Series J preferred stock as to
dividends or upon liquidation.
Voting Rights; Ability to Appoint Directors. Holders of AOL Time Warner
series J preferred stock will generally be entitled to the same voting rights
and rights to appoint directors as holders of AOL Time Warner series E
preferred stock, except that the vote of at least two-thirds of the voting
power of all shares of AOL Time Warner series J preferred stock that are
outstanding will be necessary in order to:
. authorize any AOL Time Warner capital stock that will be senior to the
AOL Time Warner series J preferred stock, or reclassify any AOL Time
Warner capital stock that is junior to, or on parity with, the AOL Time
Warner series J preferred stock, to be senior to the AOL Time Warner
series J preferred stock with respect to the payment of dividends or any
other distribution of assets; or
. amend, alter or repeal any of the provisions of the AOL Time Warner
restated certificate of incorporation, including the certificate of
designations relating to the AOL Time Warner series J preferred stock,
in such a way as to materially and adversely affect the preferences,
special rights, powers or privileges of the AOL Time Warner series J
preferred stock.
In addition, the vote of holders of AOL Time Warner series J common stock will
not be required to authorize, designate or issue additional shares of AOL Time
Warner series J preferred stock under any circumstances.
Conversion Rights. The AOL Time Warner series J preferred stock will be
convertible at any time at the option of the holder into shares of AOL Time
Warner common stock. Each share of AOL Time Warner series J preferred stock
will be initially convertible into 6.24792 shares of AOL Time Warner common
stock.
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Conversion Rate Adjustments. The conversion rate will be subject to
adjustment upon the occurrence of specified events, including:
. the payment by AOL Time Warner of dividends with respect to AOL Time
Warner common stock that are payable in shares of AOL Time Warner common
stock;
. combinations, subdivisions and reclassifications of AOL Time Warner
common stock;
. the issuance by AOL Time Warner of rights or warrants to all holders of
AOL Time Warner common stock entitling them to subscribe for or purchase
shares of AOL Time Warner common stock or a security convertible into
shares of AOL Time Warner common stock at a price per share that is less
than the market price of the AOL Time Warner common stock on the record
date for the issuance; and
. the distribution by AOL Time Warner of assets or property to all holders
of AOL Time Warner common stock, in each case not including a regularly
scheduled cash dividend, a common stock dividend that results in an
adjustment of the conversion rate or a distribution of a right or
warrant to purchase securities of AOL Time Warner, although no
adjustment will be made in the event of a distribution of rights to
purchase securities of AOL Time Warner if holders of shares of AOL Time
Warner series J preferred stock would receive rights upon conversion of
their shares.
In the event of:
. a consolidation or merger of AOL Time Warner with another entity such
that AOL Time Warner is not the surviving entity or that results in a
change in the AOL Time Warner common stock; or
. a transaction in which the shares of AOL Time Warner common stock will
cease to be registered under the Securities Exchange Act of 1934 and AOL
Time Warner sells all or substantially all its property and assets to
another entity,
then each share of AOL Time Warner series J preferred stock will be convertible
into the number of shares of capital stock or other property received by a
holder of a number of shares of AOL Time Warner common stock into which the
share of AOL Time Warner series J preferred stock could have been converted
immediately before the transaction.
Liquidation Rights. Holders of AOL Time Warner Series J preferred stock will
be entitled to the same liquidation rights as holders of AOL Time Warner series
E preferred stock. For a description of these rights, see "AOL Time Warner
Preferred Stock--Series E Preferred Stock--Liquidation Rights."
Redemption or Exchange of Shares. So long as the closing price of shares of
AOL Time Warner common stock has been, for a specified period of time, equal to
or greater than 125% of the conversion price in effect at the time of
redemption or exchange, AOL Time Warner will have the right to:
. redeem all or any part of the outstanding shares of AOL Time Warner
series J preferred stock for a cash redemption price per share equal to
the liquidation value, which initially will be $100, plus any accrued
and unpaid dividends;
. exchange all or any part of the outstanding shares of AOL Time Warner
series J preferred stock for shares of AOL Time Warner common stock
having a current market price that is equal to the liquidation value
plus any accrued and unpaid dividends; or
. a combination of a redemption and exchange.
In addition, so long as all dividends with respect to shares of AOL Time Warner
series J preferred stock accrued through the dividend payment date immediately
prior to the date fixed for exchange have been declared and paid, AOL Time
Warner will have the right to exchange shares of AOL Time Warner series J
preferred stock for shares of AOL Time Warner common stock at a rate of
exchange per $100 of liquidation value equal to the conversion rate in effect
at the time of exchange.
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If less than all of the outstanding shares of AOL Time Warner series J
preferred stock are to be redeemed or exchanged, the shares to be redeemed or
exchanged will be selected by lot or pro rata or by any other method as may be
determined by the AOL Time Warner board of directors to be equitable.
Anti-Takeover Considerations
Delaware law and the AOL Time Warner restated certificate of incorporation
and restated by-laws will contain a number of provisions which may have the
effect of discouraging transactions that involve an actual or threatened change
of control of AOL Time Warner. For a description of the provisions, see
"Comparison of Rights of AOL Time Warner Stockholders, America Online
Stockholders and Time Warner Stockholders--Amendments to By-laws," "--
Amendments to Certificates of Incorporation" and "--State Anti-Takeover
Statutes."
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COMPARISON OF RIGHTS OF AOL TIME WARNER STOCKHOLDERS,
AMERICA ONLINE STOCKHOLDERS AND TIME WARNER STOCKHOLDERS
AOL Time Warner, America Online and Time Warner are all organized under the
laws of the State of Delaware. Any differences, therefore, in the rights of
holders of AOL Time Warner capital stock, America Online capital stock and Time
Warner capital stock arise primarily from differences in their respective
restated certificates of incorporation, restated by-laws and rights agreements.
Upon completion of the merger, holders of America Online common stock and
holders of Time Warner capital stock will become holders of AOL Time Warner
capital stock and their rights will be governed by Delaware law, the AOL Time
Warner restated certificate of incorporation and the AOL Time Warner restated
by-laws.
This section of the proxy statement-prospectus describes the material
differences between the rights of America Online stockholders and Time Warner
stockholders. This section also includes a brief description of the material
rights that AOL Time Warner stockholders are expected to have following
completion of the merger, although in some cases the board of directors of AOL
Time Warner retains the discretion to alter those rights without stockholder
consent. This section does not include a complete description of all
differences among the rights of these stockholders, nor does it include a
complete description of the specific rights of these stockholders. In addition,
the identification of some of the differences in the rights of these
stockholders as material is not intended to indicate that other differences
that are equally important do not exist. All America Online stockholders and
Time Warner stockholders are urged to read carefully the relevant provisions of
Delaware law, as well as the restated certificates of incorporation and
restated by-laws of each of America Online, Time Warner and AOL Time Warner.
Copies of the forms of restated certificate of incorporation and restated by-
laws for AOL Time Warner are attached to this joint proxy statement-prospectus
as Annexes G and H, respectively. Copies of the restated certificates of
incorporation and restated by-laws of America Online and Time Warner will be
sent to America Online stockholders and Time Warner stockholders, as
applicable, upon request. See "Where You Can Find More Information."
Capitalization
America Online. The authorized capital stock of America Online consists of:
. 6,000,000,000 shares of America Online common stock; and
. 5,000,000 shares of America Online preferred stock, of which 500,000
shares have been designated as America Online series A-1 preferred stock
under the America Online stockholders rights plan.
Time Warner. The authorized capital stock of Time Warner consists of:
. 5,000,000,000 shares of Time Warner common stock;
. 600,000,000 shares of Time Warner series common stock, of which:
. 140,000,000 shares have been designated as Time Warner series LMC
common stock; and
. 140,000,000 shares have been designated as Time Warner series LMCN-V
common stock;
. 250,000,000 shares of Time Warner preferred stock, of which:
. 8,000,000 shares have been designated as Time Warner series A
preferred stock under the Time Warner rights plan;
. 3,250,000 shares have been designated as Time Warner series E
convertible preferred stock;
. 3,100,000 shares have been designated as Time Warner series F
convertible preferred stock;
. 7,000,000 shares have been designated as Time Warner series I
convertible preferred stock; and
. 3,350,000 shares have been designated as Time Warner series J
convertible preferred stock.
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AOL Time Warner. For a description of the authorized capital stock of AOL
Time Warner, see "Description of AOL Time Warner Capital Stock--Authorized
Capital Stock."
Voting Rights
America Online. Each holder of America Online common stock has the right to
cast one vote for each share of America Online common stock held of record on
all matters submitted to a vote of stockholders of America Online, including
the election of directors. Holders of America Online common stock have no
cumulative voting rights.
Time Warner. Holders of Time Warner common stock, Time Warner series LMC
common stock, Time Warner series E preferred stock, Time Warner series F
preferred stock, Time Warner series I preferred stock and Time Warner series J
preferred stock vote together as one group on most matters, including the
election of directors. Holders of Time Warner series LMCN-V common stock vote
together as one group with holders of Time Warner common stock, Time Warner
series LMC common stock, Time Warner series E preferred stock, Time Warner
series F preferred stock, Time Warner series I preferred stock and Time Warner
series J preferred stock only in elections of directors. In voting, holders of
shares of Time Warner capital stock have a number of votes per share equal to:
. in the case of Time Warner common stock, one vote per share;
. in the case of Time Warner series LMC common stock, a number of votes
per share equal to the product of the number of votes per share that may
be cast by holders of Time Warner common stock multiplied by the LMC
formula number in effect at the time of the vote;
. in the case of Time Warner series LMCN-V common stock, a number of votes
per share equal to the product of the number of votes per share that may
be cast by holders of Time Warner common stock multiplied by the LMCN-V
formula number in effect at the time of the vote divided by 100;
. in the case of Time Warner series E preferred stock, four votes per
share;
. in the case of Time Warner series F preferred stock, four votes per
share;
. in the case of Time Warner series I preferred stock, four votes per
share; and
. in the case of Time Warner series J preferred stock, four votes per
share.
The LMC formula number for the Time Warner series LMC common stock is
identical to the LMC formula number that will be attributed to the AOL Time
Warner series LMC common stock. For a description of this LMC formula number,
see "Description of AOL Time Warner Capital Stock--AOL Time Warner Series
Common Stock--Series LMC Common Stock--LMC Formula Number." Similarly, the
LMCN-V formula number for the Time Warner series LMCN-V common stock is
identical to the LMCN-V formula number that will be attributed to the AOL Time
Warner series LMCN-V common stock. For a description of this LMCN-V formula
number, see "Description of AOL Time Warner Capital Stock--AOL Time Warner
Series Common Stock--Series LMCN-V Common Stock--LMCN-V Formula Number."
In addition, holders of shares of Time Warner series common stock and Time
Warner preferred stock have class voting rights that are identical to the class
voting rights that will be granted to the corresponding series of capital stock
of AOL Time Warner. For a description of these rights, see "Voting Rights" for
each of AOL Time Warner series LMC common stock, AOL Time Warner series LMCN-V
common stock, AOL Time Warner series E preferred stock, AOL Time Warner series
F preferred stock, AOL Time Warner series I preferred stock and AOL Time Warner
series J preferred stock under "Description of AOL Time Warner Capital Stock."
AOL Time Warner. Holders of AOL Time Warner common stock will have the
right to cast one vote for each share of AOL Time Warner common stock they hold
of record on all matters on which stockholders of AOL Time Warner are generally
entitled to vote.
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For a description of the voting rights that will be granted to holders of
AOL Time Warner series common stock and AOL Time Warner preferred stock, see
"Voting Rights" for each of AOL Time Warner series LMC common stock, AOL Time
Warner series LMCN-V common stock, AOL Time Warner series E preferred stock,
AOL Time Warner series F preferred stock, AOL Time Warner series I preferred
stock and AOL Time Warner series J preferred stock under "Description of AOL
Time Warner Capital Stock."
Number and Election of Directors
America Online. The board of directors of America Online has eleven
members. The America Online restated by-laws provide that the America Online
board of directors will consist of a number of directors to be fixed from time
to time by the America Online board of directors, and the America Online
restated certificate of incorporation provides that any change in the size of
the board of directors requires the vote of a majority of the total number of
authorized directors.
The America Online restated certificate of incorporation and restated by-
laws provide for the America Online board of directors to be divided into three
classes, as nearly equal in size as possible, with one class being elected
annually. Members of the America Online board of directors are elected to serve
a term of three years, and until their successors are elected and qualified.
Under Delaware law, stockholders do not have cumulative voting rights for
the election of directors unless the corporation's certificate of incorporation
so provides. America Online's restated certificate of incorporation does not
provide for cumulative voting.
Time Warner. The board of directors of Time Warner has 11 members. The Time
Warner by-laws provide that the Time Warner board of directors will consist of
a number of directors to be fixed from time to time pursuant to a resolution
adopted by the Time Warner board of directors but will, in any event, not be
less than three.
Neither the Time Warner restated certificate of incorporation nor the Time
Warner by-laws provides for a staggered board of directors.
The Time Warner by-laws provide for directors to be elected by a plurality
of the votes cast by Time Warner stockholders entitled to vote in the election
of directors at a meeting at which a quorum is present.
Time Warner's restated certificate of incorporation does not provide for
cumulative voting.
AOL Time Warner. The board of directors of AOL Time Warner initially will
consist of 16 members, eight of whom will be designated by America Online and
eight of whom will be designated by Time Warner. The AOL Time Warner restated
by-laws will provide that the AOL Time Warner board of directors will consist
of a number of directors to be fixed from time to time by the AOL Time Warner
board of directors, however, any change in the size of the board of directors
will require a vote of not less than 75% of the total number of authorized
directors.
Neither the AOL Time Warner restated certificate of incorporation nor the
AOL Time Warner restated by-laws will provide for a staggered board of
directors.
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The AOL Time Warner restated by-laws will provide that directors are elected
by a plurality of the votes cast by AOL Time Warner stockholders entitled to
vote in the election of directors at a meeting at which a quorum is present.
AOL Time Warner's restated certificate of incorporation will not provide for
cumulative voting.
Vacancies on the Board of Directors and Removal of Directors
General. Delaware law provides that if, at the time of the filling of any
vacancy or newly created directorship, the directors then in office constitute
less than a majority of the authorized number of directors, the Delaware Court
of Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the outstanding stock of the corporation having the right to vote
for such directors, order an election to be held to fill the vacancy or replace
the directors selected by the directors then in office.
America Online. Vacancies on the board of directors of America Online,
including vacancies and unfilled newly created directorships resulting from any
increase in the authorized number of directors, may be filled only by a
majority vote of the directors then in office, though less than a quorum.
America Online's restated certificate of incorporation provides that
directors may be removed only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of the then outstanding shares of
America Online capital stock entitled to vote generally in the election of
directors, voting together as one group.
Time Warner. Vacancies on the board of directors of Time Warner may only be
filled by the majority of the remaining directors in office, though less than a
quorum. Newly created directorships resulting from an increase in the
authorized number of directors may be filled by the Time Warner board of
directors, or, if not so filled, by the Time Warner stockholders at the next
annual meeting or at a special meeting called for that purpose.
Delaware law provides that, except in the case of a classified board of
directors or where cumulative voting applies, a director, or the entire board
of directors, of a corporation may be removed, with or without cause, by the
affirmative vote of a majority of the shares of the corporation entitled to
vote at an election of directors. These provisions of Delaware law regarding
the removal of directors govern the removal of directors from the Time Warner
board of directors.
AOL Time Warner. The AOL Time Warner restated certificate of incorporation
will provide that vacancies on the board of directors of AOL Time Warner may
only be filled by the majority of the remaining directors in office, though
less than a quorum. During the one year period following completion of the
merger, any vacancy on the AOL Time Warner board of directors created by a
designee of America Online or Time Warner will be filled with a new director
selected by the majority of the remaining designees of America Online or Time
Warner, as applicable, on the AOL Time Warner board of directors. Newly created
directorships resulting from any increase in the authorized number of directors
may be filled by the AOL Time Warner board of directors, or, if not so filled,
by the AOL Time Warner stockholders at the next annual meeting or at a special
meeting called for that purpose.
Delaware law provides that, except in the case of a classified board of
directors or where cumulative voting applies, a director, or the entire board
of directors, of a corporation may be removed, with or without cause, by the
affirmative vote of a majority of the shares of the corporation entitled to
vote at an election of directors. These provisions of Delaware law regarding
the removal of directors will govern the removal of directors from the AOL Time
Warner board of directors.
Amendments to the Certificate of Incorporation
General. Under Delaware law, an amendment to the certificate of
incorporation of a corporation requires the approval of the corporation's board
of directors and the approval of holders of a majority of the outstanding
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stock entitled to vote upon the proposed amendment, unless a higher vote is
required by the corporation's certificate of incorporation.
America Online. America Online's restated certificate of incorporation
provides that the affirmative vote of the holders of at least 80% of the voting
power of all of the then outstanding America Online capital stock entitled to
vote generally in the election of directors, voting together as one group, is
required to:
. reduce or eliminate the number of authorized shares of America Online
common stock or the number of authorized shares of America Online
preferred stock; or
. amend, or repeal, or adopt provisions inconsistent with, the provisions
of America Online's restated certificate of incorporation relating to:
. undesignated preferred stock;
. the board of directors, including the powers and authority expressly
conferred upon the board of directors, the number of members, board
classification, vacancies and removal;
. the manner in which stockholder action may be effected;
. amendments to America Online's restated by-laws;
. business combinations with interested stockholders of America
Online;
. indemnification of officers and directors of America Online; and
. the personal liability of directors of America Online or its
stockholders for breaches of fiduciary duty.
Time Warner. Time Warner's restated certificate of incorporation provides
that the affirmative vote of the holders of 80% or more of the combined voting
power of the then outstanding shares of Time Warner voting stock, voting
together as one group, is required to amend, alter or repeal, or adopt a
provision inconsistent with, the provisions of Time Warner's restated
certificate of incorporation relating to:
. the board of directors, including the number of members, vacancies and
removal;
. the manner in which stockholder action may be effected;
. amendments to Time Warner's by-laws;
. business combinations with interested stockholders of Time Warner;
. the personal liability of directors of Time Warner for breaches of
fiduciary duty; and
. the redemption, by action of the board of directors, of outstanding
shares of capital stock to prevent the loss or secure the reinstatement
of any license or franchise from any governmental agency to conduct any
portion of Time Warner's business that is conditioned upon some or all
of the holders of the capital stock possessing prescribed
qualifications.
Time Warner's restated certificate of incorporation also requires the
affirmative vote of a majority of the combined voting power of the then
outstanding shares of Time Warner voting stock that are held by "disinterested
stockholders" to amend, alter or repeal, or adopt any provision inconsistent
with, the provisions of Time Warner's restated certificate of incorporation
relating to business combinations with interested stockholders of Time Warner.
AOL Time Warner. AOL Time Warner's restated certificate of incorporation
will provide that the affirmative vote of the holders of 80% or more of the
combined voting power of the then outstanding shares of AOL Time Warner voting
stock, voting together as one group, is required to amend, alter or repeal, or
adopt a
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provision inconsistent with, the provisions of AOL Time Warner's restated
certificate of incorporation relating to:
. amendments to AOL Time Warner's restated by-laws;
. the personal liability of directors of AOL Time Warner for breaches of
fiduciary duty; and
. the redemption, by action of the board of directors, of outstanding
shares of capital stock to prevent the loss or secure the reinstatement
of any license or franchise from any governmental agency to conduct any
portion of AOL Time Warner's business that is conditioned upon some or
all of the holders of the capital stock possessing prescribed
qualifications.
Amendments to By-laws
General. Under Delaware law, stockholders entitled to vote have the power to
adopt, amend or repeal by-laws. In addition, a corporation may, in its
certificate of incorporation, confer this power on the board of directors. The
stockholders always have the power to adopt, amend or repeal the by-laws, even
though the board may also be delegated the power.
America Online. America Online's restated certificate of incorporation
authorizes the America Online board of directors to adopt, amend or repeal any
provision of America Online's restated by-laws by the affirmative vote of a
majority of the total number of authorized directors. America Online's restated
certificate of incorporation further provides that any provision of America
Online's restated by-laws may be adopted, amended or repealed by the
affirmative vote of the holders of at least 80% of the then outstanding shares
of capital stock entitled to vote generally in the election of directors,
voting together as one group.
Time Warner. Time Warner's restated certificate of incorporation authorizes
the Time Warner board of directors to adopt, repeal, alter or amend Time
Warner's by-laws by a majority vote of the total number of authorized
directors. Time Warner's restated certificate of incorporation further provides
that the affirmative vote of the holders of 80% or more of the combined voting
power of the then outstanding shares of Time Warner voting stock, voting
together as one group, is required for stockholders to adopt, amend, alter or
repeal any provision of Time Warner's by-laws.
AOL Time Warner. The AOL Time Warner restated certificate of incorporation
will authorize the AOL Time Warner board of directors to adopt, repeal, alter
or amend the AOL Time Warner restated by-laws by a majority vote of the total
number of authorized directors of AOL Time Warner or such greater vote as is
specified in the restated by-laws. The AOL Time Warner restated certificate of
incorporation will further provide that the affirmative vote of the holders of
80% or more of the combined voting power of the then outstanding shares of AOL
Time Warner voting stock, voting together as one group, will be required for
stockholders to adopt, amend, alter or repeal any provision of the AOL Time
Warner restated by-laws.
The AOL Time Warner restated by-laws will provide that, until December 31,
2003, no provision of the restated by-laws that requires a 75% vote of the
total number of authorized directors of AOL Time Warner for action to be taken
may be amended, altered or repealed, nor may any other provision inconsistent
therewith be adopted, without a 75% vote of the total number of authorized
directors. The provisions of the restated by-laws relating to the scope of
authority of the chairman of the board of directors and the chief executive
officer of AOL Time Warner, board committees and the size of the board of
directors will require a 75% vote of the total number of authorized directors.
Action by Written Consent
General. Delaware law provides that, unless otherwise stated in the
certificate of incorporation, any action which may be taken at an annual
meeting or special meeting of stockholders may be taken without a
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meeting, if a consent in writing is signed by the holders of the outstanding
stock having the minimum number of votes necessary to authorize the action at a
meeting of stockholders.
America Online. The America Online restated certificate of incorporation
limits stockholders' ability to act by written consent by requiring any action
by written consent to be unanimous.
Time Warner. The Time Warner restated certificate of incorporation prohibits
stockholder action by written consent.
AOL Time Warner. The AOL Time Warner restated certificate of incorporation
will prohibit stockholder action by written consent.
Ability to Call Special Meetings
America Online. Special meetings of America Online stockholders may be
called by America Online's board of directors, by affirmative vote of a
majority of the total number of authorized directors, or by the chief executive
officer.
Time Warner. Special meetings of Time Warner stockholders may be called by
Time Warner's board of directors, by affirmative vote of a majority of the
total number of authorized directors, or by the chairman, the chief executive
officer or the president.
AOL Time Warner. The AOL Time Warner restated by-laws will provide that
special meetings of AOL Time Warner stockholders may be called by AOL Time
Warner's board of directors, by affirmative vote of a majority of the total
number of authorized directors, or by the chief executive officer.
Notice of Stockholder Action
America Online. Under the America Online restated by-laws, in order for a
stockholder to nominate candidates for election to America Online's board of
directors at any annual or any special stockholder meeting at which the board
of directors has determined that directors will be elected, timely written
notice must be given to the Secretary of America Online before the annual or
special meeting. Similarly, in order for a stockholder to propose business to
be brought before any annual stockholder meeting, timely written notice must be
given to the Secretary of America Online before the annual meeting.
Under America Online's restated by-laws, to be timely, notice of stockholder
nominations or proposals to be made at an annual stockholder meeting must be
received by the Secretary of America Online no less than 60 days nor more than
90 days before the first anniversary of the preceding year's annual meeting. If
the date of the annual meeting is more than 30 days before or more than 60 days
after the anniversary of the preceding year's annual meeting, notice will also
be timely if delivered within 10 days of the date on which public announcement
of the meeting was first made by America Online. In the case of a special
meeting, notice of a stockholder nomination must be received no later than 60
days nor more than 90 days before a special meeting at which directors are to
be elected or within 10 days of the date on which public announcement of the
special meeting was first made by America Online.
In addition, if the number of directors to be elected is increased and no
public announcement is made by America Online naming all of the nominees or
specifying the size of the increased board of directors at least 70 days before
the first anniversary of the preceding year's annual meeting, or, if the date
of the increase is more than 30 days before or more than 60 days after the
anniversary of the preceding year's annual meeting, at least 70 days before the
annual meeting, a stockholder's notice will be considered timely, with respect
to the nominees for any new positions created by the increase, if it is
delivered to the Secretary of America Online within 10 days of the date on
which public announcement of the meeting was first made by America Online.
A stockholder's notice to America Online must set forth all of the
following:
. all information required to be disclosed in solicitations of proxies for
election of directors, or information otherwise required by applicable
law, relating to any person that the stockholder proposes
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to nominate for election or re-election as a director, including that
person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected;
. a brief description of the business the stockholder proposes to bring
before the meeting, the reasons for conducting that business at that
meeting and any material interest of the stockholder in the business
proposed; and
. the stockholder's name and address as they appear on America Online's
books and the class and number of shares of America Online which are
beneficially owned by the stockholder.
The chairman of any America Online stockholder meeting has the power to
determine whether the nomination or proposal was made by the stockholder in
accordance with the advance notice procedures set forth in America Online's
restated by-laws. If the chairman determines that the nomination or proposal
is not in compliance with America Online's advance notice procedures, the
chairman may declare that the defective proposal or nomination will be
disregarded.
Time Warner. Under the Time Warner by-laws, at any annual meeting of
stockholders, only such business will be conducted as is brought before the
annual meeting by or at the direction of the chairman of the meeting, or by
any stockholder who is a holder of record at the time of giving proper notice
in accordance with the provisions of the Time Warner by-laws and who complies
with the procedures set forth in the Time Warner by-laws.
For business to be properly brought before an annual meeting by a
stockholder, including the nomination of candidates for election to Time
Warner's board of directors, the stockholder must give written notice to the
Secretary of Time Warner not less than 70 days nor more than 120 days prior to
the anniversary date of the immediately preceding annual meeting. In the event
the date of the annual meeting is more than 30 days earlier or more than 60
days later than the anniversary date of the preceding meeting, then the
stockholder must deliver written notice to the Secretary of Time Warner not
earlier than the 120th day prior to the annual meeting nor later than the
close of business on the later of the 70th day prior to the annual meeting or
the 10th day following the day on which public announcement of the date of the
annual meeting is made.
A stockholder's notice to Time Warner must set forth all of the following:
. a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting that business at the
annual meeting;
. the stockholder's name and address, as they appear on Time Warner's
books, and the class and number of shares of Time Warner stock which are
beneficially owned by the stockholder;
. any material interest of the stockholder in the business desired to be
brought before the annual meeting; and
. if the stockholder intends to solicit proxies in support of his or her
proposal, a representation to that effect.
In the case of a notice of nomination of candidates for election to Time
Warner's board of directors, the notice must set forth:
. the name and address of the stockholder who intends to make the
nomination and of the persons to be nominated;
. a representation that the stockholder is a holder of record of stock of
Time Warner entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting to nominate the persons specified in
the notice;
. a description of all arrangements or understandings between the
stockholder and each nominee and any other persons (naming such persons)
pursuant to which the nomination is to be made by the stockholder;
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. such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated, or intended to be
nominated, by the board of directors of Time Warner;
. the consent of each nominee to serve as a director of Time Warner if so
elected; and
. if the stockholder intends to solicit proxies in support of the
nominees, a representation to that effect.
The chairman of any annual meeting of Time Warner's stockholders may refuse
to permit any business to be brought before the meeting that fails to comply
with the advance notice procedures set forth in Time Warner's by-laws. If the
chairman determines that the nomination or proposal is not in compliance with
Time Warner's advance notice procedures, the chairman may declare that the
defective proposal or nomination will be disregarded.
In the case of special meetings of stockholders, only such business will be
conducted as is brought pursuant to Time Warner's notice of meeting.
Nominations for persons for election to the board of directors of Time Warner
at a special meeting for which the election of directors is a stated purpose in
the notice of the meeting may be made by any stockholder who complies with the
notice and other requirements set forth in the Time Warner by-laws. If Time
Warner calls a special meeting of stockholders to elect one or more directors,
any stockholder may nominate a candidate if notice from the stockholder is
delivered to, and received by, the Secretary of Time Warner not earlier than
the 90th day prior to the special meeting nor later than the later of the close
of business of the 60th day prior to the special meeting or the 10th day
following the day on which public announcement of the meeting and of the
nominees proposed by the Time Warner board of directors is first made.
AOL Time Warner. The AOL Time Warner restated by-laws will provide that, at
any annual meeting of stockholders, only such business will be conducted as is
brought before the annual meeting by or at the direction of the chairman of the
meeting, or by any stockholder who is a holder of record at the time of giving
proper notice in accordance with the provisions of the AOL Time Warner restated
by-laws and who complies with the procedures set forth in the AOL Time Warner
restated by-laws.
For business to be properly brought before an annual meeting by a
stockholder, including the nomination of candidates for election to the AOL
Time Warner board of directors, the stockholder must give written notice to the
Secretary of AOL Time Warner not less than 90 days nor more than 120 days prior
to the anniversary date of the immediately preceding annual meeting. In the
event the date of the annual meeting is more than 30 days earlier or more than
60 days later than the anniversary date of the preceding meeting, then the
stockholder must deliver written notice to the Secretary of AOL Time Warner not
earlier than the 120th day prior to the annual meeting nor later than the close
of business on the later of the 90th day prior to the annual meeting or the
10th day following the day on which public announcement of the date of the
annual meeting is made.
A stockholder's notice to AOL Time Warner must set forth all of the
following:.
. a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting that business at the
annual meeting;
. the stockholder's name and address, as they appear on AOL Time Warner's
books, and the class and number of shares of AOL Time Warner which are
beneficially owned by the stockholder;
. any material interest of the stockholder in the business desired to be
brought before the annual meeting; and
. if the stockholder intends to solicit proxies in support of his or her
proposal, a representation to that effect.
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In the case of a notice of nomination of candidates for election to AOL Time
Warner's board of directors, the notice must set forth:
. the name and address of the stockholder who intends to make the
nomination and of the persons to be nominated;
. a representation that the stockholder is a holder of record of stock of
AOL Time Warner entitled to vote at the meeting and intends to appear in
person or by proxy at the meeting to nominate the persons specified in
the notice;
. a description of all arrangements or understandings between the
stockholder and each nominee and any other persons (naming such persons)
pursuant to which the nomination is to be made by the stockholder;
. such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated, or intended to be
nominated, by the board of directors of AOL Time Warner;
. the consent of each nominee to serve as a director of AOL Time Warner if
so elected; and
. if the stockholder intends to solicit proxies in support of the
nominees, a representation to that effect.
The chairman of any annual meeting of AOL Time Warner's stockholders may
refuse to permit any business to be brought before the meeting that fails to
comply with the advance notice procedures set forth in AOL Time Warner's
restated by-laws. If the chairman determines that the nomination or proposal is
not in compliance with AOL Time Warner's advance notice procedures, the
chairman may declare that the defective proposal or nomination will be
disregarded.
In the case of special meetings of stockholders, only such business will be
conducted as is brought pursuant to AOL Time Warner's notice of meeting.
Nominations for persons for election to the board of directors of AOL Time
Warner at a special meeting for which the election of directors is a stated
purpose in the notice of the meeting may be made by any stockholder who
complies with the notice and other requirements set forth in the AOL Time
Warner restated by-laws. If AOL Time Warner calls a special meeting of
stockholders to elect one or more directors, any stockholder may nominate a
candidate if notice from the stockholder is delivered to, and received by, the
Secretary of AOL Time Warner not earlier than the 90th day prior to the special
meeting nor later than the later of the close of business of the 60th day prior
to the special meeting or the 10th day following the day on which public
announcement of the meeting and of the nominees proposed by the AOL Time Warner
board of directors is first made.
Limitation of Personal Liability of Directors and Officers
General. Delaware law provides that a corporation may include in its
certificate of incorporation a provision limiting or eliminating the liability
of its directors to the corporation and its stockholders for monetary damages
arising from a breach of fiduciary duty, except for:
. a breach of the duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. payment of a dividend or the repurchase or redemption of stock in
violation of Delaware law; or
. any transaction from which the director derived an improper personal
benefit.
America Online. The America Online restated certificate of incorporation
provides that, to the fullest extent Delaware law permits the limitation or
elimination of the liability of directors, no director of America
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Online will be liable to America Online or its stockholders for monetary
damages for breach of fiduciary duty as a director.
Time Warner. The Time Warner restated certificate of incorporation provides
that, to the fullest extent Delaware law permits the limitation or elimination
of the liability of directors, no director of Time Warner will be liable to
Time Warner or its stockholders for monetary damages for breach of fiduciary
duty as a director.
AOL Time Warner. The AOL Time Warner restated certificate of incorporation
will provide that, to the fullest extent Delaware law permits the limitation or
elimination of the liability of directors, no director of AOL Time Warner will
be liable to AOL Time Warner or its stockholders for monetary damages for
breach of fiduciary duty as a director.
Indemnification of Directors and Officers
General. Under Delaware law, a corporation generally may indemnify directors
and officers:
. for actions taken in good faith and in a manner they reasonably believed
to be in, or not opposed to, the best interests of the corporation; and
. with respect to any criminal proceeding, they had no reasonable cause to
believe that their conduct was unlawful.
In addition, Delaware law provides that a corporation may advance to a
director or officer expenses incurred in defending any action upon receipt of
an undertaking by the director or officer to repay the amount advanced if it is
ultimately determined that he or she is not entitled to indemnification.
America Online. The America Online restated certificate of incorporation and
restated by-laws provide that any person who was or is a party or is threatened
to be a party to, or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, because that person is or was
a director or officer, or is or was serving at the request of America Online as
a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, will be indemnified and
held harmless by America Online to the fullest extent permitted by Delaware
law. The indemnification rights conferred by America Online are not exclusive
of any other right which persons seeking indemnification may be entitled under
any statute, America Online's restated certificate of incorporation or restated
by-laws, any agreement, vote of stockholders or disinterested directors or
otherwise. America Online is authorized to purchase and maintain insurance on
behalf of its directors and officers.
In addition, America Online may pay expenses incurred by its directors and
officers in defending a civil or criminal action, suit or proceeding because
they are directors or officers in advance of the final disposition of the
action, suit or proceeding. The payment of expenses will be made only if
America Online receives an undertaking by or on behalf of a director or officer
to repay all amounts advanced if it is ultimately determined that the director
or officer is not entitled to be indemnified by America Online, as authorized
by America Online's restated certificate of incorporation and restated by-laws.
Time Warner. The Time Warner by-laws provide for indemnification, to the
fullest extent permitted by Delaware law, of any person who is or was a
director or officer of Time Warner and who is or was involved in any manner, or
who is threatened to be made involved in any manner, in any pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director, officer, employee or agent of Time Warner, or is or was
serving at the request of Time Warner as a director, officer, employee or agent
of another corporation, or of a partnership, joint venture, trust or other
enterprise, although no indemnification is available to a director or officer
with respect to a proceeding that was commenced by the director or officer
unless the proceeding was
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commenced after a "change of control." The Time Warner by-laws define "change
of control" as the occurrence of:
. a merger or consolidation of Time Warner in which Time Warner is not the
surviving corporation or pursuant to which shares of Time Warner common
stock are converted into cash, securities or other property, other than
a merger of Time Warner in which the holders of Time Warner common stock
immediately prior to the merger have the same proportionate ownership of
common stock of the surviving corporation;
. any sale, lease, exchange or other transfer of all or substantially all
of the assets of Time Warner, or the liquidation or dissolution of Time
Warner;
. any person becomes an "interested stockholder" without the prior consent
of the Time Warner board of directors; or
. during any period of two consecutive years, individuals who at the
beginning of the two-year period constituted a majority of the Time
Warner board of directors have ceased for any reason to constitute a
majority of the Time Warner board of directors unless the election or
nomination of each of the new directors was approved by a vote of at
least two-thirds of the directors then still in office who were
directors at the beginning of the two-year period.
Time Warner is authorized to purchase and maintain insurance on behalf of
its directors, officers, employees and agents.
In addition, the Time Warner by-laws provide that all reasonable expenses
incurred by or on behalf of a director or officer in connection with any
investigation, claim, action, suit or proceeding will be advanced to the
director or officer by Time Warner upon the request of the director or officer
which request, if required by law, will include an undertaking by or on behalf
of the director or officer to repay the amounts advanced if ultimately it is
determined that the director or officer was not entitled to be indemnified
against the expenses.
AOL Time Warner. The AOL Time Warner restated by-laws will provide for
indemnification, to the fullest extent permitted by Delaware law, of any person
who is or was a director or officer of AOL Time Warner and who is or was
involved in any manner, or who is threatened to be made involved in any manner,
in any pending or completed investigation, claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or she is or was a director, officer, employee or agent of AOL Time
Warner, or is or was serving at the request of AOL Time Warner as a director,
officer, employee or agent of another corporation, or of a partnership, joint
venture, trust or other enterprise, although no indemnification is available to
a director or officer with respect to a proceeding that was commenced by the
director or officer unless the proceeding was commenced after a "change in
control." The AOL Time Warner restated by-laws will define "change in control"
as the occurrence of:
. a merger or consolidation of AOL Time Warner in which AOL Time Warner is
not the surviving corporation or pursuant to which shares of AOL Time
Warner common stock are converted into cash, securities or other
property, other than a merger of AOL Time Warner in which the holders of
AOL Time Warner common stock immediately prior to the merger have the
same proportionate ownership of common stock of the surviving
corporation;
. any sale, lease, exchange or other transfer of all or substantially all
of the assets of AOL Time Warner, or the liquidation or dissolution of
AOL Time Warner; or
. individuals who would constitute a majority of the members of the board
of directors of AOL Time Warner elected at any meeting of stockholders
or by written consent are elected to the AOL Time Warner board of
directors and the election or the nomination for election by the
stockholders of those directors was not approved by a vote of at least
two-thirds of the directors in office immediately prior to the election.
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AOL Time Warner is authorized to purchase and maintain insurance on behalf
of its directors, officers, employees and agents.
In addition, the AOL Time Warner restated by-laws will provide that all
reasonable expenses incurred by or on behalf of a director or officer in
connection with any investigation, claim, action, suit or proceeding will be
advanced to the director or officer by AOL Time Warner upon the request of the
director or officer which request, if required by law, will include an
undertaking by or on behalf of the director or officer to repay the amounts
advanced if ultimately it is determined that the director or officer was not
entitled to be indemnified against the expenses.
Stockholders Rights Plans
America Online. In 1998, America Online adopted a stockholder rights plan
pursuant to a rights agreement with BankBoston, N.A., as rights agent. Set
forth below is a summary of the material provisions of the rights agreement.
The summary does not include a complete description of all of the terms of the
rights agreement. All America Online stockholders and Time Warner stockholders
are urged to read carefully the relevant provisions of America Online's rights
plan, copies of which will be sent to America Online stockholders upon request.
See "Where you can find more information."
Exercisability of Rights. Under the America Online rights agreement, one
right, referred to as an America Online right, attaches to each share of
America Online common stock outstanding and, when exercisable, entitles the
registered holder to purchase from America Online one quarter of one one-
thousandth of a share of America Online series A-1 preferred stock at an
initial purchase price of $900, subject to customary antidilution adjustments.
The America Online rights will not become exercisable until the earlier of:
. ten days following a public announcement that a person has become the
beneficial owner of 15% or more of the America Online common stock then
outstanding; and
. ten business days, or such later date as may be determined by the board
of directors of America Online, following the commencement of, or the
announcement of an intention to commence, a tender offer or exchange
offer that would result in a person becoming the beneficial owner of 15%
or more of the America Online common stock then outstanding.
In connection with the merger, the America Online rights agreement was
amended to provide that the America Online rights will not become exercisable
solely by reason of the merger agreement, the stock option agreements and the
completion of the transactions contemplated thereby.
"Flip In" Feature. In the event a person becomes the beneficial owner of 15%
or more of the America Online common stock outstanding, each holder of an
America Online right, except for that person, will have the right to acquire,
upon exercise of the America Online right, instead of one quarter of one-
thousandth of a share of America Online series A-1 preferred stock, shares of
America Online common stock having a value equal to twice the exercise price of
the America Online right. For example, if we assume that the initial purchase
price of $900 is in effect on the date that the flip-in feature of the America
Online rights is exercised, any holder of an America Online right, except for
the person that has become the beneficial owner of 15% or more of the America
Online common stock then outstanding, may exercise his or her America Online
right by paying to America Online $900 in order to receive from America Online
shares of America Online common stock having a value equal to $1,800.
"Exchange" Feature. At any time after a person becomes the beneficial owner
of 15% or more, but less than 50%, of the America Online common stock then
outstanding, the board of directors of America Online may, at its option,
exchange all or some of the America Online rights, except for those held by
such person, for America Online common stock at an exchange ratio of one share
of America Online common stock for each
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America Online right, subject to adjustment, and cash instead of fractional
shares, if any. Use of this exchange feature means that eligible America Online
rights holders would not have to pay a purchase price before receiving shares
of America Online common stock.
"Flip Over" Feature. In the event that, after a person acquires 15% or more
of the America Online common stock then outstanding:
. America Online merges into another entity;
. another entity merges into America Online; or
. America Online sells more than 50% of its assets or earning power,
then each holder of an America Online right, except for a person that is the
beneficial owner of 15% or more of the America Online common stock then
outstanding, will have the right to receive, upon exercise of the America
Online right, the number of shares of the acquiring company's common stock
having a value equal to twice the exercise price of the America Online right.
Redemption of Rights. At any time prior to the earlier to occur of:
. any public announcement that a person has become the beneficial owner of
15% or more of the America Online common stock then outstanding; and
. May 12, 2008,
the board of directors of America Online may redeem all of the America Online
rights at a redemption price of $0.001 per right, subject to adjustment. The
right to exercise the America Online rights will terminate upon redemption, and
at that time, the holders of the America Online rights will have the right to
receive only the redemption price for each America Online right they hold.
Amendment of Rights. At any time before a person becomes the beneficial
owner of 15% or more of the America Online common stock then outstanding, the
terms of the existing America Online rights agreement may be amended by the
board of directors of America Online without the approval of the holders of the
rights. However, after the date any person acquires at least 15% of America
Online's outstanding common stock, the rights agreement may not be amended in
any manner that would adversely affect the interests of the holders of the
America Online rights, excluding the interests of the acquiror.
Termination of Rights. If not previously exercised, the America Online
rights will expire on May 12, 2008, unless America Online earlier redeems or
exchanges the America Online rights or extends the expiration date.
Anti-Takeover Effects. The America Online rights have anti-takeover effects.
Once the America Online rights have become exercisable, in most cases the
America Online rights will cause substantial dilution to a person that attempts
to acquire or merge with America Online. Accordingly, the existence of the
America Online rights may deter potential acquirors from making a takeover
proposal or a tender offer. The America Online rights should not interfere with
any merger or other business combination approved by the board of directors of
America Online because America Online may redeem the America Online rights and
because the America Online board of directors can amend the America Online
rights agreement so that a transaction approved by the America Online board of
directors would not cause the America Online rights to become exercisable.
Series A-1 Preferred Stock. In connection with the creation of the America
Online rights, the board of directors of America Online authorized the issuance
of 500,000 shares of America Online preferred stock designated as America
Online series A-1 junior participating preferred stock.
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America Online designed the dividend, liquidation, voting and redemption
features of the America Online series A-1 preferred stock so that the value of
one quarter of one-thousandth of a share of America Online series A-1 preferred
stock approximates the value of one share of America Online common stock.
Shares of America Online series A-1 preferred stock may only be purchased after
the America Online rights have become exercisable.
The rights of the America Online series A-1 preferred stock as to dividends,
liquidation and voting, and in the event of mergers or consolidations, are
protected by customary antidilution provisions.
Time Warner. In 1996, Time Warner adopted a stockholder rights plan pursuant
to a rights agreement with ChaseMellon Shareholder Services L.L.C., as rights
agent. Set forth below is a summary of the material provisions of the rights
agreement. The summary does not include a complete description of all of the
terms of the rights agreement. All Time Warner stockholders and America Online
stockholders are urged to read carefully the relevant provisions of Time
Warner's rights plan, copies of which will be sent to Time Warner stockholders
upon request. See "Where you can find more information."
Exercisability of Rights. Under the Time Warner rights agreement, one right,
referred to as a Time Warner right, attaches to each share of Time Warner
common stock outstanding and, when exercisable, entitles the registered holder
to purchase from Time Warner one two-thousandth of a share of Time Warner
series A preferred stock at an initial purchase price of $75, subject to
customary antidilution adjustments.
The Time Warner rights will not become exercisable until the earlier of:
. such time as Time Warner learns that a person has become the beneficial
owner of 15% or more of the Time Warner common stock then outstanding ;
and
. the date designated by the Time Warner board of directors following the
commencement of, or the announcement of an intention to commence, a
tender offer or exchange offer that would result in a person becoming
the beneficial owner of 15% or more of the Time Warner common stock then
outstanding.
In connection with the merger, the Time Warner rights agreement was amended to
provide that the Time Warner rights will not become exercisable solely by
reason of the merger agreement, the stock option agreement and completion of
the transactions contemplated thereby.
"Flip In" Feature. In the event a person becomes the beneficial owner of 15%
or more of the Time Warner common stock outstanding, each holder of a Time
Warner right, except for that person, will have the right to acquire, upon
exercise of the Time Warner right, instead of one two-thousandth of a share of
Time Warner series A preferred stock, shares of Time Warner common stock having
a value equal to twice the exercise price of the Time Warner right. For
example, if we assume that the initial purchase price of $75 is in effect on
the date that the flip-in feature of the Time Warner right is exercised, any
holder of a Time Warner right, except for the person that has become the
beneficial owner of 15% or more of the outstanding Time Warner common stock,
may exercise his or her Time Warner right by paying to Time Warner $75 in order
to receive from Time Warner shares of Time Warner common stock having a value
equal to $150.
"Exchange" Feature. At any time after a person becomes the beneficial owner
of 15% or more of the Time Warner common stock then outstanding, the board of
directors of Time Warner may, at its option, exchange all or some of the Time
Warner rights, except for those held by such person, for consideration per Time
Warner right consisting of one-half of the securities that would be issuable
upon exercise of one Time Warner right. Use of this exchange feature means that
eligible Time Warner rights holders would not have to pay a purchase price
before receiving shares of Time Warner common stock.
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"Flip Over" Feature. In the event that, after the Time Warner rights have
become exercisable:
. Time Warner merges into any person who has become the beneficial owner
of 15% or more of the Time Warner common stock then outstanding;
. a person who has become the beneficial owner of 15% or more of the Time
Warner common stock then outstanding merges into Time Warner; or
. Time Warner sells more than 50% of its assets or earning power to a
person who has become the beneficial owner of 15% or more of the Time
Warner common stock then outstanding,
then each holder of a Time Warner right, except for a person that is the
beneficial owner of 15% or more of the Time Warner common stock then
outstanding, will have the right to receive, upon exercise of the Time Warner
right, the number of shares of the acquiring company's common stock equal to
twice the exercise price of the Time Warner right.
Redemption of Rights. At any time prior to the earlier to occur of:
. a person becoming the beneficial owner of 15% or more of the Time Warner
common stock then outstanding; and
. January 20, 2004,
the board of directors of Time Warner may redeem all of the Time Warner rights
at a redemption price of $0.005 per right, subject to adjustment. The right to
exercise the Time Warner rights will terminate upon redemption, and at such
time, the holders of the Time Warner rights will have the right to receive only
the redemption price for each Time Warner right held.
Amendment of Rights. At any time before a person becomes the beneficial
owner of 15% or more of the Time Warner common stock then outstanding, the
terms of the existing Time Warner rights agreement may be amended by the Time
Warner board of directors without the approval of the holders of the rights.
After the date any person acquires at least 15% of Time Warner's outstanding
common stock, the rights agreement may not be amended in any manner which would
adversely affect the interests of the holders of the Time Warner rights,
excluding the interests of the acquiror.
Termination of Rights. If not previously exercised, the Time Warner rights
will expire on January 20, 2004, unless Time Warner earlier redeems or
exchanges the Time Warner rights or shortens or extends the expiration date.
Anti-Takeover Effects. The Time Warner rights have anti-takeover effects.
Once the Time Warner rights have become exercisable, in most cases the Time
Warner rights will cause substantial dilution to a person that attempts to
acquire or merge with Time Warner. Accordingly, the existence of the Time
Warner rights may deter potential acquirors from making a takeover proposal or
a tender offer. The Time Warner rights should not interfere with any merger or
other business combination approved by the Time Warner board of directors
because Time Warner may redeem the Time Warner rights and because the Time
Warner board of directors can amend the Time Warner rights agreement so that a
transaction approved by the Time Warner board of directors would not cause the
Time Warner rights to become exercisable.
Series A Preferred Stock. In connection with the creation of the Time Warner
rights, the board of directors of Time Warner authorized the issuance of
8,000,000 shares of Time Warner preferred stock designated as Time Warner
series A participating cumulative preferred stock.
The Time Warner series A preferred stock is attributed a formula number,
referred to as the "series A formula number," which is subject to customary
antidilution adjustments. The series A formula number is currently 2,000.
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Time Warner has designed the dividend, liquidation, voting and redemption
features of the Time Warner series A preferred stock so that the value of one
two-thousandths of a share of Time Warner series A preferred stock approximates
the value of one share of Time Warner common stock. Shares of Time Warner
series A preferred stock may only be purchased after the Time Warner rights
have become exercisable.
AOL Time Warner. AOL Time Warner does not intend to have a stockholder
rights plan.
State Anti-Takeover Statutes
General. Under the business combination statute of Delaware law, a
corporation is prohibited from engaging in any business combination with an
interested stockholder who, together with its affiliates or associates, owns,
or who is an affiliate or associate of the corporation and within a three-year
period did own, 15% or more of the corporation's voting stock for a three year
period following the time the stockholder became an interested stockholder,
unless:
. prior to the time the stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
. the interested stockholder owned at least 85% of the voting stock of the
corporation, excluding specified shares, upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder; or
. at or subsequent to the time the stockholder became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized by the affirmative vote, at
an annual or special meeting and not by written consent, of at least 66
2/3% of the outstanding voting shares of the corporation, excluding
shares held by that interested stockholder.
A business combination generally includes:
. mergers, consolidations and sales or other dispositions of 10% or more
of the assets of a corporation to or with an interested stockholder;
. specified transactions resulting in the issuance or transfer to an
interested stockholder of any capital stock of the corporation or its
subsidiaries; and
. other transactions resulting in a disproportionate financial benefit to
an interested stockholder.
The provisions of the Delaware business combination statute do not apply to
a corporation if, subject to certain requirements, the certificate of
incorporation or by-laws of the corporation contain a provision expressly
electing not to be governed by the provisions of the statute or the corporation
does not have voting stock listed on a national securities exchange, authorized
for quotation on an inter-dealer quotation system of a registered national
securities association or held of record by more than 2,000 stockholders.
America Online. Because America Online has not adopted any provision in its
restated certificate of incorporation to "opt-out" of the Delaware business
combination statute, the statute is applicable to business combinations
involving America Online.
Time Warner. Because Time Warner has not adopted any provision in its
restated certificate of incorporation to "opt-out" of the Delaware business
combination statute, the statute is applicable to business combinations
involving Time Warner.
AOL Time Warner. Because the AOL Time Warner restated certificate of
incorporation will not include any provision to "opt-out" of the Delaware
business combination statute, the statute will apply to business combinations
involving AOL Time Warner.
Fair Price Provisions
America Online. America Online's certificate of incorporation contains a
"fair price" provision which states that certain "business combinations" with
any "interested stockholder" may not be completed without
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an affirmative vote of the holders of at least 80% of the voting power of all
voting stock of America Online, voting together as one group, in addition to
any other vote required by America Online's restated certificate of
incorporation or Delaware law.
This fair price provision does not apply if the business combination will
have been approved either by a majority of the directors of America Online who
are not affiliated with the interested stockholder, of which there must be at
least two, or if certain price and procedural requirements, set forth in detail
in America Online's restated certificate of incorporation, are met.
The business combinations to which America Online's fair price provision
applies include:
. any merger or consolidation of America Online or any subsidiary with any
interested stockholder or any other corporation, whether or not itself
an interested stockholder, which is, or after the merger or
consolidation, would be, an affiliate of an interested stockholder who
was an interested stockholder before the transaction;
. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions, to or with
any interested stockholder or any affiliate of any interested
stockholder, of any assets of America Online or any subsidiary having an
aggregate fair market value, as determined in accordance with America
Online's restated certificate of incorporation, equaling or exceeding
10% or more of the assets of America Online;
. the issuance or transfer by America Online or any subsidiary, in one
transaction or a series of transactions, of any securities of America
Online or any subsidiary, to any interested stockholder or any affiliate
of any interested stockholder in exchange for cash, securities or other
property having an aggregate fair market value equaling or exceeding 10%
of the combined fair market value of the outstanding shares of voting
stock of America Online, except for any issuance or transfer pursuant to
an employee benefit plan of America Online or any subsidiary;
. the adoption of any plan or proposal for the liquidation or dissolution
of America Online proposed by or on behalf of an interested stockholder
or any affiliate of any interested stockholder; and
. any reclassification of securities, including any reverse stock split,
or recapitalization of America Online, or any merger or consolidation of
America Online with any of its subsidiaries or any other transaction
which has the effect, directly or indirectly, of increasing the
proportionate amount of the outstanding shares of any class of equity or
convertible securities of America Online or any subsidiary which is
directly or indirectly owned by any interested stockholder or any
affiliate of any interested stockholder.
America Online's fair price provision defines an "interested stockholder" as
any person, other than America Online or any America Online holding company or
subsidiary, who or which:
. is the beneficial owner, directly or indirectly, of more than 15% of the
voting power of the outstanding voting stock of America Online;
. is an affiliate of America Online and at any time within the two-year
period immediately before the date in question was the beneficial owner,
directly or indirectly, of 15% or more of the voting power of the
outstanding voting stock of America Online; and
. is an assignee of or has otherwise succeeded to any shares of voting
stock of America Online which were, at any time within the two-year
period immediately before the date in question, beneficially owned by
any interested stockholder, if the assignment or succession did not
occur as part of an initial public offering.
The "fair price" provision may deter a purchaser from using two-tiered
pricing and similar unfair or discriminatory tactics in an attempt to acquire
America Online. The provision could also have the effect of
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discouraging a third party from making a tender or exchange offer for America
Online, even though an offer by a third party might be beneficial to America
Online and its stockholders.
Time Warner. Time Warner's restated certificate of incorporation contains a
"fair price" provision which states that certain "business combinations" with
any "interested stockholder" may not be completed without:
. the affirmative vote of the holders of at least 80% of the combined
voting power of all voting stock of Time Warner; and
. the affirmative vote of the holders of a majority of the combined voting
power of all voting stock of Time Warner not affiliated with the
interested stockholder; or
. the affirmative vote of the holders of all of the shares of Time Warner
stock outstanding at the time of approval.
This fair price provision does not apply if:
. the business combination will have been approved by a majority of the
directors of Time Warner who are not affiliated with the interested
stockholder, and the interested stockholder became an interested
stockholder in a manner approved by the board of directors of Time
Warner; or
. certain minimum price, form of consideration and procedural
requirements, set forth in detail in Time Warner's restated certificate
of incorporation, are met.
The business combinations to which Time Warner's fair price provision
applies include:
. any merger or consolidation of Time Warner with any interested
stockholder or any other corporation, whether or not itself an
interested stockholder, which is, or after the merger or consolidation
would be, an affiliate or associate of an interested stockholder;
. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions, to or with
any interested stockholder or any affiliate or associate of any
interested stockholder of all or substantially all the assets of Time
Warner or assets of Time Warner and its subsidiaries representing in the
aggregate more than 75% of the total value of the assets of Time Warner
and its consolidated subsidiaries;
. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions, to or with
any interested stockholder or any affiliate or associate or any
interested stockholder of any assets of Time Warner or any of its
subsidiaries having an aggregate fair market value of $100,000,000 or
more;
. the issuance or transfer by Time Warner or any of its subsidiaries, in
one transaction or a series of transactions, to any interested
stockholder or any affiliate or associate of any interested stockholder
of any securities of Time Warner or any of its subsidiaries in exchange
for cash, securities or other property, or a combination thereof, having
an aggregate fair market value of $100,000,000 or more;
. the adoption of any plan or proposal for the liquidation or dissolution
of Time Warner proposed by or on behalf of any interested stockholder or
any affiliate or associate of any interested stockholder; or
. any reclassification of securities or recapitalization of Time Warner,
or any merger or consolidation of Time Warner with any of its
subsidiaries, or any other transaction, whether or not with or into or
otherwise involving any interested stockholder, which in any case has
the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class or series of stock of Time
Warner or any of its subsidiaries which is directly or indirectly
beneficially owned by any interested stockholder or any affiliate or
associate of any interested stockholder.
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Time Warner's fair price provision defines an "interested stockholder" as
any person, other than Time Warner or any Time Warner subsidiary, who or which:
. is the beneficial owner, directly or indirectly, of 20% or more of the
combined voting power of the then outstanding shares of Time Warner
voting stock;
. is an affiliate of Time Warner and at any time within the two-year
period immediately prior to the date in question, was the beneficial
owner, directly or indirectly, of 20% or more of the combined voting
power of the then outstanding shares of Time Warner voting stock; or
. is an assignee or has otherwise succeeded to the beneficial ownership of
any shares of Time Warner voting stock which were, at any time within
the two-year period immediately prior to the date in question
beneficially owned by an interested stockholder, if the assignment or
succession did not occur as part of an initial public offering.
AOL Time Warner. The restated certificate of incorporation of AOL Time
Warner will not contain a provision similar to the fair price provision that is
contained in America Online's or Time Warner's certificates of incorporation.
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MANAGEMENT OF AOL TIME WARNER
AFTER THE MERGER
Board of Directors of AOL Time Warner
Members of the AOL Time Warner Board of Directors. Upon completion of the
merger, the board of directors of AOL Time Warner will be comprised of sixteen
individuals, eight of whom will be designated by America Online and eight of
whom will be designated by Time Warner. During the first year following
completion of the merger, any vacancy on the AOL Time Warner board of directors
created by a designee of America Online or Time Warner will be filled with a
new director selected by a majority of the remaining designees of America
Online or Time Warner, as applicable, on the AOL Time Warner board of
directors.
A majority of the members of the board of directors of AOL Time Warner must
be determined by the board of directors of AOL Time Warner to be eligible to be
classified as independent directors. Four of America Online's designees must be
independent and five of Time Warner's designees must be independent. In its
determination of a director's eligibility to be classified as an independent
director, the AOL Time Warner board of directors will consider, among such
other factors as it may in any case deem relevant, that the director:
. has not been employed by AOL Time Warner as an executive officer within
the past three years;
. is not a paid adviser or consultant to AOL Time Warner and derives no
material financial benefit from any entity as a result of advice or
consultancy provided to AOL Time Warner by that entity;
. is not an executive officer, director or significant stockholder of a
significant customer or supplier of AOL Time Warner;
. has no personal services contract with AOL Time Warner;
. is not an executive officer or director of a tax-exempt entity receiving
a significant part of its annual contributions from AOL Time Warner;
. is not a member of the immediate family of any director who is not
considered an independent director; and
. is free of any other relationship that would interfere with the exercise
of independent judgment by the director.
The affirmative vote of 75% of the members of the board of directors of AOL
Time Warner will be required to change the size of the AOL Time Warner board of
directors.
To date, America Online and Time Warner have designated the individuals set
forth below to be directors of AOL Time Warner upon completion of the merger.
Some or all of the remaining directors are expected to be designated by America
Online from its existing board of directors.
<TABLE>
<CAPTION>
Name Age Designee of:
---- --- ------------
<S> <C> <C>
Stephen M. Case, Chairman................................. 41 America Online
Kenneth J. Novack, Vice Chairman.......................... 58 America Online
R.E. Turner, Vice Chairman................................ 61 Time Warner
Stephen F. Bollenbach..................................... 57 Time Warner
Carla A. Hills............................................ 66 Time Warner
Gerald M. Levin........................................... 61 Time Warner
Reuben Mark............................................... 61 Time Warner
Michael A. Miles.......................................... 60 Time Warner
Richard D. Parsons........................................ 52 Time Warner
Robert W. Pittman......................................... 46 America Online
Francis T. Vincent, Jr. .................................. 61 Time Warner
</TABLE>
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Stephen M. Case. Mr. Case, a co-founder of America Online, has been Chairman
of the Board of Directors of America Online since October 1995, Chief Executive
Officer since April 1993 and a Director since September 1992. Mr. Case also
served as Executive Vice President of America Online from September 1987 to
January 1991 and Vice President, Marketing, from 1985 to September 1987. Mr.
Case is a director of the New York Stock Exchange.
Kenneth J. Novack. Mr. Novack was appointed as Vice Chairman of America
Online in May 1998. He became Of Counsel to the Boston-based law firm of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, PC after his retirement as a member of
that firm in August 1998. Mr. Novack joined Mintz Levin in 1966 as an associate
and rose to the position of Managing Partner in 1972. He was President and
Chief Executive Officer of the firm from 1991 to 1994 and served on its
executive committee from 1970 until his retirement. He is a member of the Board
of Directors of Ekco Group, Inc., a manufacturer of brand-name houseware
products.
R.E. Turner. Mr. Turner has served as the Vice Chairman of Time Warner since
October 1996. Prior to that, Mr. Turner served as the Chairman of the Board and
President of Turner Broadcasting System from 1970.
Stephen F. Bollenbach. Mr. Bollenbach has served as a director of Time
Warner since 1997 and as President and Chief Executive Officer of Hilton Hotels
Corporation since February 1996. Prior to that, Mr. Bollenbach was Senior
Executive Vice President and Chief Financial Officer of The Walt Disney Company
(entertainment) from April 1995 until February 1996 and President and Chief
Executive Officer of Host Marriott Corporation (lodging) from October 1993 to
April 1995. He is also a director of Catellus Development Corporation, Hilton
Hotels Corporation, Kmart Corporation and Park Place Entertainment Corporation
(Chairman).
Carla A. Hills. Ambassador Hills has served as a director of Time Warner
since 1993. She became Chairman and Chief Executive Officer of Hills & Company
(international trade and investment consultants) in March 1993, having served
in President Bush's Cabinet as the United States Trade Representative from
February 1989 to January 20, 1993. Ambassador Hills is also a director of
American International Group, Inc., Chevron Corporation and Lucent Technologies
Inc.
Gerald M. Levin. Mr. Levin has served as Chief Executive Officer and
Chairman of the Board of Time Warner since January 1993, having served in other
executive positions at Time Warner prior to that. Mr. Levin has served as a
director of Time Warner since 1988 having previously served as a director of
Time Warner from 1983 until January 1987. Mr. Levin is also a member of the
Board of Representatives of Time Warner Entertainment Company, L.P. and a
director of the New York Stock Exchange.
Reuben Mark. Mr. Mark has served as a director of Time Warner since 1993 and
as the Chief Executive Officer of Colgate-Palmolive Company (consumer products)
since May 1984. In May 1986, he was elected Chairman. Mr. Mark is also a
director of Citigroup Inc. and Pearson plc.
Michael A. Miles. Mr. Miles has served as director of Time Warner since
1995. He served as Chairman of the Board and Chief Executive Officer of Philip
Morris Companies Inc. (consumer products) from September 1991 until July 1994.
Mr. Miles is also a director of The Allstate Corporation, Dell Computer
Corporation, The Interpublic Group of Companies, Inc., Morgan Stanley, Dean
Witter, Discover & Co. and Sears, Roebuck and Co. and is a Special Limited
Partner in Forstmann Little & Co.
Richard D. Parsons. Mr. Parsons has served as President of Time Warner since
February 1, 1995. Prior to that, Mr. Parsons served as the Chairman and Chief
Executive Officer of The Dime Savings Bank of New York, FSB from January 1991.
He has served as a director of Time Warner since 1991 and prior to that, served
as a director of American Television and Communications Corporation, then an
82%-owned subsidiary of Time Warner, from 1989 until 1991. Mr Parsons is
currently also a director of Citigroup Inc., Estee Lauder Companies Inc. and
Philip Morris Companies Inc. and a member of the Board of Representatives of
Time Warner Entertainment Company, L.P.
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Robert W. Pittman. Mr. Pittman has served as President and Chief Operating
Officer of America Online since February 1998 and as a director since 1995. He
was President and Chief Executive Officer of AOL Networks, a division of
America Online, from November 1996 until February 1998. He held the positions
of Managing Partner and Chief Executive Officer of Century 21 Real Estate Corp.
from October 1995 to October 1996. Mr. Pittman had previously been President
and Chief Executive Officer of Time Warner Enterprises, a division of Time
Warner Entertainment Company, L.P. from 1990 to September 1995, and Chairman
and Chief Executive Officer of Six Flags Entertainment Corporation from
December 1991 to September 1995. Mr. Pittman founded MTV in 1981, and became
President of MTV Networks in 1985. He is also a director of Cendant
Corporation.
Francis T. Vincent, Jr. Mr. Vincent has served as a director of Time Warner
since 1993. He has been a private investor at Vincent Enterprises since January
1, 1995. Prior to that, Mr. Vincent served as the Commissioner of Major League
Baseball from September 1989 until September 1992. He is also a director of
Oakwood Homes Corporation and Westfield America Corporation.
Committees of the AOL Time Warner Board of Directors
Upon completion of the merger, the board of directors of AOL Time Warner
initially will have four committees:
. a nominating and governance committee, the chairperson of which will
initially be designated by Time Warner;
. an audit and finance committee, the chairperson of which will initially
be designated by Time Warner;
. a compensation committee, the chairperson of which will initially be
designated by America Online; and
. a values and human development committee, the chairperson of which will
initially be designated by America Online.
During the one year period following the completion of the merger, any
replacement chairperson of the nominating and governance or audit and finance
committees will be designated by the chief executive officer of AOL Time Warner
and any replacement chairperson of the compensation or values and human
development committees will be designated by the chairman of the board of AOL
Time Warner. Also during the one year period following the completion of the
merger, each committee of the AOL Time Warner board of directors will be
comprised of two directors designated by America Online and two directors
designated by Time Warner.
The affirmative vote of 75% of the members of the board of directors of AOL
Time Warner will be required to modify the powers and authority of any
committee of the AOL Time Warner board of directors. In addition, the AOL Time
Warner board of directors may remove a director from a committee, change the
size of any committee or terminate any committee or change the chair of a
committee only with the affirmative vote of not less than 75% of the members of
the AOL Time Warner board of directors.
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Compensation of Directors
In accordance with existing practice of America Online and Time Warner, it
is expected that directors of AOL Time Warner who are also full-time employees
of AOL Time Warner will receive no additional compensation for their services
as directors. Each non-employee director of AOL Time Warner will receive
compensation for service on the AOL Time Warner board of directors as
determined by the board of directors of AOL Time Warner upon the
recommendation of the nominating and governance committee.
Executive Officers of AOL Time Warner
The principal executive officers of AOL Time Warner upon completion of the
merger will be as follows:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Stephen M. Case......... 41 Chairman of the Board
Gerald M. Levin......... 61 Chief Executive Officer
Kenneth J. Novack....... 58 Vice Chairman
R.E. Turner............. 61 Vice Chairman and Senior Advisor
Richard D. Parsons...... 52 Co-Chief Operating Officer
Robert W. Pittman....... 46 Co-Chief Operating Officer
Richard J. Bressler..... 42 Executive Vice President and Chief Executive Officer of
AOL Time Warner Investment Corporation
Paul T. Cappuccio....... 38 Executive Vice President and General Counsel
J. Michael Kelly........ 43 Executive Vice President and Chief Financial Officer
Kenneth B. Lerer........ 48 Executive Vice President
William J. Raduchel..... 53 Executive Vice President and Chief Technology Officer
George Vradenburg, III.. 57 Executive Vice President for Global and Strategic Policy
</TABLE>
For information regarding these executive officers of AOL Time Warner who
will also serve as directors of AOL Time Warner, see page 131. Information
regarding these executive officers of AOL Time Warner who will not also serve
as directors of AOL Time Warner is set forth below.
Richard J. Bressler. Mr. Bressler has served as Executive Vice President of
Time Warner and Chairman and Chief Executive Officer of Time Warner Digital
Media since July 1999. Prior to that, he served as Executive Vice President
and Chief Financial Officer of Time Warner from January 1998, and Senior Vice
President and Chief Financial Officer of Time Warner from March 1995.
Paul T. Cappuccio. Mr. Cappuccio joined America Online as Senior Vice
President and General Counsel in August 1999. Prior to joining America Online,
from 1993 to 1999, he was a partner at the Washington D.C. office of the law
firm of Kirkland & Ellis. Prior to that, from 1991 to 1993, Mr. Cappuccio was
Associate Deputy Attorney General at the United States Department of Justice.
Prior to his service at the Justice Department, Mr. Cappuccio served as a law
clerk to the Supreme Court of the United States, first for Justice Antonin
Scalia (1987-1988) and later for Justice Anthony M. Kennedy (1988-1989). Prior
to that, from 1986-1987, Mr. Cappuccio served as a law clerk to Judge Alex
Kozinski of the United States Court of Appeals for the Ninth Circuit in
Pasadena, California.
J. Michael Kelly. Mr. Kelly joined America Online as Senior Vice President,
Chief Financial Officer and Assistant Secretary of America Online in July
1998. Prior to joining America Online, he was Executive Vice President-Finance
and Planning and Chief Financial Officer of GTE Corporation, one of the
world's largest telecommunications companies. Mr. Kelly was appointed GTE's
Senior Vice President-Finance in 1994, receiving the responsibility for
Corporate Planning and Development during 1997. From 1991 to 1994, he served
as Vice President-Controller of GTE.
Kenneth B. Lerer. Mr. Lerer joined America Online as Senior Vice President
in October 1999. He is responsible for the corporate communications and
investor relations departments. Prior to that, Mr. Lerer was a founder and
served as President of Robinson Lerer & Montgomery, a corporate communications
and consulting firm. He is a director of Oxygen Media, Inc. and Screaming
Media.
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William J. Raduchel. Mr. Raduchel was appointed as Senior Vice President and
Chief Technology Officer of America Online in September 1999. He served as
Chief Strategy Officer and a member of the Executive Committee of Sun
Microsystems, Inc. from January 1998 to September 1999. He served as Vice
President, Corporate Planning and Development and as Chief Information Officer
from July 1991 to January 1998, as Vice President Human Resources (acting) from
July 1991 to June 1992, as Vice President and Chief Financial Officer from June
1989 to July 1991, as well as Chief Information Officer (acting) from November
1990 to July 1991 and as Vice President, Corporate Planning and Development
from October 1988 to June 1989. He is a Director of MIH Limited, a multi-
national provider of pay-television platform services and pay-television
technology.
George Vradenburg, III. Mr. Vradenburg has held the position of Senior Vice
President, Global and Strategic Policy of America Online since December 1998.
Mr. Vradenburg served as Senor Vice President, General Counsel and Secretary
from March 1997 to December 1998. He was a Senior Partner with the law firm of
Latham & Watkins and co-chair of its Entertainment & Media Practice Group from
1995 to 1997. Mr. Vradenburg previously served as Executive Vice President of
Fox, Inc., which owns and operates a television broadcasting network and
produces and distributes entertainment, news and sports programming, from 1991
to 1995, and Senior Vice President and General Counsel of CBS, Inc., a
television and radio broadcasting and cable programming company, from 1985 to
1991.
Until December 31, 2003, the affirmative vote of 75% of the members of the
board of directors of AOL Time Warner will be required to remove the chairman
of the board or chief executive officer of AOL Time Warner or to change their
roles, duties, authority or reporting line.
To guide AOL Time Warner priorities and facilitate strong collaboration
across the new company, an executive committee will be formed upon completion
of the merger. The executive committee will be chaired by Mr. Case and Mr.
Levin and will include Messrs. Novack, Turner, Parsons, Pittman, Bressler,
Kelly, Lerer, Raduchel and Vradenburg as well as Miles R. Gilburne, a director
of America Online.
Compensation of Executive Officers
AOL Time Warner has not yet paid any compensation to its chairman of the
board, chief executive officer, co-chief operating officers or executive vice
president and chief financial officer, or any other person expected to become
an executive officer of AOL Time Warner. The form and amount of the
compensation to be paid to each of AOL Time Warner's executive officers in any
future period will be determined by the compensation committee of the AOL Time
Warner board of directors.
For information concerning the compensation paid to, and the employment
agreements with, the chief executive officer and the other four most highly
compensated executive officers of America Online for the 1998 fiscal year, see
America Online's proxy statement used in connection with its 1999 annual
meeting of stockholders, the relevant portions of which are incorporated by
reference into America Online's annual report on Form 10-K for the fiscal year
ended June 30, 1999. For information concerning the compensation paid to, and
the employment agreements with, the chief executive officer and the other four
most highly compensated executive officers of Time Warner for the 1999 fiscal
year, see Time Warner's proxy statement used in connection with its 2000 annual
meeting of stockholders, the relevant portions of which are incorporated by
reference into Time Warner's annual report on Form 10-K for the fiscal year
ended December 31, 1999.
Integration Committee
A four-person integration committee, composed of Mr. Pittman, President and
Chief Operating Officer of America Online; Mr. Parsons, President of Time
Warner; Kenneth J. Novack, Vice Chairman of America Online; and Richard J.
Bressler, Chairman and Chief Executive Officer of Time Warner Digital Media,
has been formed to work toward a smooth and rapid combination of the two
companies. The committee will make its recommendations to Mr. Case, Chairman
and Chief Executive Officer of America Online and Mr. Levin, Chairman and Chief
Executive Officer of Time Warner.
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BUSINESS RELATIONSHIPS BETWEEN AMERICA ONLINE AND TIME WARNER
For several years prior to the announcement of the merger, America Online
and Time Warner have worked together on a number of content, marketing and
commerce relationships. These relationships have included:
. agreements between America Online and Warner Bros. for provision of
content related to television programs, cross-promotions and for
collaboration on the movie "You've Got Mail;"
. agreements between America Online and the Time Inc. magazines, Time,
Entertainment Weekly, Money and Teen People for availability of
magazine content and related features on the AOL service;
. agreements between America Online and New Line Cinema for promotion and
advertising relating to recently released motion pictures;
. an agreement between America Online and Warner Bros. and New Line
Cinema for participation in America Online's shop@AOL; and
. advertising agreements between MovieFone and Warner Bros. and New Line
Cinema.
At the time of the announcement of the merger, America Online and Time
Warner also announced the entry into a new interactive services and marketing
agreement providing for various joint marketing, commerce, content and
promotional arrangements. The new arrangements range from content deals such as
the inclusion of InStyle on the AOL service and the inclusion of CNN.com and
Entertaindom.com on various America Online services, to cross-promotions such
as the distribution of disks for the AOL service in Warner Bros. retail stores,
to promotions of Time Warner magazines on the AOL service. Other examples of
the new arrangements include access by AOL members to promotional music clips
from Time Warner music companies and participation in online-offline cross-
promotion of Time Warner movies by AOL MovieFone and Time Warner.
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LEGAL MATTERS
The validity of the shares of AOL Time Warner stock offered by this joint
proxy statement-prospectus will be passed upon for AOL Time Warner by Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. Kenneth J.
Novack, Vice Chairman of America Online, also serves as Of Counsel to Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C. and owns an aggregate of 1,259
shares of America Online common stock and options to purchase 2,683,000 shares
of America Online common stock. Attorneys of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C. and members of their families and trusts for their own
benefit own an aggregate of approximately 5,600 shares of America Online common
stock.
Cravath, Swaine & Moore, counsel for Time Warner, and Simpson Thacher &
Bartlett, counsel for America Online, will pass upon certain Federal income tax
consequences of the merger for Time Warner and America Online, respectively.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of America Online, Inc. for the three years ended June 30,
1999, incorporated by reference as Exhibit 99 to its Form 10-Q/A for the
quarterly period ended March 31, 2000, as set forth in their report, which is
incorporated by reference in this joint proxy statement-prospectus and
elsewhere in this registration statement. These consolidated financial
statements are incorporated by reference in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements and schedules of Time Warner Inc. and Time Warner
Entertainment Company, L.P. included in Time Warner's Annual Report on Form 10-
K for the year ended December 31, 1999, as set forth in their reports, which
are incorporated in this joint proxy statement-prospectus and elsewhere in the
registration statement. These consolidated financial statements and schedules
are incorporated by reference in reliance on Ernst & Young LLP's reports, given
on their authority as experts in accounting and auditing.
OTHER MATTERS
Neither America Online nor Time Warner presently intends to bring any
matters other than those described in this document before its special meeting.
Further, neither America Online nor Time Warner has any knowledge of any other
matters that may be introduced by other persons. If any other matters do
properly come before either company's special meeting or any adjournment or
postponement of either company's special meeting, the persons named in the
enclosed proxy forms of America Online or Time Warner, as applicable, will vote
the proxies in keeping with their judgment on such matters.
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present
proper proposals for inclusion in a company's proxy statement and for
consideration at the next annual meeting of its stockholders by submitting
their proposals to the company in a timely manner.
America Online. America Online will hold an annual meeting in the year 2000
only if the merger has not already been completed. If the annual meeting is
held, stockholder proposals will be eligible for inclusion in America Online's
proxy statement relating to the 2000 annual meeting of stockholders if the
stockholder proposals are received no later than May 27, 2000. To be considered
for presentation at the America Online annual meeting, although not included in
the proxy statement, proposals must be received no later than August 29, 2000,
nor earlier than July 20, 2000. All stockholder proposals should be marked for
the attention of Corporate Secretary, America Online, Inc., 22000 AOL Way,
Dulles, Virginia 20166.
Time Warner. Time Warner has already held its 2000 annual meeting of
stockholders. Time Warner will hold an annual meeting in the year 2001 only if
the merger has not already been completed. In order to be
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included in the proxy statement for the 2001 annual meeting of Time Warner's
stockholders, stockholder proposals must be received by Time Warner no later
than December 1, 2000, and must otherwise comply with the requirements of Rule
14a-8. In addition, Time Warner's by-laws establish an advance notice
procedure with regard to certain matters, including stockholder proposals not
included in Time Warner's proxy statement, to be brought before an annual
meeting of stockholders. In general, notice must be received by the Secretary
of Time Warner not less than 70 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting and must contain
specified information concerning the matters to be brought before such meeting
and concerning the stockholder proposing such matters. Therefore, to be
presented at Time Warner's 2001 annual meeting, such a proposal must be
received by Time Warner after January 18, 2001 but no later than March 9,
2001. If the date of the annual meeting is more than 30 days earlier or more
than 60 days later than such anniversary date, notice must be received not
earlier than the 120th day prior to such annual meeting and not later than the
close of business on the later of the 70th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of
such meeting is first made. If a stockholder who has notified Time Warner of
his intention to present a proposal at an annual meeting does not appear or
send a qualified representative to present his proposal at such meeting, Time
Warner need not present the proposal for a vote at such meeting. All notices
of proposals by stockholders, whether or not to be included in Time Warner's
proxy materials, should be sent to the attention of the Secretary of Time
Warner at 75 Rockefeller Plaza, New York, New York 10019.
WHERE YOU CAN FIND MORE INFORMATION
This joint proxy statement-prospectus incorporates documents by reference
which are not presented in or delivered with this joint proxy statement-
prospectus.
All documents filed by America Online or Time Warner pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this joint
proxy statement-prospectus and before the date of each company's special
meeting are incorporated by reference into and are deemed to be a part of this
joint proxy statement-prospectus from the date of filing of those documents.
You should rely only on the information contained in this document or that
which we have referred you to. We have not authorized anyone to provide you
with any additional information.
The following documents, which have been filed by America Online with the
Securities and Exchange Commission (SEC file number 001-12143), are
incorporated by reference into this joint proxy statement-prospectus:
America Online's Annual Report on Form 10-K for the fiscal year ended June
30, 1999 (filing date August 13, 1999)
America Online's Quarterly Report on Form 10-Q, for the quarterly period
ended September 30, 1999 (filing date November 2, 1999)
America Online's Quarterly Report on Form 10-Q, for the quarterly period
ended December 31, 1999 (filing date February 14, 2000)
America Online's Quarterly Report on Form 10-Q/A, for the quarterly period
ended March 31, 2000 (filing date May 17, 2000), which contains financial
statements and related information that restate and supersede the financial
statements and related information in America Online's Annual Report on Form
10-K for the fiscal year ended June 30, 1999, filed August 13, 1999.
America Online's Proxy Statement on Schedule 14A (filing date September 24,
1999)
America Online's Current Report on Form 8-K dated December 1, 1999 (filing
date December 2, 1999)
America Online's Current Report on Form 8-K dated December 21, 1999 (filing
date January 3, 2000)
America Online's Current Report on Form 8-K dated January 10, 2000 (filing
date January 14, 2000)
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America Online's Current Report on Form 8-K dated January 19, 2000 (filing
date January 20, 2000)
America Online's Current Report on Form 8-K dated January 10, 2000 (filing
date February 11, 2000)
America Online's Current Report on Form 8-K dated March 17, 2000 (filing
date March 24, 2000)
America Online's Current Report on Form 8-K dated April 3, 2000 (filing
date April 3, 2000)
America Online's Current Report on Form 8-K dated April 18, 2000 (filing
date April 21, 2000)
The following documents, which were filed by Time Warner with the
Securities and Exchange Commission (SEC file number 001-12259), are
incorporated by reference into this joint proxy statement-prospectus:
Time Warner's Annual Report on Form 10-K for the year ended December 31,
1999 (filing date March 30, 2000)
Time Warner's Quarterly Report on Form 10-Q, for the quarterly period ended
March 31, 2000 (filing date May 15, 2000)
Time Warner's Current Report on Form 8-K dated January 10, 2000 (filing
date January 14, 2000)
Time Warner's Current Report on Form 8-K dated January 23, 2000 (filing
date January 28, 2000)
Time Warner's Current Report on Form 8-K dated February 2, 2000 (filing
date February 10, 2000)
Time Warner's Current Report on Form 8-K dated January 10, 2000 (filing
date February 11, 2000)
Time Warner's Current Report on Form 8-K dated March 13, 2000 (filing date
March 13, 2000)
Time Warner's Current Report on Form 8-K dated March 31, 2000 (filing date
March 31, 2000)
Time Warner's Current Report on Form 8-K dated April 12, 2000 (filing date
April 19, 2000)
Time Warner's Current Report on Form 8-K dated April 19, 2000 (filing date
April 25, 2000)
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this joint proxy statement-prospectus will be
deemed to be modified or superseded for purposes of this joint proxy
statement-prospectus to the extent that a statement contained in this joint
proxy statement-prospectus or any other subsequently filed document that is
deemed to be incorporated by reference into this joint proxy statement-
prospectus modifies or supersedes the statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this joint proxy statement-prospectus.
The documents incorporated by reference into this joint proxy statement-
prospectus are available from us upon request. We will provide a copy of any
and all of the information that is incorporated by reference in this joint
proxy statement-prospectus to any person, without charge, upon written or oral
request. If exhibits to the documents incorporated by reference in this joint
proxy statement-prospectus are not themselves specifically incorporated by
reference in this joint proxy statement-prospectus, then the exhibits will not
be provided. Any request for documents should be made by June 16, 2000 to
ensure timely delivery of the documents.
Requests for documents relating to America Online should be directed to:
America Online, Inc., 22000 AOL Way Dulles, Virginia 20166-9323. Attention:
Investor Relations, telephone: 1-800-547-3617. e-mail: AOL [email protected].
Requests for documents relating to Time Warner should be directed to:
Time Warner Inc., 75 Rockefeller Plaza, New York, New York 10019.
Attention: Shareholder Relations, telephone: (212) 484-6971. e-mail:
[email protected].
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We file reports, proxy statements and other information with the SEC. Copies
of our reports, proxy statements and other information may be inspected and
copied at the public reference facilities maintained by the SEC at:
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor New York,
450 Fifth Street, N.W. Suite 1400 New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
Reports, proxy statements and other information concerning America Online
and Time Warner may be inspected at:
The New York Stock Exchange
20 Broad Street
New York, New York 10005
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549 or by calling the SEC at l-800-SEC-0330. The SEC maintains a website
that contains reports, proxy statements and other information regarding each of
us. The address of the SEC website is http://www.sec.gov.
AOL Time Warner has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to AOL
Time Warner's stock to be issued in the merger. This joint proxy statement-
prospectus constitutes the prospectus of AOL Time Warner filed as part of the
registration statement. This joint proxy statement-prospectus does not contain
all of the information set forth in the registration statement because certain
parts of the registration statement are omitted in accordance with the rules
and regulations of the SEC. The registration statement and its exhibits are
available for inspection and copying as set forth above.
If you have any questions about the merger, please call either America
Online Investor Relations at 1-800-547-3617 or Time Warner Investor Relations
at (212) 484-6971.
This joint proxy statement-prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this joint
proxy statement-prospectus, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither
the delivery of this joint proxy statement-prospectus nor any distribution of
securities pursuant to this joint proxy statement-prospectus shall, under any
circumstances, create any implication that there has been no change in the
information set forth or incorporated into this joint proxy statement-
prospectus by reference or in our affairs since the date of this joint proxy
statement-prospectus. The information contained in this joint proxy statement-
prospectus with respect to America Online was provided by America Online and
the information contained in this joint proxy statement-prospectus with respect
to Time Warner was provided by Time Warner.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
The Securities and Exchange Commission encourages companies to disclose
forward-looking information so that investors can better understand a company's
future prospects and make informed investment decisions. This joint proxy
statement-prospectus contains such "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements may be made directly in this joint proxy statement-prospectus
referring to America Online, Time Warner and AOL Time Warner, and they may also
be made a part of this joint proxy statement-prospectus by reference to other
documents filed with the Securities and Exchange Commission by America Online
and Time Warner, which is known as "incorporation by reference." These
statements may include statements regarding the period following completion of
the merger.
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Words such as "anticipate," "estimate," "expects," "projects," "intends,"
"plans," "believes" and words and terms of similar substance used in connection
with any discussion of future operating or financial performance, or the merger
of America Online and Time Warner, identify forward-looking statements. All
forward-looking statements are management's present expectations of future
events and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described in the forward-
looking statements. In addition to the risks related to the businesses of
America Online and Time Warner, the factors relating to the merger discussed
under Risk Factors, among others, could cause actual results to differ
materially from those described in the forward-looking statements. These
factors include: relative value of AOL Time Warner stock and America Online's
and Time Warner's stocks, the market's difficulty in valuing our new business
model, the failure to realize the anticipated benefits of the merger, conflicts
of interest of directors recommending the merger and adverse regulatory
conditions. Stockholders are cautioned not to place undue reliance on the
forward-looking statements, which speak only of the date of this joint proxy
statement-prospectus or the date of the document incorporated by reference in
this joint proxy statement-prospectus. None of America Online, Time Warner or
AOL Time Warner is under any obligation, and each expressly disclaims any
obligation, to update or alter any forward-looking statements, whether as a
result of new information, future events or otherwise.
For additional information about factors that could cause actual results to
differ materially from those described in the forward-looking statements,
please see the quarterly reports on Form 10-Q and the annual reports on Form
10-K that America Online and Time Warner have filed with the Securities and
Exchange Commission.
All subsequent forward-looking statements attributable to America Online,
Time Warner or AOL Time Warner or any person acting on their behalf are
expressly qualified in their entirety by the cautionary statements contained or
referred to in this section.
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ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
DATED AS OF JANUARY 10, 2000
AMONG
AOL TIME WARNER INC.,
AMERICA ONLINE, INC.,
TIME WARNER INC.,
AMERICA ONLINE MERGER SUB INC.,
AND
TIME WARNER MERGER SUB INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I
HOLDING COMPANY AND SUBSIDIARIES....................................... 2
1.1 Organization of Holdco........................................ 2
1.2 Directors and Officers of Holdco.............................. 2
1.3 Organization of Merger Subsidiaries........................... 2
1.4 Actions of Time Warner and America Online..................... 2
ARTICLE II
THE MERGERS; CERTAIN RELATED MATTERS................................... 2
2.1 The Mergers................................................... 2
2.2 Closing....................................................... 3
2.3 Effective Time................................................ 3
2.4 Effects of the Mergers........................................ 3
2.5 Charters and Bylaws........................................... 3
2.6 Officers and Directors........................................ 3
2.7 Effect on Time Warner Capital Stock........................... 4
2.8 Time Warner Stock Options and Other Equity-Based Awards....... 6
2.9 Certain Adjustments........................................... 7
2.10 Time Warner Appraisal Rights.................................. 7
2.11 Effect on America Online Common Stock......................... 7
2.12 America Online Stock Options and Other Equity-Based Awards.... 18
ARTICLE III
EXCHANGE OF CERTIFICATES............................................... 9
3.1 Exchange Fund................................................. 9
3.2 Exchange Procedures........................................... 9
3.3 Distributions with Respect to Unexchanged Shares.............. 10
3.4 No Further Ownership Rights in Time Warner Capital Stock or
America Online Common Stock................................... 10
3.5 No Fractional Shares of Holdco Capital Stock.................. 10
3.6 Termination of Exchange Fund.................................. 11
3.7 No Liability.................................................. 11
3.8 Investment of the Exchange Fund............................... 11
3.9 Lost Certificates............................................. 11
3.10 Withholding Rights............................................ 11
3.11 Further Assurances............................................ 11
3.12 Stock Transfer Books.......................................... 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES......................................... 12
4.1 Representations and Warranties of America Online.............. 12
(a) Organization, Standing and Power; Subsidiaries............ 12
(b) Capital Structure......................................... 12
(c) Authority; No Conflicts................................... 13
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(d) Reports and Financial Statements.............................. 15
(e) Information Supplied.......................................... 15
(f) Board Approval................................................ 15
(g) Vote Required................................................. 16
(h) Litigation; Compliance with Laws.............................. 16
(i) Absence of Certain Changes or Events.......................... 16
(j) Intellectual Property; Year 2000.............................. 16
(k) Brokers or Finders............................................ 17
(l) Opinion of America Online Financial Advisor................... 17
(m) Taxes......................................................... 17
(n) Certain Contracts............................................. 18
(o) America Online Stockholder Rights Plan........................ 18
(p) Employee Benefits............................................. 18
4.2 Representations and Warranties of Time Warner..................... 18
(a) Organization, Standing and Power; Subsidiaries................ 19
(b) Capital Structure............................................. 19
(c) Authority; No Conflicts....................................... 21
(d) Reports and Financial Statements.............................. 21
(e) Information Supplied.......................................... 22
(f) Board Approval................................................ 22
(g) Vote Required................................................. 23
(h) Litigation; Compliance with Laws.............................. 23
(i) Absence of Certain Changes or Events.......................... 23
(j) Intellectual Property; Year 2000.............................. 23
(k) Brokers or Finders............................................ 24
(l) Opinion of Time Warner Financial Advisor...................... 24
(m) Taxes......................................................... 24
(n) Certain Contracts............................................. 24
(o) Time Warner Stockholder Rights Plan........................... 24
(p) Employee Benefits............................................. 25
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS................................. 25
5.1 Covenants of America Online....................................... 25
(a) Ordinary Course............................................... 25
(b) Dividends; Changes in Share Capital........................... 25
(c) Issuance of Securities........................................ 26
(d) Governing Documents........................................... 26
(e) No Acquisitions............................................... 26
(f) No Dispositions............................................... 26
(g) Investments; Indebtedness..................................... 27
(h) Tax-Free Qualification........................................ 27
(i) Compensation.................................................. 27
(j) Accounting Methods; Income Tax Elections...................... 27
(k) Certain Agreements and Arrangements........................... 28
(l) Satisfaction of Closing Conditions............................ 28
(m) No Related Actions............................................ 28
5.2 Covenants of Time Warner.......................................... 28
(a) Ordinary Course............................................... 28
(b) Dividends; Changes in Share Capital........................... 29
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(c) Issuance of Securities..................................... 29
(d) Governing Documents........................................ 29
(e) No Acquisitions............................................ 29
(f) No Dispositions............................................ 30
(g) Investments; Indebtedness.................................. 30
(h) Tax-Free Qualification..................................... 30
(i) Compensation............................................... 30
(j) Accounting Methods; Income Tax Elections................... 31
(k) Certain Agreements and Arrangements........................ 31
(l) Satisfaction of Closing Conditions......................... 31
(m) No Related Actions......................................... 31
5.3 Governmental Filings........................................... 31
5.4 Control of Other Party's Business.............................. 31
ARTICLE VI
ADDITIONAL AGREEMENTS................................................... 31
6.1 Preparation of Proxy Statement; Stockholders Meetings.......... 31
6.2 Holdco Board of Directors; Executive Officers.................. 34
6.3 Access to Information.......................................... 34
6.4 Reasonable Best Efforts........................................ 34
6.5 Acquisition Proposals.......................................... 36
6.6 Fees and Expenses.............................................. 37
6.7 Directors' and Officers' Indemnification and Insurance......... 37
6.8 Public Announcements........................................... 39
6.9 Listing of Shares of Holdco Common Stock....................... 39
6.10 Rights Agreements.............................................. 39
6.11 Affiliates..................................................... 40
6.12 Section 16 Matters............................................. 40
6.13 America Online Indebtedness and Time Warner Indebtedness....... 40
ARTICLE VII
CONDITIONS PRECEDENT.................................................... 40
7.1 Conditions to Each Party's Obligation to Effect its Respective
Merger......................................................... 40
(a) Stockholder Approval....................................... 40
(b) No Injunctions or Restraints, Illegality................... 41
(c) HSR Act; EC Merger Regulation; Canadian Investment
Regulations.................................................... 41
(d) FCC Approvals.............................................. 41
(e) Cable Franchising Authorities and PUCs Approvals........... 41
(f) NYSE Listing............................................... 41
(g) Effectiveness of the Form S-4.............................. 41
7.2 Additional Conditions to Obligations of America Online......... 41
(a) Representations and Warranties............................. 41
(b) Performance of Obligations of Time Warner.................. 41
(c) Tax Opinion................................................ 42
7.3 Additional Conditions to Obligations of Time Warner............ 42
(a) Representations and Warranties............................. 42
(b) Performance of Obligations of America Online............... 42
(c) Tax Opinion................................................ 42
(d) America Online Conditions.................................. 42
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ARTICLE VIII
TERMINATION AND AMENDMENT................................................ 43
8.1 Termination..................................................... 43
8.2 Effect of Termination........................................... 44
8.3 Amendment....................................................... 45
8.4 Extension; Waiver............................................... 45
ARTICLE IX
GENERAL PROVISIONS....................................................... 45
9.1 Non-Survival of Representations, Warranties and Agreements...... 45
9.2 Notices......................................................... 46
9.3 Interpretation.................................................. 46
9.4 Counterparts.................................................... 47
9.5 Entire Agreement; No Third Party Beneficiaries.................. 47
9.6 Governing Law................................................... 47
9.7 Severability.................................................... 47
9.8 Assignment...................................................... 47
9.9 Submission to Jurisdiction; Waivers............................. 47
9.10 Enforcement..................................................... 48
9.11 Definitions..................................................... 48
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LIST OF EXHIBITS
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Exhibit A Stock Option Agreement for Time Warner
Exhibit B Stock Option Agreement for America Online
Exhibit C Voting Agreement
Exhibit D-1 Form of Restated Certificate of Incorporation of Holdco
Exhibit D-2 Form of Bylaws of Holdco
Exhibit 6.11 Form of Affiliate Agreement
Exhibit 7.2(c)(1) Form of Holdco Representations Letters
Exhibit 7.2(c)(2) Form of America Online Representations Letter
Exhibit 7.2(c)(3) Form of Time Warner Representations Letter
</TABLE>
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SECOND AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
January 10, 2000 (this "Agreement"), among AOL TIME WARNER INC., a Delaware
corporation ("Holdco"), AMERICA ONLINE, INC., a Delaware corporation ("America
Online"), TIME WARNER INC., a Delaware corporation ("Time Warner"), AMERICA
ONLINE MERGER SUB INC., a Delaware corporation ("America Online Merger Sub")
and a direct wholly owned subsidiary of Holdco, and TIME WARNER MERGER SUB
INC., a Delaware corporation ("Time Warner Merger Sub") and a direct wholly
owned subsidiary of Holdco.
WITNESSETH:
WHEREAS, America Online and Time Warner have entered into an Agreement and
Plan of Merger dated as of January 10, 2000 (the "Original Agreement")
providing for the formation of Holdco and the merger of America Online Merger
Sub with and into America Online and the merger of Time Warner Merger Sub with
and into Time Warner;
WHEREAS, in accordance with Section 1.5 of the Original Agreement, America
Online and Time Warner have entered into an Amended and Restated Agreement and
Plan of Merger dated as of January 10, 2000 (the "First Amendment and
Restatement"), which First Amendment and Restatement amended and restated the
Original Agreement in its entirety, among other things, to make Holdco, America
Online Merger Sub and Time Warner Merger Sub parties to the Original Agreement;
WHEREAS, America Online and Time Warner wish to amend (and restate) the
Original Agreement, as amended and restated by the First Amendment and
Restatement, in its entirety, to provide for certain modifications relating to
the governance of Holdco;
WHEREAS, the Boards of Directors of Time Warner and America Online deem it
advisable and in the best interests of each corporation and its respective
stockholders that Time Warner and America Online engage in a business
combination in a merger of equals in order to advance the long-term strategic
business interests of Time Warner and America Online;
WHEREAS, the combination of Time Warner and America Online shall be effected
by the terms of this Agreement through the Mergers (as defined in Section
2.1(b));
WHEREAS, in furtherance thereof, the Board of Directors of each of Time
Warner, America Online, Holdco, America Online Merger Sub and Time Warner
Merger Sub has approved this Agreement and the applicable Merger, upon the
terms and subject to the conditions set forth in this Agreement, pursuant to
which each share of capital stock of Time Warner and each share of capital
stock of America Online issued and outstanding immediately prior to the
Effective Time (as defined in Section 2.3) will be converted into the right to
receive shares of capital stock of Holdco as set forth herein;
WHEREAS, (i) as a condition and inducement to America Online's willingness
to enter into this Agreement and the America Online Stock Option Agreement
referred to below, America Online and Time Warner are entering into a Stock
Option Agreement dated as of the date hereof in the form of Exhibit A (the
"Time Warner Stock Option Agreement") pursuant to which Time Warner is granting
to America Online an option to purchase shares of the common stock, par value
$0.01 per share, of Time Warner ("Time Warner Common Stock") and (ii) as a
condition and inducement to Time Warner's willingness to enter into this
Agreement and the Time Warner Stock Option Agreement, Time Warner and America
Online are entering into a Stock Option Agreement dated as of the date hereof
in the form of Exhibit B (the "America Online Stock Option Agreement" and,
together with the Time Warner Stock Option Agreement, the "Stock Option
Agreements"), pursuant to which America Online is granting to Time Warner an
option to purchase shares of the common stock, par value $0.01 per share, of
America Online ("America Online Common Stock");
WHEREAS, as a condition and inducement to America Online's willingness to
enter into this Agreement and the America Online Stock Option Agreement,
America Online and certain stockholders of Time Warner (the "Designated
Stockholders") are entering into an agreement dated as of the date hereof in
the form of
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Exhibit C (the "Voting Agreement") pursuant to which the Designated
Stockholders have agreed, among other things, to vote their shares of Time
Warner Common Stock in favor of the adoption of this Agreement; and
WHEREAS, for Federal income tax purposes, it is intended that the Mergers
shall qualify as exchanges within the meaning of Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code"), and as reorganizations within
the meaning of Section 368(a) of the Code and the regulations promulgated
thereunder.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Stock Option Agreements, and intending to be legally bound
hereby and thereby, the parties hereto agree as follows:
ARTICLE I
HOLDING COMPANY AND SUBSIDIARIES
1.1 Organization of Holdco. Time Warner and America Online have caused
Holdco to be organized under the laws of the State of Delaware. The authorized
capital stock of Holdco consists of 100 shares of common stock, par value $0.01
per share (the "Holdco Common Stock"), of which one share has been issued to
Time Warner and one share has been issued to America Online. Time Warner and
America Online shall take, and shall cause Holdco to take, all requisite action
to cause the certificate of incorporation of Holdco to be in the form of
Exhibit D-1 (the "Holdco Charter") and the bylaws of Holdco to be in the form
of Exhibit D-2 (the "Holdco Bylaws"), in each case, at the Effective Time.
1.2 Directors and Officers of Holdco. Prior to the Effective Time, the
directors and officers of Holdco shall consist of equal numbers of
representatives of America Online and Time Warner as designated and elected by
Time Warner and America Online. Time Warner and America Online shall take all
requisite action to cause the directors and officers of Holdco as of the
Effective Time to be as provided in Section 6.2. Each such director and officer
shall remain in office until his or her successors are elected in accordance
with Schedule 6.2(a) and the Holdco Bylaws.
1.3 Organization of Merger Subsidiaries. Holdco has caused America Online
Merger Sub and Time Warner Merger Sub to be organized for the sole purpose of
effectuating the Mergers contemplated herein. The authorized capital stock of
Time Warner Merger Sub consists of 100 shares of common stock, par value $0.01
per share, all of which shares have been issued to Holdco at a price of $1.00
per share. The authorized capital stock of America Online Merger Sub consists
of 100 shares of common stock, par value $0.01 per share, all of which shares
shall be issued to Holdco at a price of $1.00 per share.
1.4 Actions of Time Warner and America Online. Time Warner and America
Online, as the holders of all the outstanding shares of Holdco Common Stock,
have approved this Agreement and shall cause Holdco, as the sole stockholder of
each of the Merger Subsidiaries, to adopt this Agreement. Each of Time Warner
and America Online shall cause Holdco, and Holdco shall cause the Merger
Subsidiaries, to perform their respective obligations under this Agreement.
ARTICLE II
THE MERGERS; CERTAIN RELATED MATTERS
2.1 The Mergers. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law
(the "DGCL"), except as set forth on Schedule 2.1:
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(a) Time Warner Merger Sub shall be merged with and into Time Warner (the
"Time Warner Merger"). Time Warner shall be the surviving corporation in the
Time Warner Merger and shall continue its corporate existence under the laws of
the State of Delaware. As a result of the Time Warner Merger, Time Warner shall
become a wholly owned subsidiary of Holdco.
(b) America Online Merger Sub shall be merged with and into America Online
(the "America Online Merger"). America Online shall be the surviving
corporation in the America Online Merger and shall continue its corporate
existence under the laws of the State of Delaware. As a result of the America
Online Merger, America Online shall become a wholly owned subsidiary of Holdco.
The Time Warner Merger and the America Online Merger are together referred to
herein as the "Mergers".
2.2 Closing. Upon the terms and subject to the conditions set forth in
Article VII and the termination rights set forth in Article VIII, the closing
of the Mergers (the "Closing") will take place on the first Business Day (as
defined in Section 9.11(d)) after the satisfaction or waiver (subject to
applicable law) of the conditions (excluding conditions that, by their nature,
cannot be satisfied until the Closing Date (as defined below)) set forth in
Article VII, unless this Agreement has been theretofore terminated pursuant to
its terms or unless another time or date is agreed to in writing by the parties
hereto (the actual time and date of the Closing being referred to herein as the
"Closing Date"). The Closing shall be held at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York, 10017, unless another place
is agreed to in writing by the parties hereto.
2.3 Effective Time. As soon as practicable following the satisfaction or
waiver (subject to applicable law) of the conditions set forth in Article VII,
at the Closing the parties shall file the Certificates of Merger (as defined
below) with the Secretary of State of the State of Delaware in such form as is
required by and executed and acknowledged in accordance with the relevant
provisions of the DGCL and make all other filings or recordings required under
the DGCL. The Mergers shall become effective at (i) the date and time both of
the certificate of merger relating to the Time Warner Merger (the "Time Warner
Certificate of Merger") and the certificate of merger relating to the America
Online Merger (together with the Time Warner Certificate of Merger, the
"Certificates of Merger") are duly filed with the Secretary of State of the
State of Delaware or (ii) such subsequent time as America Online and Time
Warner shall agree and as shall be specified in the Certificates of Merger;
provided that both Mergers shall become effective at the same time (such time
as the Mergers become effective being the "Effective Time").
2.4 Effects of the Mergers. At and after the Effective Time, the Mergers
will have the effects set forth in the DGCL.
2.5 Charters and Bylaws.
(a) Certificates of Incorporation. The Restated Certificate of Incorporation
of Time Warner, as in effect immediately prior to the Effective Time, shall be
the certificate of incorporation of the surviving corporation in the Time
Warner Merger. The Restated Certificate of Incorporation of America Online, as
in effect immediately prior to the Effective Time, shall be the certificate of
incorporation of the surviving corporation in the America Online Merger.
(b) Bylaws. The bylaws of Time Warner, as in effect immediately prior to the
Effective Time, shall be the bylaws of the surviving corporation in the Time
Warner Merger. The bylaws of America Online, as in effect immediately prior to
the Effective Time, shall be the bylaws of the surviving corporation in the
America Online Merger.
2.6 Officers and Directors. The officers and directors of Time Warner Merger
Sub immediately prior to the Effective Time shall be the officers and directors
of the surviving corporation in the Time Warner Merger. The officers and
directors of America Online Merger Sub immediately prior to the Effective Time
shall be the officers and directors of the surviving corporation in the America
Online Merger.
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2.7 Effect on Time Warner Capital Stock. As of the Effective Time, by virtue
of the Time Warner Merger and without any action on the part of the holder of
any shares of Time Warner Capital Stock (as defined in Section 2.7(c)) or any
shares of capital stock of Time Warner Merger Sub:
(a) Capital Stock of Time Warner Merger Sub. Each issued and outstanding
share of common stock, par value $0.01 per share, of Time Warner Merger Sub
shall be converted into one fully paid and nonassessable share of common stock,
par value $.01 per share, of the surviving corporation in the Time Warner
Merger.
(b) Cancellation of Treasury Stock. Each share of Time Warner Capital Stock
issued and owned or held by Time Warner at the Effective Time shall, by virtue
of the Time Warner Merger, cease to be outstanding and shall be canceled and
retired, and no consideration shall be delivered in exchange therefor.
(c) Conversion of Time Warner Capital Stock. Subject to Section 3.5, each
issued and outstanding share of Time Warner Capital Stock (other than shares to
be canceled in accordance with Section 2.7(b) and other than shares subject to
Section 2.10) shall be converted into the right to receive fully paid and
nonassessable shares of Holdco Capital Stock (as defined below) in accordance
with the following table:
Each Share of the Specified Number and Class or Series of Shares of
Class or Series of Time Warner Holdco Capital Stock Into Which Converted
Capital Stock
Time Warner Common Stock......... 1.5 shares (as the same may be adjusted
according to Section 2.9, the "Exchange
Ratio") of Holdco Common Stock
Time Warner Series LMCN-V Common
Stock, par value $0.01 per
share ("Time Warner Series 1.5 shares of Series LMCN-V Common Stock,
LMCN-V Common Stock")........... par value $0.01 per share, of Holdco
("Holdco Series LMCN-V Common Stock");
provided that the "Formula Number" (as
defined in the Certificate of Designations
for the Time Warner Series LMCN-V Common
Stock (the "Series LMCN-V Certificate")) in
effect immediately prior to the Effective
Time shall be the Formula Number for the
Holdco Series LMCN-V Common Stock issued
pursuant to the Mergers and no adjustment
to the Formula Number or conversion rights
of such stock shall be made pursuant to the
terms of the Series LMCN-V Certificate,
including Section 3.6 thereof
Time Warner Series LMC Common
Stock, par value $0.01 per
share ("Time Warner Series LMC 1.5 shares of Series LMC Common Stock, par
Common Stock").................. value $0.01 per share, of Holdco ("Holdco
Series LMC Common Stock"); provided that
the "Formula Number" (as defined in the
Certificate of Designations for the Time
Warner Series LMC Common Stock (the "Series
LMC Certificate")) in effect immediately
prior to the Effective Time shall be the
Formula Number for the Holdco Series LMC
Common Stock issued pursuant to the Mergers
and no adjustment to the Formula Number or
conversion rights of such stock shall be
made pursuant to the terms of the Series
LMC Certificate, including Section 3.6
thereof
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Each Share of the Specified Number and Class or Series of Shares of
Class or Series of Time Warner Holdco Capital Stock Into Which Converted
Capital Stock
Time Warner Series E Convertible
Preferred Stock, par value
$0.10 per share ("Time Warner One share of Series E Convertible Preferred
Series E Preferred Stock")...... Stock, par value $0.10 per share, of Holdco
("Holdco Series E Preferred Stock")
Time Warner Series F Convertible
Preferred Stock, par value
$0.10 per share ("Time Warner One share of Series F Convertible Preferred
Series F Preferred Stock")...... Stock, par value $0.10 per share, of Holdco
("Holdco Series F Preferred Stock")
Time Warner Series I Convertible
Preferred Stock, par value
$0.10 per share ("Time Warner One share of Series I Convertible Preferred
Series I Preferred Stock")...... Stock, par value $0.10 per share, of Holdco
("Holdco Series I Preferred Stock")
Time Warner Series J Convertible
Preferred Stock, par value
$0.10 per share ("Time Warner
Series J Preferred Stock" and
together, with Time Warner
Series E Preferred Stock, Time
Warner Series F Preferred Stock
and Time Warner Series I One share of Series J Convertible Preferred
Preferred Stock, the "Time Stock, par value $0.10 per share, of Holdco
Warner Preferred Stock")........ ("Holdco Series J Preferred Stock" and,
together with Holdco Common Stock, Holdco
Series LMCN-V Common Stock, Holdco Series
LMC Common Stock, Holdco Series E Preferred
Stock, Holdco Series F Preferred Stock and
Holdco Series I Preferred Stock, the
"Holdco Capital Stock")
The Time Warner Series LMCN-V Common Stock and the Time Warner Series LMC
Common Stock are referred to herein collectively as the "Time Warner Series
Common Stock." The Time Warner Common Stock, the Time Warner Series Common
Stock and the Time Warner Preferred Stock are referred to herein collectively
as the "Time Warner Capital Stock." The shares of Holdco Capital Stock into
which shares of Time Warner Capital Stock are converted pursuant to the
foregoing are referred to herein collectively as the "Time Warner Merger
Consideration."
As a result of the Time Warner Merger and without any action on the part of
the holders thereof, at the Effective Time, all shares of Time Warner Capital
Stock shall cease to be outstanding and shall be canceled and retired and shall
cease to exist, and each holder of a certificate which immediately prior to the
Effective Time represented any such shares of Time Warner Capital Stock (such
certificate or other evidence of ownership, a "Time Warner Certificate") shall
thereafter cease to have any rights with respect to such shares of Time Warner
Capital Stock, except the right (subject to Section 2.7(b) and Section 2.10) to
receive the applicable Time Warner Merger Consideration with respect thereto
and any cash in lieu of fractional shares of applicable Holdco Capital Stock
with respect thereto to be issued in consideration therefor and any dividends
or other distributions to which holders of Time Warner Capital Stock become
entitled all in accordance with Article III upon the surrender of such Time
Warner Certificate.
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2.8. Time Warner Stock Options and Other Equity-Based Awards.
(a) Each Time Warner Stock Option (as defined in Section 4.2(b)) granted
prior to the Effective Time and which remains outstanding immediately prior to
the Effective Time shall cease to represent a right to acquire shares of Time
Warner Common Stock and shall be converted (each, as so converted, a "Time
Warner Converted Option"), at the Effective Time, into an option to acquire, on
the same terms and conditions as were applicable under the Time Warner Stock
Option (but taking into account any changes thereto, including the acceleration
thereof, provided for in the Time Warner Stock Option Plans (as defined in
Section 4.2(b)), in any award agreement or in such option by reason of this
Agreement or the transactions contemplated hereby), that number of shares of
Holdco Common Stock determined by multiplying the number of shares of Time
Warner Common Stock subject to such Time Warner Stock Option by the Exchange
Ratio, rounded, if necessary, to the nearest whole share of Holdco Common
Stock, at a price per share (rounded to the nearest one-hundredth of a cent)
equal to the per share exercise price specified in such Time Warner Stock
Option divided by the Exchange Ratio; provided, however, that in the case of
any Time Warner Stock Option to which Section 421 of the Code applies by reason
of its qualification under Section 422 of the Code, the option price, the
number of shares subject to such option and the terms and conditions of
exercise of such option shall be determined in a manner consistent with the
requirements of Section 424(a) of the Code.
(b) Each restricted share of Time Warner Common Stock granted pursuant to
the Time Warner Stock Option Plans (each such share, a "Time Warner Restricted
Share" and, together with each other Time Warner Restricted Share outstanding
as of the date hereof and all other restricted shares granted by Time Warner
after the date hereof in accordance with the Time Warner Stock Option Plans and
Section 5.2, the "Time Warner Restricted Shares") which is outstanding
immediately prior to the Effective Time shall vest and become free of
restrictions to the extent provided by the terms thereof. Each award of Time
Warner Restricted Shares shall be converted, as of the Effective Time, into
that number of shares of Holdco Common Stock determined by multiplying the
number of shares subject to the award by the Exchange Ratio; and the aggregate
number of shares of Holdco Common Stock as so determined shall be delivered to
the respective holders of Time Warner Restricted Shares as soon as practicable
following the Effective Time. America Online acknowledges that the acceleration
of vesting as a result of the Time Warner Merger of all Time Warner Stock
Options outstanding as of January 9, 2000 in accordance with their terms shall
not constitute a Material Adverse Effect (as defined in Section 9.11(f)) on
Time Warner.
(c) As soon as practicable after the Effective Time, Holdco shall deliver to
the holders of Time Warner Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Time Warner Stock Option Plans and
agreements evidencing the grants of such Time Warner Stock Options (including
that, in connection with the Time Warner Merger and to the extent provided by
the terms of the Time Warner Stock Option Plans, the Time Warner Stock Options
have become fully vested and exercisable) and stating that such Time Warner
Stock Options and agreements shall be assumed by Holdco and shall continue in
effect on the same terms and conditions (subject to the adjustments required by
this Section 2.8 after giving effect to the Time Warner Merger and the terms of
the Time Warner Stock Option Plans). To the extent permitted by law, Holdco
shall comply with the terms of the Time Warner Stock Option Plans and shall
take such reasonable steps as are necessary or required by, and subject to the
provisions of, such Time Warner Stock Option Plans, to have the Time Warner
Stock Options which qualified as incentive stock options prior to the Effective
Time continue to qualify as incentive stock options of Holdco after the
Effective Time.
(d) Prior to the Effective Time, Holdco shall take all necessary action to
assume as of the Effective Time all obligations undertaken by, or on behalf of,
Holdco under this Section 2.8 and to adopt at the Effective Time the Time
Warner Stock Option Plans and each Time Warner Converted Option, and to take
all other actions called for by this Section 2.8, including the reservation,
issuance and listing of a number of shares of Holdco Common Stock at least
equal to the number of shares of Holdco Common Stock that will be subject to
Time Warner Converted Options. No later than the Effective Time, Holdco shall
file a registration statement on Form
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S-8 (or any successor or, including if Form S-8 is not available, other
appropriate forms) with respect to the shares of Holdco Common Stock subject to
such options or restricted shares and shall maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options or restricted shares remain outstanding.
2.9. Certain Adjustments. If, between the date of this Agreement and the
Effective Time (and as permitted by Sections 5.1 and 5.2), the outstanding
shares of America Online Common Stock or the outstanding shares of Time Warner
Common Stock or Time Warner Series Common Stock shall have been increased,
decreased, changed into or exchanged for a different number of shares or
different class, in each case, by reason of any reclassification,
recapitalization, stock split, split-up, combination or exchange of shares or a
stock dividend or dividend payable in any other securities shall be declared
with a record date within such period, or any similar event shall have
occurred, the applicable Merger Consideration (as defined in Section 2.11(c))
shall be appropriately adjusted to provide to the holders of Time Warner Common
Stock, Time Warner Series Common Stock and America Online Common Stock the same
economic effect as contemplated by this Agreement prior to such event.
2.10. Time Warner Appraisal Rights. (a) Notwithstanding anything in this
Agreement to the contrary and unless provided for by applicable law, shares of
Time Warner Series Common Stock and Time Warner Preferred Stock that are issued
and outstanding immediately prior to the Effective Time and that are owned by
stockholders who have properly perfected their rights of appraisal within the
meaning of Section 262 of the DGCL (the "Time Warner Dissenting Shares") shall
not be converted into the right to receive the applicable Time Warner Merger
Consideration with respect thereto, unless and until such stockholders shall
have failed to perfect their right of appraisal under applicable law, but,
instead, the holders thereof shall be entitled to payment of the appraised
value of such Time Warner Dissenting Shares in accordance with Section 262 of
the DGCL. If any such holder shall have failed to perfect or shall have
effectively withdrawn or lost such right of appraisal, each share of Time
Warner Series Common Stock and Time Warner Preferred Stock held by such
stockholder shall thereupon be deemed to have been converted into the right to
receive and become exchangeable for, at the Effective Time, the applicable Time
Warner Merger Consideration with respect thereto, in the manner provided for in
Section 2.7.
(b) Time Warner shall give America Online (i) prompt notice of any demands
for appraisal filed pursuant to Section 262 of the DGCL received by Time
Warner, withdrawals of such demands and any other instruments served or
delivered in connection with such demands pursuant to the DGCL and received by
Time Warner and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands under the DGCL consistent with the
obligations of Time Warner thereunder. Time Warner shall not, except with the
prior written consent of America Online, (x) make any payment with respect to
any such demand, (y) offer to settle or settle any such demand or (z) waive any
failure to timely deliver a written demand for appraisal or timely take any
other action to perfect appraisal rights in accordance with the DGCL.
2.11. Effect on America Online Common Stock. As of the Effective Time, by
virtue of the America Online Merger and without any action on the part of the
holder of any shares of America Online Common Stock or any shares of capital
stock of America Online Merger Sub:
(a) Capital Stock of America Online Merger Sub. Each issued and outstanding
share of common stock, par value $0.01 per share, of America Online Merger Sub
shall be converted into one fully paid and nonassessable share of common stock,
par value $0.01 per share, of the surviving corporation in the America Online
Merger.
(b) Cancellation of Treasury Stock. Each share of America Online Common
Stock issued and owned or held by America Online at the Effective Time shall,
by virtue of the America Online Merger, cease to be outstanding and shall be
canceled and retired, and no consideration shall be delivered in exchange
therefor.
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(c) Conversion of America Online Common Stock. Subject to Section 3.5, each
issued and outstanding share of America Online Common Stock (other than shares
to be canceled in accordance with Section 2.11(b)) shall be converted into the
right to receive one fully paid and nonassessable share of Holdco Common Stock
(the "America Online Merger Consideration" and, together with the Time Warner
Merger Consideration, the "Merger Consideration").
As a result of the America Online Merger and without any action on the part
of the holders thereof, at the Effective Time, all shares of America Online
Common Stock shall cease to be outstanding and shall be canceled and retired
and shall cease to exist, and each holder of a certificate which immediately
prior to the Effective Time represented any such shares of America Online
Common Stock (an "America Online Certificate" and, together with the Time
Warner Certificates, the "Certificates") shall thereafter cease to have any
rights with respect to such shares of America Online Common Stock, except the
right (subject to Section 2.11(b)) to receive the America Online Merger
Consideration to be issued in consideration therefor and any dividends or other
distributions to which holders of America Online Common Stock become entitled
all in accordance with Article III upon the surrender of such America Online
Certificate.
2.12 America Online Stock Options and Other Equity-Based Awards.
(a) Each America Online Stock Option (as defined in Section 4.1(b)) granted
prior to the Effective Time and which remains outstanding immediately prior to
the Effective Time shall cease to represent a right to acquire shares of
America Online Common Stock and shall be converted (each, as so converted, an
"America Online Converted Option"), at the Effective Time, into an option to
acquire, on the same terms and conditions as were applicable under the America
Online Stock Option (but taking into account any changes thereto, including the
acceleration thereof, provided for in the America Online Stock Option Plans (as
defined in Section 4.1(b)), in any award agreement or in such option by reason
of this Agreement or the transactions contemplated hereby), that number of
shares of Holdco Common Stock equal to the number of shares of America Online
Common Stock subject to such America Online Stock Option, at a price per share
equal to the per share exercise price specified in such America Online Stock
Option; provided, however, that in the case of any America Online Stock Option
to which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code, the option price, the number of shares subject to such
option and the terms and conditions of exercise of such option shall be
determined in a manner consistent with the requirements of Section 424(a) of
the Code.
(b) Each restricted share of America Online Common Stock granted pursuant to
the America Online Stock Option Plans (each such share, an "America Online
Restricted Share" and, together with each other America Online Restricted Share
outstanding as of the date hereof and all other restricted shares granted by
America Online after the date hereof in accordance with the America Online
Stock Option Plans and Section 5.1, the "America Online Restricted Shares")
which is outstanding immediately prior to the Effective Time shall vest and
become free of restrictions to the extent provided by the terms thereof. Each
America Online Restricted Share shall be converted, as of the Effective Time,
into a share of Holdco Common Stock; and such shares of Holdco Common Stock
shall be delivered to the respective holders of the America Online Restricted
Shares as soon as practicable following the Effective Time. Time Warner
acknowledges that the acceleration of vesting as a result of the America Online
Merger of all America Online Stock Options outstanding as of the date hereof in
accordance with their terms shall not constitute a Material Adverse Effect on
America Online.
(c) As soon as practicable after the Effective Time, Holdco shall deliver to
the holders of America Online Stock Options appropriate notices setting forth
such holders' rights pursuant to the respective America Online Stock Option
Plans and agreements evidencing the grants of such America Online Stock Options
(including that, in connection with the America Online Merger and to the extent
provided by the terms of the America Online Stock Option Plans, the America
Online Stock Options have become fully vested) and stating that such America
Online Stock Options and agreements shall be assumed by Holdco and shall
continue in effect on the
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same terms and conditions (subject to the adjustments required by this Section
2.12 after giving effect to the America Online Merger and the terms of the
America Online Stock Option Plans). To the extent permitted by law, Holdco
shall comply with the terms of the America Online Stock Option Plans and shall
take such reasonable steps as are necessary or required by, and subject to the
provisions of, such America Online Stock Option Plans, to have the America
Online Stock Options which qualified as incentive stock options prior to the
Effective Time continue to qualify as incentive stock options of Holdco after
the Effective Time.
(d) Prior to the Effective Time, Holdco shall take all necessary action to
assume as of the Effective Time all obligations undertaken by, or on behalf of,
Holdco under this Section 2.12 and to adopt at the Effective Time the America
Online Stock Option Plans and each America Online Converted Option, and to take
all other actions called for by this Section 2.12, including the reservation,
issuance and listing of a number of shares of Holdco Common Stock at least
equal to the number of shares of Holdco Common Stock that will be subject to
America Online Converted Options. No later than the Effective Time, Holdco
shall file a registration statement on Form S-8 (or any successor or, including
if Form S-8 is not available, other appropriate forms) with respect to the
shares of Holdco Common Stock subject to such options or restricted shares and
shall maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options or restricted shares remain
outstanding.
ARTICLE III
EXCHANGE OF CERTIFICATES
3.1 Exchange Fund. Prior to the Effective Time, America Online shall appoint
a commercial bank or trust company reasonably acceptable to Time Warner, or a
subsidiary thereof, to act as exchange agent hereunder for the purpose of
exchanging Certificates for the applicable Merger Consideration (the "Exchange
Agent"). At or prior to the Effective Time, Holdco shall deposit with the
Exchange Agent, in trust for the benefit of holders of shares of Time Warner
Capital Stock and America Online Common Stock, certificates representing the
shares of the Holdco Capital Stock issuable pursuant to Sections 2.7 and 2.11
in exchange for outstanding shares of Time Warner Capital Stock and America
Online Common Stock. Holdco agrees to make available to the Exchange Agent from
time to time as needed, cash sufficient to pay cash in lieu of fractional
shares pursuant to Section 3.5 and any dividends and other distributions
pursuant to Section 3.3. Any cash and certificates representing Holdco Capital
Stock deposited with the Exchange Agent shall hereinafter be referred to as the
"Exchange Fund".
3.2 Exchange Procedures. Promptly after the Effective Time, Holdco shall
cause the Exchange Agent to mail to each holder of a Certificate (i) a letter
of transmittal which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent, and which letter shall be in customary form
and have such other provisions as America Online or Time Warner may reasonably
specify (such letter to be reasonably acceptable to Time Warner and America
Online prior to the Effective Time) and (ii) instructions for effecting the
surrender of such Certificates in exchange for the applicable Merger
Consideration, together with any dividends and other distributions with respect
thereto and any cash in lieu of fractional shares. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor
(A) one or more shares of Holdco Capital Stock (which shall be in
uncertificated book-entry form unless a physical certificate is requested or is
otherwise required by applicable law or regulation) representing, in the
aggregate, the whole number of shares that such holder has the right to receive
pursuant to Section 2.7 or 2.11 (after taking into account all shares of Time
Warner Capital Stock and America Online Common Stock then held by such holder)
and (B) a check in the
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amount equal to the cash that such holder has the right to receive pursuant to
the provisions of this Article III, including cash in lieu of any fractional
shares of Holdco Capital Stock pursuant to Section 3.5 and dividends and other
distributions pursuant to Section 3.3. No interest will be paid or will accrue
on any cash payable pursuant to Section 3.3 or 3.5. In the event of a transfer
of ownership of Time Warner Capital Stock which is not registered in the
transfer records of Time Warner or a transfer of ownership of America Online
Common Stock which is not registered in the transfer records of America Online,
one or more shares of Holdco Capital Stock evidencing, in the aggregate, the
proper number of shares of Holdco Capital Stock, a check in the proper amount
of cash in lieu of any fractional shares of Holdco Capital Stock pursuant to
Section 3.5 and any dividends or other distributions to which such holder is
entitled pursuant to Section 3.3, may be issued with respect to such Time
Warner Capital Stock or America Online Common Stock to such a transferee if the
Certificate representing such shares of Time Warner Capital Stock or America
Online Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that
any applicable stock transfer taxes have been paid.
3.3 Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Holdco
Capital Stock that such holder would be entitled to receive upon surrender of
such Certificate and no cash payment in lieu of fractional shares of Holdco
Capital Stock shall be paid to any such holder pursuant to Section 3.5 until
such holder shall surrender such Certificate in accordance with Section 3.2.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder thereof without interest,
(a) promptly after the time of such surrender, the amount of any cash payable
in lieu of fractional shares of Holdco Capital Stock to which such holder is
entitled pursuant to Section 3.5 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Holdco Capital Stock and (b) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time and a payment date subsequent to such surrender
payable with respect to such shares of Holdco Capital Stock.
3.4 No Further Ownership Rights in Time Warner Capital Stock or America
Online Common Stock. All shares of Holdco Capital Stock issued and cash paid
upon conversion of shares of Time Warner Capital Stock or America Online Common
Stock in accordance with the terms of Article II and this Article III
(including any cash paid pursuant to Section 3.3 or 3.5) shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to the
shares of Time Warner Capital Stock or America Online Common Stock.
3.5 No Fractional Shares of Holdco Capital Stock.
(a) No certificates or scrip or shares of Holdco Capital Stock representing
fractional shares of Holdco Capital Stock or book-entry credit of the same
shall be issued upon the surrender for exchange of Certificates and such
fractional share interests will not entitle the owner thereof to vote or to
have any rights of a stockholder of Holdco or a holder of shares of Holdco
Capital Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of Time Warner Common Stock or Time Warner Series Common Stock exchanged
pursuant to the Time Warner Merger who would otherwise have been entitled to
receive a fraction of a share of Holdco Common Stock or Holdco Series Common
Stock (determined after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an amount
equal to the product of (i) such fractional part of a share of Holdco Common
Stock or Holdco Series Common Stock multiplied by (ii) the closing price for a
share of Holdco Common Stock as reported on the New York Stock Exchange, Inc.
("NYSE") Composite Transactions Tape on the first trading day following the
date on which the Effective Time occurs. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of
fractional interests, the Exchange Agent shall so notify Holdco, and Holdco
shall deposit such amount with the Exchange Agent and shall cause the Exchange
Agent to forward payments to such holders of fractional interests subject to
and in accordance with the terms hereof.
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3.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall, at Holdco's request, be delivered to Holdco or otherwise
on the instruction of Holdco, and any holders of the Certificates who have not
theretofore complied with this Article III shall after such delivery look only
to Holdco for the Merger Consideration with respect to the shares of Time
Warner Capital Stock or America Online Common Stock formerly represented
thereby to which such holders are entitled pursuant to Sections 2.7, 2.11 and
3.2, any cash in lieu of fractional shares of Holdco Capital Stock to which
such holders are entitled pursuant to Section 3.5 and any dividends or
distributions with respect to shares of Holdco Capital Stock to which such
holders are entitled pursuant to Section 3.3. Any such portion of the Exchange
Fund remaining unclaimed by holders of shares of Time Warner Capital Stock or
America Online Common Stock immediately prior to such time as such amounts
would otherwise escheat to or become property of any Governmental Entity (as
defined in Section 4.1(c)(iii)) shall, to the extent permitted by law, become
the property of Holdco free and clear of any claims or interest of any Person
(as defined in Section 9.11(h)) previously entitled thereto.
3.7 No Liability. None of Holdco, America Online, America Online Merger Sub,
Time Warner, Time Warner Merger Sub or the Exchange Agent shall be liable to
any Person in respect of any Merger Consideration from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
3.8 Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by Holdco on a daily basis;
provided that no such investment or loss thereon shall affect the amounts
payable to Time Warner or America Online stockholders pursuant to Article II
and the other provisions of this Article III. Any interest and other income
resulting from such investments shall promptly be paid to Holdco.
3.9 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by Holdco,
the posting by such Person of a bond in such reasonable amount as Holdco may
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will deliver in exchange for such lost,
stolen or destroyed Certificate the applicable Merger Consideration with
respect to the shares of Time Warner Capital Stock or America Online Common
Stock formerly represented thereby, any cash in lieu of fractional shares of
Holdco Capital Stock, and unpaid dividends and distributions on shares of
Holdco Capital Stock deliverable in respect thereof, pursuant to this
Agreement.
3.10 Withholding Rights. Holdco shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of shares of Time Warner Capital Stock or America Online Common Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by Holdco, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Time Warner Capital Stock or America Online Common Stock in respect
of which such deduction and withholding was made by Holdco.
3.11 Further Assurances. At and after the Effective Time, the officers and
directors of Holdco will be authorized to execute and deliver, in the name and
on behalf of America Online, America Online Merger Sub, Time Warner or Time
Warner Merger Sub, any deeds, bills of sale, assignments or assurances and to
take and do, in the name and on behalf of America Online, America Online Merger
Sub, Time Warner or Time Warner Merger Sub, any other actions and things to
vest, perfect or confirm of record or otherwise in Holdco any and all right,
title and interest in, to and under any of the rights, properties or assets
acquired or to be acquired by Holdco as a result of, or in connection with, the
Mergers.
3.12 Stock Transfer Books. The stock transfer books of Time Warner and
America Online shall be closed immediately upon the Effective Time and there
shall be no further registration of transfers of shares of
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Time Warner Capital Stock or America Online Common Stock thereafter on the
records of Time Warner or America Online. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Holdco for any reason shall be
converted into the right to receive the applicable Merger Consideration with
respect to the shares of Time Warner Capital Stock or America Online Common
Stock formerly represented thereby (including any cash in lieu of fractional
shares of Holdco Capital Stock to which the holders thereof are entitled
pursuant to Section 3.5 and any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 3.3).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of America Online. Except as disclosed in
the America Online Filed SEC Reports (as defined in Section 4.1(d)(ii)) or as
set forth in the America Online Disclosure Schedule delivered by America Online
to Time Warner prior to the execution of this Agreement (the "America Online
Disclosure Schedule"), America Online represents and warrants to Time Warner as
follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of America Online and each of its Subsidiaries (as defined in
Section 9.11(i)) is a corporation or other organization duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the requisite power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power and authority, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on America
Online, and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary other than in such
jurisdictions where the failure so to qualify or to be in good standing,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on America Online. The copies of the certificate of
incorporation and bylaws of America Online which were previously furnished or
made available to Time Warner are true, complete and correct copies of such
documents as in effect on the date of this Agreement.
(ii) Exhibit 21 to America Online's Annual Report on Form 10-K for the
fiscal year ended June 30, 1999 includes all the Subsidiaries of America Online
which as of the date of this Agreement are Significant Subsidiaries (as defined
in Rule 1-02 of Regulation S-X of the Securities and Exchange Commission (the
"SEC")). All the outstanding shares of capital stock of, or other equity
interests in, each such Significant Subsidiary have been validly issued and are
fully paid and nonassessable and are, except as set forth in such Exhibit 21,
owned directly or indirectly by America Online, free and clear of all pledges,
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively "Liens") and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose of
such capital stock or other ownership interests), except for restrictions
imposed by applicable securities laws. Except as disclosed in Section 4.1(a) of
the America Online Disclosure Schedule, as of the date of this Agreement,
neither America Online nor any of its Subsidiaries directly or indirectly owns
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture or
other business association or entity (other than Subsidiaries) that is or would
reasonably be expected to be material to America Online and its Subsidiaries
taken as a whole.
(b) Capital Structure.
(i) As of January 5, 2000, the authorized capital stock of America Online
consists of (A) 6,000,000,000 shares of America Online Common Stock, of which
2,274,045,973 shares were outstanding and (B) 5,000,000 shares of Preferred
Stock, par value $0.01 per share, none of which were outstanding and 500,000 of
which have been designated Series A-1 Junior Participating Preferred Stock and
reserved for issuance upon exercise of the rights (the "America Online Rights")
distributed to the holders of America Online Common Stock pursuant to the
Rights Agreement, dated as of May 12, 1998 between America Online and
BankBoston, N.A.,
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as Rights Agent (the "America Online Rights Agreement"). Except as disclosed in
Section 4.1(b) of the America Online Disclosure Schedule, since January 5, 2000
to the date of this Agreement, there have been no issuances of shares of the
capital stock of America Online or any other securities of America Online other
than pursuant to options or rights outstanding as of January 5, 2000 under the
Benefit Plans (as defined in Section 9.11(b)) of America Online or conversion
of convertible debt securities of America Online. All issued and outstanding
shares of the capital stock of America Online are duly authorized, validly
issued, fully paid and nonassessable and free of any preemptive rights. There
were outstanding as of January 5, 2000 no options, warrants or other rights to
acquire capital stock from America Online other than (x) the America Online
Rights, (y) options and other rights to acquire America Online Common Stock
from America Online representing in the aggregate the right to purchase
approximately 376,107,825 shares of America Online Common Stock (such options,
together with the other employee stock options issued by America Online after
the date hereof in accordance with the America Online Stock Option Plans and
Section 5.1, collectively, the "America Online Stock Options") under America
Online's Employee Stock Purchase Plan, 1992 Employee, Director and Consultant
Stock Option Plan, Quantum Computer Services, Inc. 1987 Stock Incentive Plan
and Quantum Computer Services, Inc. Incentive Stock Option Plan (1985) and
other option plans assumed by America Online (collectively, the "America Online
Stock Option Plans") and (z) the 4% Convertible Subordinated Notes due November
15, 2002 of America Online and the Convertible Subordinated Notes due 2019 of
America Online. Except in connection with new hire grants of America Online
Stock Options made in a manner consistent with past practice to purchase, in
the aggregate, not more than 100,000 shares of America Online Common Stock,
Section 4.1(b) of the America Online Disclosure Schedule sets forth a complete
and correct list, as of January 5, 2000, of the number of shares of America
Online Common Stock subject to America Online Stock Options or other rights to
purchase or receive America Online Common Stock granted under the America
Online Benefit Plans or otherwise and the weighted average exercise price of
the outstanding America Online Stock Options referenced therein. Except in
connection with new hire grants of America Online Stock Options made in a
manner consistent with past practice to purchase, in the aggregate, not more
than 100,000 shares of America Online Common Stock, no options or warrants or
other rights to acquire capital stock from America Online have been issued or
granted since January 5, 2000 to the date of this Agreement.
(ii) No bonds, debentures, notes or other indebtedness of America Online
having the right to vote on any matters on which holders of capital stock of
America Online may vote ("America Online Voting Debt") are issued or
outstanding.
(iii) Except as otherwise set forth in this Section 4.1(b) or in Section
4.1(b) of America Online Disclosure Schedule, as of the date of this Agreement,
there are no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which America Online or
any of its Subsidiaries is a party or by which any of them is bound obligating
America Online or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other
voting securities of America Online or any of its Subsidiaries or obligating
America Online or any of its Subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except as disclosed in Section 4.1(b) of the
America Online Disclosure Schedule, as of the date of this Agreement, there are
no outstanding obligations of America Online or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of America
Online or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) America Online has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby, subject in the case of the
consummation of the America Online Merger to the adoption of this Agreement by
the Required America Online Vote (as defined in Section 4.1(g)). The execution
and delivery of this Agreement and the Stock Option Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of America Online and
no other corporate
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proceedings on the part of America Online are necessary to authorize the
execution and delivery of this Agreement or to consummate the America Online
Merger and the other transactions contemplated hereby, subject in the case of
the consummation of the America Online Merger to the adoption of this Agreement
by the Required America Online Vote. This Agreement and the Stock Option
Agreements have been duly executed and delivered by America Online and
constitute valid and binding agreements of America Online, enforceable against
America Online in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally or by
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement and the Stock Option
Agreements by America Online do not, and the consummation by America Online of
the America Online Merger and the other transactions contemplated hereby and
thereby will not, conflict with, or result in any violation of, or constitute a
default (with or without notice or lapse of time, or both) under, or give rise
to a right of, or result by its terms in the, termination, amendment,
cancellation or acceleration of any obligation or the loss of a material
benefit under, or the creation of a Lien, charge, "put" or "call" right or
other encumbrance on, or the loss of, any assets, including Intellectual
Property (as defined in Section 4.1(j)) (any such conflict, violation, default,
right of termination, amendment, cancellation or acceleration, loss or
creation, a "Violation") pursuant to: (A) any provision of the certificate of
incorporation or bylaws or similar organizational document of America Online or
any Significant Subsidiary of America Online, or (B) except (1) as,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on America Online or (2) would not prevent or
materially delay the consummation of the Mergers, subject to obtaining or
making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below, and except with
respect to employee stock options and other awards or (3) set forth in Section
4.1(c) of the America Online Disclosure Schedule, any loan or credit agreement,
note, mortgage, bond, indenture, lease, benefit plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
America Online or any Subsidiary of America Online or their respective
properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any supranational, national, state, municipal,
local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any quasi-
governmental or private body exercising any regulatory, taxing, importing or
other governmental or quasi-governmental authority (a "Governmental Entity") or
any other Person is required by or with respect to America Online or any
Subsidiary of America Online in connection with the execution and delivery of
this Agreement and the Stock Option Agreements by America Online or the
consummation of the America Online Merger and the other transactions
contemplated hereby and thereby, except for those required under or in relation
to (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), Council Regulation No. 4064/89 of the European Community, as
amended (the "EC Merger Regulation"), the Competition Act (Canada) and the
Investment Canada Act of 1985 (Canada) ("Canadian Investment Regulations"), (B)
state securities or "blue sky" laws (the "Blue Sky Laws"), (C) the Securities
Act of 1933, as amended (the "Securities Act"), (D) the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (E) the DGCL with respect to the
filing of the Certificates of Merger, (F) the rules and regulations of the
NYSE, (G) antitrust or other competition laws of other jurisdictions, (H) the
Communications Act of 1934, as amended, and the rules and regulations of the
Federal Communications Commission or any successor entity (the "FCC")
thereunder (the "Communications Act"), (I) rules and regulations of (x) the
cable franchising authorities having jurisdiction over the cable systems of
Time Warner and its Subsidiaries and affiliates (the "Franchising Authorities")
and (y) the state public service commissions having jurisdiction over the
assets of Time Warner and its Subsidiaries and affiliates ("PUCs") and (J) such
consents, approvals, orders, authorizations, registrations, declarations and
filings the failure of which to make or obtain, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect
on America Online. Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of the foregoing
clauses (A) through (I) are hereinafter referred to as "Necessary Consents".
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(d) Reports and Financial Statements.
(i) America Online has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it with the SEC since July 1, 1997 (collectively,
including all exhibits thereto, the "America Online SEC Reports"). Except as
set forth in Section 4.1(d) of the America Online Disclosure Schedule, no
Subsidiary of America Online is required to file any form, report, registration
statement, prospectus or other document with the SEC. None of the America
Online SEC Reports, as of their respective dates (and, if amended or superseded
by a filing prior to the date of this Agreement, then on the date of such
filing), contained or will contain any untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Each of the financial statements
(including the related notes) included in the America Online SEC Reports
presents fairly, in all material respects, the consolidated financial position
and consolidated results of operations and cash flows of America Online and its
consolidated Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in conformity with United States generally
accepted accounting principles ("GAAP") consistently applied during the periods
involved except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to the absence of notes and normal
year-end adjustments that have not been and are not expected to be material in
amount. All of such America Online SEC Reports, as of their respective dates
(and as of the date of any amendment to the respective America Online SEC
Report), complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Except as disclosed in the America Online SEC Reports filed and
publicly available prior to the date hereof (the "America Online Filed SEC
Reports"), America Online and its Subsidiaries have not incurred any
liabilities that are of a nature that would be required to be disclosed on a
balance sheet of America Online and its Subsidiaries or the footnotes thereto
prepared in conformity with GAAP, other than (A) liabilities incurred in the
ordinary course of business, (B) liabilities incurred in accordance with
Section 5.1, (C) liabilities for Taxes (as defined in Section 4.1(m)) or (D)
liabilities that, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on America Online.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by America Online for
inclusion or incorporation by reference in (A) the Form S-4 (as defined in
Section 6.1) will, at the time the Form S-4 is filed with the SEC, at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (B) the Joint Proxy Statement/Prospectus (as defined in
Section 6.1) will, on the date it is first mailed to Time Warner stockholders
or America Online stockholders or at the time of the Time Warner Stockholders
Meeting or the America Online Stockholders Meeting (each as defined in Section
6.1), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Form S-4 and the Joint Proxy Statement/Prospectus will
comply as to form in all material respects with the requirements of the
Exchange Act and the Securities Act and the rules and regulations of the SEC
thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 4.1(e), no
representation or warranty is made by America Online with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by Time Warner for inclusion
or incorporation by reference therein.
(f) Board Approval. The Board of Directors of America Online, by resolutions
duly adopted by unanimous vote of those voting at a meeting duly called and
held and not subsequently rescinded or modified in any way (the "America Online
Board Approval"), has duly (i) determined that this Agreement and the
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America Online Merger and the America Online Stock Option Agreement are fair to
and in the best interests of America Online and its stockholders and declared
the America Online Merger to be advisable, (ii) approved this Agreement, the
America Online Stock Option Agreement, the Voting Agreement and the America
Online Merger and (iii) recommended that the stockholders of America Online
adopt this Agreement and directed that such matter be submitted for
consideration by America Online's stockholders at the America Online
Stockholders Meeting. The America Online Board Approval constitutes approval of
this Agreement, the America Online Stock Option Agreement and the America
Online Merger for purposes of Section 203 of the DGCL and Article EIGHTH of the
Restated Certificate of Incorporation of America Online. To the knowledge of
America Online, except for Section 203 of the DGCL (which has been rendered
inapplicable), no state takeover statute is applicable to this Agreement, the
America Online Stock Option Agreement or the America Online Merger or the other
transactions contemplated hereby or thereby.
(g) Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of America Online Common Stock to adopt this Agreement (the
"Required America Online Vote") is the only vote of the holders of any class or
series of America Online capital stock necessary to approve or adopt this
Agreement, the America Online Stock Option Agreement and the America Online
Merger and to consummate the America Online Merger and the other transactions
contemplated hereby and thereby.
(h) Litigation; Compliance with Laws.
(i) There are no suits, actions, judgments or proceedings (collectively,
"Actions") pending or, to the knowledge of America Online, threatened, against
or affecting America Online or any Subsidiary of America Online or any property
or asset of America Online or any Subsidiary of America Online which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on America Online, nor are there any judgments,
decrees, injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against America Online or any Subsidiary of America Online which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on America Online.
(ii) Except as, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on America Online, America Online
and its Subsidiaries hold all permits, licenses, franchises, variances,
exemptions, orders and approvals of all Governmental Entities which are
necessary for the operation of the businesses as now being conducted of America
Online and its Subsidiaries, taken as a whole (the "America Online Permits"),
and no suspension or cancellation of any of the America Online Permits is
pending or, to the knowledge of America Online, threatened. America Online and
its Subsidiaries are in compliance with the terms of the America Online
Permits, except where the failure to so comply, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect
on America Online. Neither America Online nor its Subsidiaries is in violation
of, and America Online and its Subsidiaries have not received any notices of
violations with respect to, any laws, statutes, ordinances, rules or
regulations of any Governmental Entity, except for violations which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on America Online.
(i) Absence of Certain Changes or Events. Except as disclosed in Section
4.1(i) of the America Online Disclosure Schedule and for liabilities permitted
to be incurred in accordance with this Agreement or the transactions
contemplated hereby, since September 30, 1999, America Online and its
Subsidiaries have conducted their business only in the ordinary course and in a
manner consistent with past practice and, since December 31, 1998, there have
not been any changes, circumstances or events which, individually or in the
aggregate, have had, or would reasonably be expected to have, a Material
Adverse Effect on America Online.
(j) Intellectual Property; Year 2000.
(i) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on America Online: (a) America
Online and each of its Subsidiaries owns, or is licensed to use (in each case,
free and clear of any Liens), all Intellectual Property used in or necessary
for the conduct of its business as currently conducted; (b) to the knowledge of
America Online, the use of any Intellectual Property
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by America Online and its Subsidiaries does not infringe on or otherwise
violate the rights of any Person, (c) the use of the Intellectual Property is
in accordance with applicable licenses pursuant to which America Online or any
Subsidiary acquired the right to use any Intellectual Property; and (d) to the
knowledge of America Online, no Person is challenging, infringing on or
otherwise violating any right of America Online or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to America Online
or its Subsidiaries. As of the date of this Agreement, except as would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on America Online, neither America Online nor any of its
Subsidiaries has knowledge of any pending claim, order or proceeding with
respect to any Intellectual Property used by America Online and its
Subsidiaries and to its knowledge no Intellectual Property owned and/or
licensed by America Online or its Subsidiaries is being used or enforced in a
manner that would reasonably be expected to result in the abandonment,
cancellation or unenforceability of such Intellectual Property. For purposes of
this Agreement, "Intellectual Property " shall mean trademarks, service marks,
brand names, certification marks, trade dress and other indications of origin,
the goodwill associated with the foregoing and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the
foregoing, including any extension, modification or renewal of any such
registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; patents, applications for patents
(including, without limitation, divisions, continuations, continuations in part
and renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; nonpublic information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any Person; writings and other works, whether copyrightable or not,
in any jurisdiction; and registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; any
similar intellectual property or proprietary rights.
(ii) Prior to the date of this Agreement, America Online and its
Subsidiaries have undertaken a concerted effort to ensure that all of the
computer software, computer firmware, computer hardware, and other similar or
related items of automated, computerized, and/or software system(s) that are
used or relied on by America Online or any or its Subsidiaries in the conduct
of their respective businesses will not malfunction, will not cease to
function, will not generate incorrect data, and will not provide incorrect
results when processing, providing and/or receiving (a) date-related data into
and between the years 1999 and 2000 and (b) date-related data in connection
with any valid date in the twentieth and twenty-first centuries. As of the date
of this Agreement, except as would not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect on America Online, America
Online reasonably believes that such effort will be successful.
(k) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of America Online, except Salomon Smith Barney, Inc., whose fees
and expenses will be paid by America Online.
(l) Opinion of America Online Financial Advisor. America Online has received
the opinion of Salomon Smith Barney, Inc., dated the date of this Agreement, to
the effect that, as of such date, the Exchange Ratio is fair to America Online,
from a financial point of view, a copy of which opinion will be made available
to Time Warner promptly after the date of this Agreement.
(m) Taxes. Each of America Online and its Subsidiaries has filed all Tax
Returns (as defined below) required to have been filed (or extensions have been
duly obtained) and has paid all Taxes (as defined below) required to have been
paid by it, except where failure to file such Tax Returns or pay such Taxes
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on America Online. For purposes of this Agreement: (i)
"Tax" (and, with correlative meaning, "Taxes") means any federal, state, local
or foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add on minimum, ad
valorem, transfer or excise tax, or any other tax, custom, duty, governmental
fee or other like assessment or charge of any kind whatsoever, together with
any interest or penalty, imposed by any governmental authority or any
obligation to pay Taxes imposed on any entity for which a party to this
Agreement is liable as a result of any indemnification provision or other
contractual
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obligation and (ii) "Tax Return" means any return, report or similar statement
required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
Neither America Online nor any of its Subsidiaries has taken any action or
knows of any fact that is reasonably likely to prevent the Mergers from
qualifying as exchanges within the meaning of Section 351 of the Code and as
reorganizations within the meaning of Section 368(a) of the Code.
(n) Certain Contracts. As of the date hereof, except as disclosed in Section
4.1(n) of the America Online Disclosure Schedule, neither America Online nor
any of its Subsidiaries is a party to or bound by (i) any "material contracts"
(as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) with
respect to America Online and its Subsidiaries or (ii) any material agreement
that restricts the ability of America Online or Time Warner or any of their
Subsidiaries or affiliates to distribute, promote, market or otherwise offer
Internet and interactive services, Internet and interactive programming, or
Internet and interactive functionality on the cable systems owned by Time
Warner or its Subsidiaries or affiliates (collectively, "America Online
Internet Restrictions"). All contracts described in clause (i) are valid and in
full force and effect except to the extent they have previously expired in
accordance with their terms or if the failure to be in full force and effect,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on America Online. Neither America Online nor any of
its Subsidiaries has violated any provision of, or committed or failed to
perform any act which with or without notice, lapse of time or both would
constitute a default under the provisions of, any contract described in clause
(i), except in each case for those violations and defaults which, individually
or in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect on America Online.
(o) America Online Stockholder Rights Plan. The Board of Directors of
America Online has amended the America Online Rights Agreement in accordance
with its terms to render it inapplicable to the transactions contemplated by
this Agreement and the America Online Stock Option Agreement.
(p) Employee Benefits.
(i) The Benefit Plans, whether oral or written, under which any current or
former employee or director of America Online or its Subsidiaries has any
present or future right to benefits contributed to, sponsored by or maintained
by America Online or its Subsidiaries, or under which America Online or its
Subsidiaries has any present or future liability shall be collectively referred
to as the "America Online Benefit Plans."
(ii) Except as set forth in Section 4.1(p) of the America Online Disclosure
Schedule, with respect to each America Online Benefit Plan, no liability has
been incurred and there exists no condition or circumstances in connection with
which America Online or any of its Subsidiaries could be subject to any
liability that is reasonably likely, individually or in the aggregate, to have
a Material Adverse Effect on America Online, in each case under ERISA (as
defined in Section 9.11(b)), the Code, or any other applicable law, rule or
regulation.
(iii) America Online and its Subsidiaries are in compliance with all
federal, state, local and foreign requirements regarding employment, except for
any failures to comply that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on America Online. As of the date
of this Agreement, there is no labor dispute, strike or work stoppage against
America Online or any of its Subsidiaries pending or, to the knowledge of
America Online, threatened which may interfere with the business activities of
America Online or any of its Subsidiaries, except where such dispute, strike or
work stoppage is not reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on America Online.
4.2 Representations and Warranties of Time Warner. Except as disclosed in
the Time Warner Filed SEC Reports (as defined in Section 4.2(d)(ii)) or as set
forth in the Time Warner Disclosure Schedule delivered
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by Time Warner to America Online prior to the execution of this Agreement (the
"Time Warner Disclosure Schedule"), Time Warner represents and warrants to
America Online as follows:
(a) Organization, Standing and Power; Subsidiaries.
(i) Each of Time Warner and each of its Subsidiaries is a corporation or
other organization duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation or organization, has the
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and authority,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Time Warner, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary other than in such jurisdictions where the failure so to qualify or
to be in good standing, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Time Warner. The copies of the
certificate of incorporation and bylaws of Time Warner which were previously
furnished or made available to America Online are true, complete and correct
copies of such documents as in effect on the date of this Agreement and the
copy of the Agreement of Limited Partnership, dated as of October 29, 1991, as
amended, of Time Warner Entertainment Company, L.P. ("TWE") which was
previously furnished to America Online is a true, complete and correct copy of
such agreement as in effect on the date of this Agreement (the "TWE Partnership
Agreement").
(ii) Exhibit 21 to Time Warner's Annual Report on Form 10-K for the year
ended December 31, 1998 includes all the Subsidiaries of Time Warner which as
of the date of this Agreement are Significant Subsidiaries (as defined in Rule
1-02 of Regulation S-X of the SEC and including TWE). All the outstanding
shares of capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable and
are, except as set forth in such Exhibit 21 and in the TWE Partnership
Agreement, owned directly or indirectly by Time Warner, free and clear of all
Liens and free of any other restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests), except for restrictions imposed by applicable securities laws. As
of the date of this Agreement, neither Time Warner nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity (other than
Subsidiaries) that is or would reasonably be expected to be material to Time
Warner and its Subsidiaries taken as a whole.
Time Warner indirectly owns a 74.49% priority capital and residual equity
interest in TWE as described in the TWE Partnership Agreement, free and clear
of all Liens (except under the TWE Partnership Agreement).
(b) Capital Structure.
(i) As of November 30, 1999, the authorized capital stock of Time Warner
consists of (a) 5,000,000,000 shares of Time Warner Common Stock of which
1,172,176,909 shares were outstanding, (B) 600,000,000 shares of Series Common
Stock, par value $0.01 per share, of which (1) 140,000,000 shares have been
designated as Time Warner Series LMC Common Stock, of which no shares are
outstanding, and (2) 140,000,000 shares have been designated as Time Warner
Series LMCN-V Common Stock, of which 114,123,884 shares are outstanding, and
(C) 250,000,000 shares of preferred stock, par value $0.10 per share, of which
(1) 8,000,000 shares have been designated Series A Participating Cumulative
Preferred Stock and reserved for issuance upon exercise of the rights (the
"Time Warner Rights") distributed to holders of Time Warner Common Stock
pursuant to the Rights Agreement, dated as of October 10, 1996 between Time
Warner and ChaseMellon Shareholder Services, LLC, as Rights Agent, as amended
(together with any substitute rights agreement entered into pursuant to Section
6.10(b), the "Time Warner Rights Agreement"), (2) 11,000,000 shares have been
designated Series D Convertible Preferred Stock, of which no shares are
outstanding, (3) 3,250,000 shares have been designated Series E Convertible
Preferred Stock, of which 3,129,251 shares are outstanding, (4) 3,100,000
shares have been designated Series F Convertible Preferred Stock, of which
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2,965,761 shares are outstanding, (5) 7,000,000 shares have been designated
Series I Convertible Preferred Stock, of which 700,000 shares are outstanding,
and (6) 3,350,000 shares have been designated Series J Convertible Preferred
Stock, of which 1,608,708 shares are outstanding. Except as disclosed in
Section 4.2(b)(i) of the Time Warner Disclosure Schedule, since November 30,
1999 to the date of this Agreement, there have been no issuances of shares of
the capital stock of Time Warner or any other securities of Time Warner other
than pursuant to outstanding convertible securities or options or rights
outstanding as of November 30, 1999 and 59,250 Time Warner Restricted Shares
under the Benefit Plans of Time Warner, and pursuant to the Time Warner
Dividend Reinvestment and Stock Purchase Plan. All issued and outstanding
shares of the capital stock of Time Warner are duly authorized, validly issued,
fully paid and nonassessable, and free of any preemptive rights. All accrued
dividends that were payable on Time Warner Preferred Stock have been paid.
There were outstanding as of December 31, 1999 no options, warrants or other
rights to acquire capital stock from Time Warner other than (x) the Time Warner
Rights and (y) approximately 135,867,893 Time Warner Stock Options and 82,000
Time Warner Restricted Shares. The options and other rights to acquire Time
Warner Common Stock from Time Warner representing the right to purchase shares
of Time Warner Common Stock, together with other employee stock options issued
by Time Warner after the date hereof in accordance with the Time Warner Stock
Option Plans and Section 5.2, are referred to herein collectively as the "Time
Warner Stock Options"). The Time Warner Stock Options and the Time Warner
Restricted Shares have been and will be granted under the Time Warner 1986
Stock Option Plan, the 1988 Stock Incentive Plan of Time Warner Inc., Time
Warner 1989 Stock Incentive Plan, Time Warner 1994 Stock Option Plan, Time
Warner Corporate Group Stock Incentive Plan, Time Warner 1997 Stock Option
Plan, Time Warner 1996 Stock Option Plan for Non-Employee Directors, Time
Warner 1989 WCI Replacement Stock Option Plan, 1989 Lorimar Non-Employee
Replacement Stock Option Plan, Time Warner 1993 Stock Option Plan, Time Warner
Filmed Entertainment Group Stock Incentive Plan, Time Warner Music Group Stock
Incentive Plan, Time Warner Programming Group Stock Incentive Plan, Time Warner
Publishing Group Stock Incentive Plan, Time Warner Cable Group Stock Incentive
Plan, Subsidiary 1988 Stock Option Plan, Subsidiary 1993 Stock Option and
Equity-Based Award Plan, Subsidiary 1986 Stock Option Plan, Subsidiary 1990
Stock Option Plan, Subsidiary 1991 Stock Option Plan and Subsidiary
Nonqualified Stock Option Agreements, the Time Warner 1999 Restricted Stock
Plan, the Time Warner 1988 Restricted Stock Plan for Non-Employee Directors and
the Time Warner 1999 International Employees Restricted Stock Plan
(collectively, the "Time Warner Stock Option Plans"). Except in connection with
pre-employment grants of Time Warner Stock Options made in a manner consistent
with past practice to purchase, in the aggregate, not more than 100,000 shares
of Time Warner Common Stock, Section 4.2(b)(i) of the Time Warner Disclosure
Schedule sets forth a complete and correct list, as of December 31, 1999, of
the number of shares of Time Warner Common Stock subject to Time Warner Stock
Options or other rights to purchase or receive Time Warner Common Stock granted
under the Time Warner Benefit Plans or otherwise and the weighted average
exercise price of the outstanding Time Warner Stock Options referenced therein.
Except in connection with pre-employment grants of Time Warner Stock Options
made in a manner consistent with past practice to purchase, in the aggregate,
not more than 100,000 shares of Time Warner Common Stock, no options or
warrants or other rights to acquire capital stock from Time Warner have been
issued or granted since December 31, 1999 to the date of this Agreement.
(ii) No bonds, debentures, notes or other indebtedness of Time Warner having
the right to vote on any matters on which holders of capital stock of Time
Warner may vote ("Time Warner Voting Debt") are issued or outstanding.
(iii) Except as otherwise set forth in this Section 4.2(b) or in Section
4.2(b)(iii) of the Time Warner Disclosure Schedule, as of the date of this
Agreement, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which Time
Warner or any of its Subsidiaries is a party or by which any of them is bound
obligating Time Warner or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of Time Warner or any of its Subsidiaries or obligating
Time Warner or any of its Subsidiaries to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. Except as disclosed in Section 4.2(b)(iii) of the
Time Warner Disclosure Schedule,
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as of the date of this Agreement, there are no outstanding obligations of Time
Warner or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of Time Warner or any of its Subsidiaries.
(c) Authority; No Conflicts.
(i) Time Warner has all requisite corporate power and authority to enter
into this Agreement and the Stock Option Agreements and to consummate the
transactions contemplated hereby and thereby, subject in the case of the
consummation of the Time Warner Merger to the adoption of this Agreement by the
Required Time Warner Vote (as defined in Section 4.2(g)). The execution and
delivery of this Agreement and the Stock Option Agreements and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of Time Warner and no other
corporate proceedings on the part of Time Warner are necessary to authorize the
execution and delivery of the Agreement or to consummate the Time Warner Merger
and the other transactions contemplated hereby, subject in the case of the
consummation of the Time Warner Merger to the adoption of this Agreement by the
Required Time Warner Vote. This Agreement and the Stock Option Agreements have
been duly executed and delivered by Time Warner and constitute valid and
binding agreements of Time Warner, enforceable against Time Warner in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and similar laws
relating to or affecting creditors generally or by general equity principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
(ii) The execution and delivery of this Agreement and the Stock Option
Agreements by Time Warner do not, and the consummation by Time Warner of the
Time Warner Merger and the other transactions contemplated hereby and thereby
will not, conflict with, or result in a Violation pursuant to: (A) any
provision of the certificate of incorporation or bylaws or similar
organizational document of Time Warner or any Significant Subsidiary of Time
Warner (including the TWE Partnership Agreement) or (B) except (1) as,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Time Warner or (2) would not prevent or materially
delay the consummation of the Mergers, subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (iii) below or (3) set forth in Section
4.2(c)(ii) of the Time Warner Disclosure Schedule and except with respect to
employee stock options and other awards, any loan or credit agreement, note,
mortgage, bond, indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Time Warner or any
Subsidiary of Time Warner or their respective properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or any other Person is
required by or with respect to Time Warner or any Subsidiary of Time Warner in
connection with the execution and delivery of this Agreement and the Stock
Option Agreements by Time Warner or the consummation of the Time Warner Merger
and the other transactions contemplated hereby and thereby, except the
Necessary Consents and such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or obtain,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Time Warner.
(d) Reports and Financial Statements.
(i) Each of Time Warner and TWE have filed all required registration
statements, prospectuses, reports, schedules, forms, statements and other
documents required to be filed by each of them with the SEC since December 31,
1996 (collectively, including all exhibits thereto, the "Time Warner SEC
Reports"). Except as set forth in Section 4.2(d)(i) of the Time Warner
Disclosure Schedule, no Subsidiary of Time Warner is required to file any form,
report, registration statement, prospectus or other document with the SEC. None
of the Time Warner SEC Reports, as of their respective dates (and, if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing), contained or will contain any untrue statement of a material
fact or omitted or will omit to state a material fact required to be stated
therein or necessary to make the
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statements therein, in light of the circumstances under which they were made,
not misleading. Each of the financial statements (including the related notes)
included in the Time Warner SEC Reports presents fairly, in all material
respects, the consolidated financial position and consolidated results of
operations and cash flows of Time Warner or TWE, as the case may be, and its
consolidated Subsidiaries as of the respective dates or for the respective
periods set forth therein, all in conformity with GAAP consistently applied
during the periods involved except as otherwise noted therein, and subject, in
the case of the unaudited interim financial statements, to the absence of notes
and normal year-end adjustments that have not been and are not expected to be
material in amount. All of such Time Warner SEC Reports, as of their respective
dates (and as of the date of any amendment to the respective Time Warner SEC
Report), complied as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder.
(ii) Except as disclosed in the Time Warner SEC Reports filed and publicly
available prior to the date hereof (the "Time Warner Filed SEC Reports"), Time
Warner and its Subsidiaries have not incurred any liabilities that are of a
nature that would be required to be disclosed on a balance sheet of Time Warner
and its Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the ordinary course of business, (B)
liabilities incurred in accordance with Section 5.2, (C) liabilities for Taxes
or (D) liabilities that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Time Warner.
(e) Information Supplied.
(i) None of the information supplied or to be supplied by Time Warner for
inclusion or incorporation by reference in (A) the Form S-4 will, at the time
the Form S-4 is filed with the SEC, at any time it is amended or supplemented
or at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (B) the Joint
Proxy Statement/Prospectus will, on the date it is first mailed to Time Warner
stockholders or America Online stockholders or at the time of the Time Warner
Stockholders Meeting or the America Online Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The Form
S-4 and the Joint Proxy Statement/Prospectus will comply as to form in all
material respects with the requirements of the Exchange Act and the Securities
Act and the rules and regulations of the SEC thereunder.
(ii) Notwithstanding the foregoing provisions of this Section 4.2(e), no
representation or warranty is made by Time Warner with respect to statements
made or incorporated by reference in the Form S-4 or the Joint Proxy
Statement/Prospectus based on information supplied by America Online for
inclusion or incorporation by reference therein.
(f) Board Approval. The Board of Directors of Time Warner, by resolutions
duly adopted by unanimous vote of those voting at a meeting duly called and
held and not subsequently rescinded or modified in any way (the "Time Warner
Board Approval"), has duly (i) determined that this Agreement and the Time
Warner Merger and the Time Warner Stock Option Agreement are fair to and in the
best interests of Time Warner and its stockholders and declared the Time Warner
Merger to be advisable, (ii) approved this Agreement, the Time Warner Stock
Option Agreement, the Voting Agreement and the Time Warner Merger and (iii)
recommended that the stockholders of Time Warner adopt this Agreement and
directed that such matter be submitted for consideration by Time Warner's
stockholders at the Time Warner Stockholders Meeting. The Time Warner Board
Approval constitutes approval of this Agreement, the Time Warner Stock Option
Agreement, the Voting Agreement and the Time Warner Merger for purposes of
Section 203 of the DGCL and Article V of the Restated Certificate of
Incorporation of Time Warner. To the knowledge of Time Warner, except for
Section 203 of the DGCL (which has been rendered inapplicable), no state
takeover statute is applicable to this Agreement, the Time Warner Stock Option
Agreement, the Voting Agreement or the Time Warner Merger or the other
transactions contemplated hereby or thereby.
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(g) Vote Required. The affirmative vote of the holders of a majority of the
voting power of the outstanding shares of Time Warner Series LMC Common Stock,
Time Warner Common Stock and Time Warner Preferred Stock, voting together as a
single class, to adopt this Agreement (the "Required Time Warner Vote") is the
only vote of the holders of any class or series of Time Warner capital stock
necessary to approve or adopt this Agreement, the Time Warner Stock Option
Agreement and the Time Warner Merger and to consummate the Time Warner Merger
and the other transactions contemplated hereby and thereby.
(h) Litigation; Compliance with Laws.
(i) There are no Actions pending or, to the knowledge of Time Warner,
threatened, against or affecting Time Warner or any Subsidiary of Time Warner
or any property or asset of Time Warner or any Subsidiary of Time Warner which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Time Warner, nor are there any judgments, decrees,
injunctions, rules or orders of any Governmental Entity or arbitrator
outstanding against Time Warner or any Subsidiary of Time Warner which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Time Warner.
(ii) Except as, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Time Warner, Time Warner and its
Subsidiaries hold all permits, licenses, franchises, variances, exemptions,
orders and approvals of all Governmental Entities which are necessary for the
operation of the businesses as now being conducted of Time Warner and its
Subsidiaries, taken as a whole (the "Time Warner Permits"), and no suspension
or cancellation of any of the Time Warner Permits is pending or, to the
knowledge of Time Warner, threatened. Time Warner and its Subsidiaries are in
compliance with the terms of the Time Warner Permits, except where the failure
to so comply, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Time Warner. Neither Time Warner
nor its Subsidiaries is in violation of, and Time Warner and its Subsidiaries
have not received any notices of violations with respect to, any laws,
statutes, ordinances, rules or regulations of any Governmental Entity, except
for violations which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect on Time Warner.
(i) Absence of Certain Changes or Events. Except as disclosed in Section
4.2(i) of the Time Warner Disclosure Schedule and for liabilities permitted to
be incurred in accordance with this Agreement or the transactions contemplated
hereby, since September 30, 1999, Time Warner and its Subsidiaries have
conducted their business only in the ordinary course and in a manner consistent
with past practice and, since December 31, 1998, there have not been any
changes, circumstances or events which, individually or in the aggregate, have
had, or would reasonably be expected to have, a Material Adverse Effect on Time
Warner.
(j) Intellectual Property; Year 2000.
(i) Except as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Time Warner: (a) Time Warner and
each of its Subsidiaries owns, or is licensed to use (in each case, free and
clear of any Liens), all Intellectual Property used in or necessary for the
conduct of its business as currently conducted; (b) to the knowledge of Time
Warner, the use of any Intellectual Property by Time Warner and its
Subsidiaries does not infringe on or otherwise violate the rights of any
Person, (c) the use of the Intellectual Property is in accordance with
applicable licenses pursuant to which Time Warner or any Subsidiary acquired
the right to use any Intellectual Property; and (d) to the knowledge of Time
Warner, no Person is challenging, infringing on or otherwise violating any
right of Time Warner or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to Time Warner or its
Subsidiaries. As of the date of this Agreement, except as would not reasonably
be expected, individually or in the aggregate, to have a Material Adverse
Effect on Time Warner, neither Time Warner nor any of its Subsidiaries has
knowledge of any pending claim, order or proceeding with respect to any
Intellectual Property used by Time Warner and its Subsidiaries and to its
knowledge no Intellectual Property owned and/or licensed by Time Warner or its
Subsidiaries is being used or enforced in a manner that would reasonably be
expected to result in the abandonment, cancellation or unenforceability of such
Intellectual Property.
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(ii) Prior to the date of this Agreement, Time Warner and its Subsidiaries
have undertaken a concerted effort to ensure that all of the computer software,
computer firmware, computer hardware, and other similar or related items of
automated, computerized, and/or software system(s) that are used or relied on
by Time Warner or any or its Subsidiaries in the conduct of their respective
businesses will not malfunction, will not cease to function, will not generate
incorrect data, and will not provide incorrect results when processing,
providing and/or receiving (a) date-related data into and between the years
1999 and 2000 and (b) date-related data in connection with any valid date in
the twentieth and twenty-first centuries. As of the date of this Agreement,
except as would not reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect on Time Warner, Time Warner reasonably
believes that such effort will be successful.
(k) Brokers or Finders. No agent, broker, investment banker, financial
advisor or other firm or Person is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Time Warner, except Morgan Stanley Dean Witter & Co.
Incorporated, whose fees and expenses will be paid by Time Warner.
(l) Opinion of Time Warner Financial Advisor. Time Warner has received the
opinion of Morgan Stanley Dean Witter & Co. Incorporated, dated the date of
this Agreement, to the effect that, as of such date, the Exchange Ratio is
fair, from a financial point of view, to the holders of Time Warner Common
Stock and Time Warner Series Common Stock, a copy of which opinion will be made
available to America Online promptly after the date of this Agreement.
(m) Taxes. Each of Time Warner and its Subsidiaries has filed all Tax
Returns required to have been filed (or extensions have been duly obtained) and
has paid all Taxes required to have been paid by it, except where failure to
file such Tax Returns or pay such Taxes would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Time
Warner.
Neither Time Warner nor any of its Subsidiaries has taken any action or
knows of any fact that is reasonably likely to prevent the Mergers from
qualifying as exchanges within the meaning of Section 351 of the Code and as
reorganizations within the meaning of Section 368(a) of the Code.
(n) Certain Contracts. As of the date hereof, except as disclosed in Section
4.2(n) of the Time Warner Disclosure Schedule, neither Time Warner nor any of
its Subsidiaries is a party to or bound by (i) any "material contracts" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) with
respect to Time Warner and its Subsidiaries or (ii) any material agreement that
restricts the ability of America Online or Time Warner or any of their
Subsidiaries or affiliates to distribute, promote, market or otherwise offer
Internet and interactive services, Internet and interactive programming, or
Internet and interactive functionality on the cable systems owned by Time
Warner or its Subsidiaries or affiliates (collectively, "Time Warner Internet
Restrictions"). All contracts described in clause (i) are valid and in full
force and effect except to the extent they have previously expired in
accordance with their terms or if the failure to be in full force and effect,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on Time Warner. Neither Time Warner nor any of its
Subsidiaries has violated any provision of, or committed or failed to perform
any act which with or without notice, lapse of time or both would constitute a
default under the provisions of, any contract described in clause (i), except
in each case for those violations and defaults which, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse
Effect on Time Warner.
(o) Time Warner Stockholder Rights Plan. The Board of Directors of Time
Warner has amended the Time Warner Rights Agreement in accordance with its
terms to render it inapplicable to the transactions contemplated by this
Agreement and the Time Warner Stock Option Agreement.
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(p) Employee Benefits.
(i) The Benefit Plans, whether oral or written, under which any current or
former employee or director of Time Warner or its Subsidiaries has any present
or future right to benefits contributed to, sponsored by or maintained by Time
Warner or its Subsidiaries, or under which Time Warner or its Subsidiaries has
any present or future liability shall be collectively referred to as the "Time
Warner Benefit Plans."
(ii) With respect to each Time Warner Benefit Plan, no liability has been
incurred and there exists no condition or circumstances in connection with
which Time Warner or any of its Subsidiaries could be subject to any liability
that is reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Time Warner, in each case under ERISA, the Code, or any other
applicable law, rule or regulation.
(iii) Time Warner and its Subsidiaries are in compliance with all federal,
state, local and foreign requirements regarding employment, except for any
failures to comply that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Time Warner. As of the date of
this Agreement, there is no labor dispute, strike or work stoppage against Time
Warner or any of its Subsidiaries pending or, to the knowledge of Time Warner,
threatened which may interfere with the business activities of Time Warner or
any of its Subsidiaries, except where such dispute, strike or work stoppage is
not reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Time Warner.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of America Online. During the period from the date of this
Agreement and continuing until the Effective Time, America Online agrees as to
itself and its Subsidiaries that (except as expressly contemplated or permitted
by this Agreement, the Stock Option Agreements or Section 5.1 (including its
subsections) of the America Online Disclosure Schedule or as required by a
Governmental Entity or to the extent that Time Warner shall otherwise consent
in writing, which consent shall not be unreasonably withheld or delayed):
(a) Ordinary Course.
(i) America Online and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use their reasonable best efforts to preserve intact their present
lines of business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by America Online or its Subsidiaries with respect to matters
specifically addressed by any other provision of this Section 5.1 shall be
deemed a breach of this Section 5.1(a)(i) unless such action would
constitute a breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by Section
5.1(e) or investments permitted by Section 5.1(g), America Online shall
not, and shall not permit any of its Subsidiaries to, (A) enter into any
new material line of business or (B) incur or commit to any capital
expenditures or any obligations or liabilities in connection therewith
other than capital expenditures and obligations or liabilities in
connection therewith incurred or committed to in the ordinary course of
business consistent with past practice.
(b) Dividends; Changes in Share Capital. America Online shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except as permitted by Section 5.1(b)(ii), (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its capital stock, except for (x) any such transaction by a
wholly owned Subsidiary of America Online which remains a wholly owned
Subsidiary after consummation of such
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transaction or (y) a stock split of the America Online Common Stock or (iii)
repurchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock
except for the purchase from time to time by America Online of America Online
Common Stock (and the associated America Online Rights) in connection with the
America Online Benefit Plans in the ordinary course of business consistent with
past practice.
(c) Issuance of Securities. America Online shall not, and shall not permit
any of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class,
any America Online Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants, calls or options to acquire, any such
shares or America Online Voting Debt, or enter into any commitment,
arrangement, undertaking or agreement with respect to any of the foregoing,
other than (i) the issuance of America Online Common Stock (and the associated
America Online Rights) upon the exercise of America Online Stock Options in
accordance with their present terms or pursuant to America Online Stock Options
or other stock based awards granted pursuant to clause (ii) below, (ii) the
granting of America Online Stock Options or other stock based awards of or to
acquire shares of America Online Common Stock granted under Benefit Plans
outstanding on the date hereof in the ordinary course of business consistent
with past practice, (iii) issuances by a wholly owned Subsidiary of America
Online of capital stock to such Subsidiary's parent or another wholly owned
Subsidiary of America Online, (iv) pursuant to acquisitions and investments as
disclosed in Section 5.1(e) or 5.1(g) of the America Online Disclosure Schedule
or the financings therefor or as disclosed in Section 5.1(c) of the America
Online Disclosure Schedule, (v) issuances in accordance with the America Online
Rights Agreement or (vi) issuances pursuant to the America Online Stock Option
Agreement.
(d) Governing Documents. Except to the extent required to comply with their
respective obligations hereunder or with applicable law, America Online and
America Online Merger Sub shall not amend or propose to so amend their
respective certificates of incorporation or bylaws.
(e) No Acquisitions. Other than (i) pursuant to the Time Warner Stock Option
Agreement, (ii) acquisitions disclosed in Section 5.1(e) of the America Online
Disclosure Schedule and (iii) acquisitions in existing or related lines of
business of America Online the fair market value of the total consideration
(including the value of indebtedness acquired or assumed) for which does not
exceed the amount specified in the aggregate for such acquisitions in Section
5.1(e)(iii) of the America Online Disclosure Schedule and none of which
acquisitions referred to in this clause (iii) presents a material risk of
making it materially more difficult to obtain any approval or authorization
required in connection with the Mergers under applicable laws, America Online
shall not, and shall not permit any of its Subsidiaries to, acquire or agree to
acquire by merger or consolidation, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets (excluding the acquisition of assets used in the operations of the
business of America Online and its Subsidiaries in the ordinary course, which
assets do not constitute a business unit, division or all or substantially all
of the assets of the transferor); provided, however, that the foregoing shall
not prohibit (x) internal reorganizations or consolidations involving existing
Subsidiaries of America Online or (y) the creation of new Subsidiaries of
America Online organized to conduct or continue activities otherwise permitted
by this Agreement.
(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of America Online, (ii)
dispositions referred to in the America Online SEC Reports filed prior to the
date of this Agreement or (iii) as may be required by or in conformance with
law or regulation in order to permit or facilitate the consummation of the
transactions contemplated hereby or (iv) as disclosed in Section 5.1(f) of the
America Online Disclosure Schedule, America Online shall not, and shall not
permit any of its Subsidiaries to, sell, lease or otherwise dispose of, or
agree to sell, lease or otherwise dispose of, any of its assets (including
capital stock of Subsidiaries of America Online but excluding inventory in the
ordinary course of business), if the fair market value of the total
consideration (including the value of the indebtedness acquired or assumed)
therefor exceeds the amount specified in the aggregate for all such
dispositions in Section 5.1(f) of the America Online Disclosure Schedule.
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(g) Investments; Indebtedness. America Online shall not, and shall not
permit any of its Subsidiaries to, (i) other than in connection with
acquisitions permitted by Section 5.1(e) or as disclosed in Section 5.1(g) of
the America Online Disclosure Schedule, make any loans, advances or capital
contributions to, or investments in, any other Person, other than (x) loans or
investments by America Online or a Subsidiary of America Online to or in
America Online or any Subsidiary of America Online, (y) employee loans or
advances made in the ordinary course of business or (z) in the ordinary course
of business consistent with past practice which are not, individually or in the
aggregate, material to America Online and its Subsidiaries taken as a whole
(provided that none of such transactions referred to in this clause (z)
presents a material risk of making it more difficult to obtain any approval or
authorization required in connection with the Mergers under Regulatory Law (as
defined in Section 6.4(c)) or (ii) without regard to anything contained in the
America Online Disclosure Schedule, incur any indebtedness for borrowed money
or guarantee any such indebtedness of another Person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
America Online or any of its Subsidiaries, guarantee any debt securities of
another Person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another Person (other than any wholly owned
Subsidiary) or enter into any arrangement having the economic effect of any of
the foregoing (collectively, "America Online Indebtedness"), except for (A) any
America Online Indebtedness so long as (x) after the incurrence or issuance of
such America Online Indebtedness America Online's consolidated indebtedness
would not exceed 125% of the consolidated indebtedness of America Online as of
the date hereof and (y) no America Online credit rating would be downgraded by
either Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P") (provided that the consummation of this Agreement or any of
the transactions contemplated hereby shall not give rise to, cause or result
in, a default or event of default under the agreement or instrument governing
any such indebtedness or, an obligation to pay any amount thereunder solely as
a result of the consummation of this Agreement or any of the transactions
contemplated hereby) and (B) intercompany indebtedness between America Online
and any of its wholly owned Subsidiaries or between such wholly owned
Subsidiaries.
(h) Tax-Free Qualification. America Online shall use its reasonable best
efforts not to, and shall use its reasonable best efforts not to permit any of
its Subsidiaries to, take any action (including any action otherwise permitted
by this Section 5.1) that would prevent or impede the Mergers from qualifying
as exchanges under Section 351 of the Code and as reorganizations under Section
368 of the Code; provided, however, that nothing hereunder shall limit the
ability of America Online to exercise its rights and/or fulfill its obligations
under the Stock Option Agreements.
(i) Compensation. Except (x) as set forth in Sections 5.1(c) or 5.1(i) of
the America Online Disclosure Schedule, (y) as required by law or by the terms
of any collective bargaining agreement or other agreement currently in effect
between America Online or any Subsidiary of America Online and any executive
officer or employee thereof or (z) in the ordinary course of business
consistent with past practice, America Online shall not increase the amount of
compensation of any director, executive officer or key employee of America
Online or any material Subsidiary or business unit of America Online, or make
any increase in or commitment to increase any employee benefits, issue any
additional America Online Stock Options, adopt or amend or make any commitment
to adopt or amend any Benefit Plan or make any contribution, other than
regularly scheduled contributions, to any America Online Benefit Plan. Any
option committed to be granted or granted after the date hereof shall not
accelerate as a result of the approval or consummation of any transaction
contemplated by this Agreement. Should any modification of the America Online
Option Plans necessary to effectuate the immediately preceding sentence render
any transaction to which America Online is a party, and which is intended to be
eligible for pooling-of-interest accounting under APB No. 16, ineligible for
such treatment then such modification shall not be required; provided, that the
number of shares subject to options to be granted in the ordinary course
consistent with past practice shall be reduced to reflect the effect of such
acceleration.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in America
Online SEC Reports filed prior to the date of this Agreement, or as required by
a Governmental Entity, America Online shall not change its methods of
accounting in effect at September 30, 1999, except as required by changes in
GAAP as
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concurred in by America Online's independent public accountants. America Online
shall not (i) change its fiscal year (other than to the calendar year) or (ii)
make any tax election that, individually or in the aggregate, would have a
Material Adverse Effect on America Online.
(k) Certain Agreements and Arrangements. Except as disclosed in Section
5.1(k) of the America Online Disclosure Schedule, America Online shall not, and
shall not permit any of its Subsidiaries to, enter into any America Online
Internet Restrictions or any agreements or arrangements that limit or otherwise
restrict America Online or any of its Subsidiaries or any of their respective
affiliates or any successor thereto or that could, after the Effective Time,
limit or restrict America Online or any of its affiliates (including Holdco) or
any successor thereto, from engaging or competing in any line of business or in
any geographic area which agreements or arrangements, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Holdco and its Subsidiaries, taken together, after giving effect to the Mergers
or (y) of a type described in Section 5.1 (k) of the Time Warner Disclosure
Schedule.
(l) Satisfaction of Closing Conditions. Except as required by law, America
Online shall not, and shall not permit any of its Subsidiaries to, take any
action that would, or would reasonably be expected to, result in (i) any of the
conditions to the Mergers set forth in Article VII not being satisfied or (ii)
a material delay in the satisfaction of such conditions.
(m) No Related Actions. America Online will not, and will not permit any of
its Subsidiaries to, agree or commit to do any of the foregoing.
5.2 Covenants of Time Warner. During the period from the date of this
Agreement and continuing until the Effective Time, Time Warner agrees as to
itself and its Subsidiaries that (except as expressly contemplated or permitted
by this Agreement, the Stock Option Agreements or Section 5.2 (including its
subsections) of the Time Warner Disclosure Schedule or as required by a
Governmental Entity or to the extent that America Online shall otherwise
consent in writing, which consent shall not be unreasonably withheld or
delayed):
(a) Ordinary Course.
(i) Time Warner and its Subsidiaries shall carry on their respective
businesses in the usual, regular and ordinary course in all material
respects, in substantially the same manner as heretofore conducted, and
shall use their reasonable best efforts to preserve intact their present
lines of business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having business dealings
with them to the end that their ongoing businesses shall not be impaired in
any material respect at the Effective Time; provided, however, that no
action by Time Warner or its Subsidiaries with respect to matters
specifically addressed by any other provision of this Section 5.2 shall be
deemed a breach of this Section 5.2(a)(i) unless such action would
constitute a breach of one or more of such other provisions.
(ii) Other than in connection with acquisitions permitted by Section
5.2(e) or investments permitted by Section 5.2(g), Time Warner shall not,
and shall not permit any of its Subsidiaries to, (A) enter into any new
material line of business or (B) incur or commit to any capital
expenditures or any obligations or liabilities in connection therewith
other than capital expenditures and obligations or liabilities in
connection therewith as disclosed in Section 5.2(a) of the Time Warner
Disclosure Schedule or incurred or committed to in the ordinary course of
business consistent with past practice.
(b) Dividends; Changes in Share Capital. Time Warner shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock, except (A) the declaration and payment of regular quarterly cash
dividends not in excess of $0.045 per share of Time Warner Common Stock, $0.045
per share of Time Warner Series LMCN-V Common Stock, $0.9375 per share of Time
Warner Series E Preferred Stock, $0.1874 per share of Time Warner Series F
Preferred Stock, $0.9375 per share of Time Warner Series I Preferred Stock or
$0.9375
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per share of Series J Preferred Stock, in each case, with usual record and
payment dates for such dividends in accordance with past dividend practice and,
in the case of Time Warner Series Common Stock or Time Warner Preferred Stock,
the certificate of designations therefor, and (B) for dividends by wholly owned
Subsidiaries of Time Warner, distributions by TWE or TWE-A/N to the partners
therein according to their respective governing documents in amounts and at
times in the ordinary course of business consistent with past practice and as
permitted by Section 5.2(b)(ii), (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for (x) any such transaction by a wholly owned Subsidiary
of Time Warner which remains a wholly owned Subsidiary after consummation of
such transaction or (y) a stock split of the Time Warner Common Stock or (iii)
except as set forth in Section 5.2(b) of the Time Warner Disclosure Schedule,
repurchase, redeem or otherwise acquire any shares of its capital stock or any
securities convertible into or exercisable for any shares of its capital stock
except for the purchase from time to time by Time Warner of Time Warner Common
Stock (and the associated Time Warner Rights) in connection with the Time
Warner Benefit Plans in the ordinary course of business consistent with past
practice.
(c) Issuance of Securities. Time Warner shall not, and shall not permit any
of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any class,
any Time Warner Voting Debt or any securities convertible into or exercisable
for, or any rights, warrants, calls or options to acquire, any such shares or
Time Warner Voting Debt, or enter into any commitment, arrangement, undertaking
or agreement with respect to any of the foregoing, other than (i) the issuance
of Time Warner Common Stock (and the associated Time Warner Rights) upon the
exercise of Time Warner Stock Options in accordance with their present terms or
pursuant to Time Warner Stock Options or other stock based awards granted
pursuant to clause (ii) below, (ii) the granting of Time Warner Stock Options
or other stock based awards of or to acquire shares of Time Warner Common Stock
granted under Benefit Plans outstanding on the date hereof in the ordinary
course of business consistent with past practice, (iii) issuances by a wholly
owned Subsidiary of Time Warner of capital stock to such Subsidiary's parent or
another wholly owned Subsidiary of Time Warner, (iv) pursuant to acquisitions
and investments as disclosed in Section 5.2(e) or 5.2(g) of the Time Warner
Disclosure Schedule or the financings therefor or as disclosed in Section
5.2(c) of the Time Warner Disclosure Schedule, (v) issuances in accordance with
the Time Warner Rights Agreement or (vi) issuances pursuant to the Time Warner
Stock Option Agreement.
(d) Governing Documents. Except as set forth in Section 5.2(d) of the Time
Warner Disclosure Schedule or to the extent required to comply with their
respective obligations hereunder or with applicable law, Time Warner and Time
Warner Merger Sub shall not amend or propose to so amend their respective
certificates of incorporation or bylaws.
(e) No Acquisitions. Other than (i) pursuant to the America Online Stock
Option Agreement, (ii) acquisitions disclosed in Section 5.2(e) of the Time
Warner Disclosure Schedule and (iii) acquisitions in existing or related lines
of business of Time Warner the fair market value of the total consideration
(including the value of indebtedness acquired or assumed) for which does not
exceed the amount specified in the aggregate for such acquisitions in Section
5.2(e)(iii) of the Time Warner Disclosure Schedule and none of which
acquisitions referred to in this clause (iii) presents a material risk of
making it materially more difficult to obtain any approval or authorization
required in connection with the Mergers under applicable laws, Time Warner
shall not, and shall not permit any of its Subsidiaries to, acquire or agree to
acquire by merger or consolidation, or by purchasing a substantial equity
interest in or a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets (excluding the acquisition of assets used in the operations of the
business of Time Warner and its Subsidiaries in the ordinary course, which
assets do not constitute a business unit, division or all or substantially all
of the assets of the transferor); provided, however, that the foregoing shall
not prohibit (x) internal reorganizations or consolidations involving existing
Subsidiaries of Time Warner or (y) the creation of new Subsidiaries of Time
Warner organized to conduct or continue activities otherwise permitted by this
Agreement.
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(f) No Dispositions. Other than (i) internal reorganizations or
consolidations involving existing Subsidiaries of Time Warner, (ii)
dispositions referred to in the Time Warner SEC Reports filed prior to the date
of this Agreement, (iii) as may be required by or in conformance with law or
regulation in order to permit or facilitate the consummation of the
transactions contemplated hereby or (iv) as disclosed in Section 5.2(f) of the
Time Warner Disclosure Schedule, Time Warner shall not, and shall not permit
any of its Subsidiaries to, sell, lease or otherwise dispose of, or agree to
sell, lease or otherwise dispose of, any of its assets (including capital stock
of Subsidiaries of Time Warner but excluding inventory in the ordinary course
of business), if the fair market value of the total consideration (including
the value of the indebtedness acquired or assumed) therefor exceeds the amount
specified in the aggregate for all such dispositions in Section 5.2(f) of the
Time Warner Disclosure Schedule.
(g) Investments; Indebtedness. Time Warner shall not, and shall not permit
any of its Subsidiaries to, (i) other than in connection with acquisitions
permitted by Section 5.2(e) or as disclosed in Section 5.2(g) of the Time
Warner Disclosure Schedule, make any loans, advances or capital contributions
to, or investments in, any other Person, other than (x) loans or investments by
Time Warner or a Subsidiary of Time Warner to or in Time Warner or any
Subsidiary of Time Warner, (y) employee loans or advances made in the ordinary
course of business or (z) in the ordinary course of business consistent with
past practice which are not, individually or in the aggregate, material to Time
Warner and its Subsidiaries taken as a whole (provided that none of such
transactions referred to in this clause (z) presents a material risk of making
it more difficult to obtain any approval or authorization required in
connection with the Mergers under Regulatory Law or (ii) without regard to
anything contained in the Time Warner Disclosure Schedule, incur any
indebtedness for borrowed money or guarantee any such indebtedness of another
Person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of Time Warner or any of its Subsidiaries,
guarantee any debt securities of another Person, enter into any "keep well" or
other agreement to maintain any financial statement condition of another Person
(other than any wholly owned Subsidiary) or enter into any arrangement having
the economic effect of any of the foregoing (collectively, "Time Warner
Indebtedness"), except for (A) any Time Warner Indebtedness so long as (x)
after the incurrence or issuance of such Time Warner Indebtedness Time Warner's
consolidated indebtedness would not exceed 125% of the consolidated
indebtedness of Time Warner as of the date hereof and (y) no Time Warner credit
rating would be downgraded by either Moody's or S&P (provided that the
consummation of this Agreement or any of the transactions contemplated hereby
shall not give rise to, cause or result in, a default or event of default under
the agreement or instrument governing any such indebtedness or, an obligation
to pay any amount thereunder solely as a result of the consummation of this
Agreement or any of the transactions contemplated hereby) and (B) intercompany
indebtedness between Time Warner and any of its wholly owned Subsidiaries or
between such wholly owned Subsidiaries.
(h) Tax-Free Qualification. Time Warner shall use its reasonable best
efforts not to, and shall use its reasonable best efforts not to permit any of
its Subsidiaries to, take any action (including any action otherwise permitted
by this Section 5.2) that would prevent or impede the Mergers from qualifying
as exchanges under Section 351 of the Code and as reorganizations under Section
368 of the Code; provided, however, that nothing hereunder shall limit the
ability of Time Warner to exercise its rights and/or fulfill its obligations
under the Stock Option Agreements.
(i) Compensation. Except (x) as set forth in Section 5.2(c) or 5.2 (i) of
the Time Warner Disclosure Schedule, (y) as required by law or by the terms of
any collective bargaining agreement or other agreement currently in effect
between Time Warner or any Subsidiary of Time Warner and any executive officer
or employee thereof or (z) in the ordinary course of business consistent with
past practice, Time Warner shall not increase the amount of compensation of any
director, executive officer or key employee of Time Warner or any material
Subsidiary or business unit of Time Warner, or make any increase in or
commitment to increase any employee benefits, issue any additional Time Warner
Stock Options, adopt or amend or make any commitment to adopt or amend any
Benefit Plan or make any contribution, other than regularly scheduled
contributions, to any Time Warner Benefit Plan. Any option granted or committed
to be granted after the date hereof shall not accelerate as a result of the
approval or consummation of any transaction contemplated by this Agreement.
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Should any modification of the Time Warner Option Plans necessary to effectuate
the immediately preceding sentence render any transaction to which Time Warner
is a party, and which is intended to be eligible for pooling-of-interest
accounting under APB No. 16, ineligible for such treatment then such
modification shall not be required; provided that the number of shares subject
to options to be granted in the ordinary course consistent with past practice
shall be reduced to reflect the effect of such acceleration.
(j) Accounting Methods; Income Tax Elections. Except as disclosed in Time
Warner SEC Reports filed prior to the date of this Agreement, or as required by
a Governmental Entity, Time Warner shall not change its methods of accounting
in effect at September 30, 1999, except as required by changes in GAAP as
concurred in by Time Warner's independent public accountants. Time Warner shall
not (i) change its fiscal year or (ii) make any tax election that, individually
or in the aggregate, would have a Material Adverse Effect on Time Warner.
(k) Certain Agreements and Arrangements. Time Warner shall not, and shall
not permit any of its Subsidiaries to, enter into any Time Warner Internet
Restrictions or any agreements or arrangements (x) that limit or otherwise
restrict Time Warner or any of its Subsidiaries or any of their respective
affiliates or any successor thereto, or that could, after the Effective Time,
limit or restrict America Online or any of its affiliates (including Holdco) or
any successor thereto, from engaging or competing in any line of business or in
any geographic area which agreements or arrangements, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Holdco and its Subsidiaries, taken together, after giving effect to the Mergers
or (y) of a type described in Section 5.2(k) of the America Online Disclosure
Schedule.
(l) Satisfaction of Closing Conditions. Except as required by law, Time
Warner shall not, and shall not permit any of its Subsidiaries to, take any
action that would, or would reasonably be expected to, result in (i) any of the
conditions to the Mergers set forth in Article VII not being satisfied or (ii)
a material delay in the satisfaction of such conditions.
(m) No Related Actions. Time Warner will not, and will not permit any of its
Subsidiaries to, agree or commit to do any of the foregoing.
5.3 Governmental Filings. Each party shall (a) confer on a reasonable basis
with the other and (b) report to the other (to the extent permitted by law or
regulation or any applicable confidentiality agreement) on operational matters.
Time Warner and America Online shall file all reports required to be filed by
each of them with the SEC (and all other Governmental Entities) between the
date of this Agreement and the Effective Time and shall, if requested by the
other party and to the extent permitted by law or regulation or any applicable
confidentiality agreement, deliver to the other party copies of all such
reports, announcements and publications promptly after such request.
5.4 Control of Other Party's Business. Nothing contained in this Agreement
shall give Time Warner, directly or indirectly, the right to control or direct
America Online's operations and nothing contained in this Agreement shall give
America Online, directly or indirectly, the right to control or direct Time
Warner's operations prior to the Effective Time. Prior to the Effective Time,
each of Time Warner and America Online shall exercise, consistent with the
terms and conditions of this Agreement, complete control and supervision over
its operations.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Proxy Statement; Stockholders Meetings.
(a) As promptly as reasonably practicable following the date hereof, America
Online and Time Warner shall cooperate in preparing and each shall cause to be
filed with the SEC mutually acceptable proxy materials which shall constitute
the joint proxy statement/prospectus relating to the matters to be submitted to
the
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America Online stockholders at the America Online Stockholders Meeting and the
matters to be submitted to the Time Warner stockholders at the Time Warner
Stockholders Meeting (such proxy statement/prospectus, and any amendments or
supplements thereto, the "Joint Proxy Statement/Prospectus") and Holdco shall
prepare and file with the SEC a registration statement on Form S-4 with respect
to the issuance of Holdco Capital Stock in the Mergers (such Form S-4, and any
amendments or supplements thereto, the "Form S-4"). The Joint Proxy
Statement/Prospectus will be included as a prospectus in and will constitute a
part of the Form S-4 as Holdco's prospectus. Each of America Online and Time
Warner shall use reasonable best efforts to have the Joint Proxy
Statement/Prospectus cleared by the SEC and the Form S-4 declared effective by
the SEC and to keep the Form S-4 effective as long as is necessary to
consummate the Mergers and the transactions contemplated hereby. America Online
and Time Warner shall, as promptly as practicable after receipt thereof,
provide the other party copies of any written comments and advise the other
party of any oral comments with respect to the Joint Proxy Statement/Prospectus
or Form S-4 received from the SEC. The parties shall cooperate and provide the
other with a reasonable opportunity to review and comment on any amendment or
supplement to the Joint Proxy Statement/Prospectus and the Form S-4 prior to
filing such with the SEC, and will provide each other with a copy of all such
filings made with the SEC. Notwithstanding any other provision herein to the
contrary, no amendment or supplement (including by incorporation by reference)
to the Joint Proxy Statement/Prospectus or the Form S-4 shall be made without
the approval of both parties, which approval shall not be unreasonably withheld
or delayed; provided that with respect to documents filed by a party which are
incorporated by reference in the Form S-4 or Joint Proxy Statement/Prospectus,
this right of approval shall apply only with respect to information relating to
the other party or its business, financial condition or results of operations;
and provided further that America Online, in connection with a Change in the
America Online Recommendation (as defined in Section 6.1(c)), and Time Warner,
in connection with a Change in the Time Warner Recommendation (as defined in
Section 6.1(b)), may amend or supplement the Joint Proxy Statement/Prospectus
or Form S-4 (including by incorporation by reference) pursuant to a Qualifying
Amendment (as defined below) to effect such a Change, and in such event, this
right of approval shall apply only with respect to information relating to the
other party or its business, financial condition or results of operations, and
shall be subject to the right of each party to have its Board of Directors'
deliberations and conclusions to be accurately described. A "Qualifying
Amendment" means an amendment or supplement to the Joint Proxy
Statement/Prospectus or Form S-4 (including by incorporation by reference) to
the extent it contains (i) a Change in the America Online Recommendation or a
Change in the Time Warner Recommendation (as the case may be), (ii) a statement
of the reasons of the Board of Directors of America Online or Time Warner (as
the case may be) for making such Change in the America Online Recommendation or
Change in the Time Warner Recommendation (as the case may be) and (iii)
additional information reasonably related to the foregoing. America Online will
use reasonable best efforts to cause the Joint Proxy Statements/Prospectus to
be mailed to America Online's stockholders, and Time Warner will use reasonable
best efforts to cause the Joint Proxy Statement/Prospectus to be mailed to Time
Warner's stockholders, in each case as promptly as practicable after the Form
S-4 is declared effective under the Securities Act. Holdco shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
not now so qualified or to file a general consent to service of process)
required to be taken under any applicable state securities laws in connection
with the Mergers and each of Time Warner and America Online shall furnish all
information concerning it and the holders of its capital stock as may be
reasonably requested in connection with any such action. Each party will advise
the other party, promptly after it receives notice thereof, of the time when
the Form S-4 has become effective, the issuance of any stop order, the
suspension of the qualification of the Holdco Capital Stock issuable in
connection with the Mergers for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Joint Proxy Statement/Prospectus or the
Form S-4. If at any time prior to the Effective Time any information relating
to America Online or Time Warner, or any of their respective affiliates,
officers or directors, should be discovered by America Online or Time Warner
which should be set forth in an amendment or supplement to any of the Form S-4
or the Joint Proxy Statement/Prospectus so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such
information shall promptly notify the other party and, to the extent required
by law, rules or regulations, an appropriate amendment or supplement
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describing such information shall be promptly filed with the SEC and
disseminated to the stockholders of America Online and Time Warner.
(b) Time Warner shall duly take all lawful action to call, give notice of,
convene and hold a meeting of its stockholders on a date determined in
accordance with the mutual agreement of Time Warner and America Online (the
"Time Warner Stockholders Meeting") for the purpose of obtaining the Required
Time Warner Vote with respect to the transactions contemplated by this
Agreement and shall take all lawful action to solicit the adoption of this
Agreement by the Required Time Warner Vote; and the Board of Directors of Time
Warner shall recommend adoption of this Agreement by the stockholders of Time
Warner to the effect as set forth in Section 4.2(f) (the "Time Warner
Recommendation"), and shall not, unless America Online makes a Change in the
America Online Recommendation, (x) withdraw, modify or qualify (or propose to
withdraw, modify or qualify) in any manner adverse to America Online such
recommendation or (y) take any action or make any statement (other than any
action described in the foregoing clause (x)) in connection with the Time
Warner Stockholders Meeting inconsistent with such recommendation
(collectively, a "Change in the Time Warner Recommendation"); provided,
however, any action or statement under clause (y) will not be deemed a Change
in the Time Warner Recommendation provided (I) such action or statement is
taken or made pursuant to advice from Cravath, Swaine & Moore, counsel to Time
Warner, to the effect that such action or statement is required by applicable
law, (II) if a Time Warner Public Proposal (as defined in Section 8.2(b)) has
been made and not rescinded, such action or statement shall not relate to such
Time Warner Public Proposal other than any factual statement required by any
regulatory authority (including the SEC) and shall in any event include a
rejection of such Time Warner Public Proposal and (III) such action or
statement also includes a reaffirmation of the Time Warner Board of Directors'
approval of the Mergers and the other transactions contemplated hereby and
recommendation to the Time Warner stockholders to adopt this Agreement;
provided further, however, that the Board of Directors of Time Warner may make
a Change in the Time Warner Recommendation pursuant to Section 6.5.
Notwithstanding any Change in the Time Warner Recommendation, this Agreement
shall be submitted to the stockholders of Time Warner at the Time Warner
Stockholders Meeting for the purpose of adopting this Agreement and nothing
contained herein shall be deemed to relieve Time Warner of such obligation.
(c) America Online shall duly take all lawful action to call, give notice
of, convene and hold a meeting of its stockholders on a date determined in
accordance with the mutual agreement of America Online and Time Warner (the
"America Online Stockholders Meeting") for the purpose of obtaining the
Required America Online Vote with respect to the transactions contemplated by
this Agreement and shall take all lawful action to solicit the adoption of this
Agreement by the Required America Online Vote, and the Board of Directors of
America Online shall recommend adoption of this Agreement by the stockholders
of America Online to the effect as set forth in Section 4.1(f) (the "America
Online Recommendation"), and shall not, unless Time Warner makes a Change in
the Time Warner Recommendation, (x) withdraw, modify or qualify (or propose to
withdraw, modify or qualify) in any manner adverse to Time Warner such
recommendation or (y) take any action or make any statement (other than any
action described in the foregoing clause (x)) in connection with the America
Online Stockholders Meeting inconsistent with such recommendation
(collectively, a "Change in the America Online Recommendation"); provided,
however, any action or statement under clause (y) will not be deemed a Change
in the America Online Recommendation provided (I) such action or statement is
taken or made pursuant to advice from Simpson Thacher & Bartlett, counsel to
America Online, to the effect that such action or statement is required by
applicable law, (II) if an America Online Public Proposal (ad defined in
Section 8.2(c)) has been made and not rescinded, such action or statement shall
not relate to such America Online Public Proposal other than any factual
statement required by any regulatory authority (including the SEC) and shall in
any event include a rejection of such America Online Public Proposal and (III)
such action or statement also includes a reaffirmation of the America Online
Board of Directors' approval of the Mergers and the other transactions
contemplated hereby and recommendation to the America Online stockholders to
adopt this Agreement; provided further, however, that the Board of Directors of
America Online may make a Change in the America Online Recommendation pursuant
to Section 6.5. Notwithstanding any Change in the America Online
Recommendation, this Agreement shall be submitted to the stockholders of
America Online at the
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America Online Stockholders Meeting for the purpose of adopting this Agreement
and nothing contained herein shall be deemed to relieve America Online of such
obligation.
6.2 Holdco Board of Directors; Executive Officers.
(a) At or prior to the Effective Time, each party hereto will take all
action necessary to (i) cause the Board of Directors of Holdco and each
committee thereof as of the Effective Time to be comprised in accordance with
Schedule 6.2(a) hereto and (ii) cause the individuals listed in Schedule 6.2(a)
hereto to be appointed as officers of Holdco as of the Effective Time in
accordance with Schedule 6.2(a) hereto.
(b) Promptly following the date hereof, each party hereto will take all
action necessary to form the Transition Team, in accordance with Schedule
6.2(a) hereto. Following the Effective Time, each party hereto will comply, and
will cause Holdco to comply, with the provisions of Schedule 6.2(a) hereto
which by their terms are applicable from and after the Effective Time.
6.3 Access to Information. Upon reasonable notice, each party shall (and
shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party reasonable access during normal business hours, during the period prior
to the Effective Time, to all its properties, books, contracts, commitments,
records, officers and employees and, during such period, such party shall (and
shall cause its Subsidiaries to) furnish promptly to the other party (a) a copy
of each report, schedule, registration statement and other document filed,
published, announced or received by it during such period pursuant to the
requirements of federal or state securities laws, the Communications Act, the
HSR Act and the laws, rules and regulations of Franchising Authorities and
PUCs, as applicable (other than documents which such party is not permitted to
disclose under applicable law), and (b) all other information concerning it and
its business, properties and personnel as such other party may reasonably
request; provided, however, that any party may restrict the foregoing access to
the extent that (i) any law, treaty, rule or regulation of any Governmental
Entity applicable to such party or any contract requires such party or its
Subsidiaries to restrict or prohibit access to any such properties or
information or (ii) the information is subject to confidentiality obligations
to a third party. The parties will hold any such information obtained pursuant
to this Section 6.3 in confidence in accordance with, and shall otherwise be
subject to, the provisions of the confidentiality letter dated December 10,
1999, between Time Warner and America Online (the "Confidentiality Agreement"),
which Confidentiality Agreement shall continue in full force and effect. Any
investigation by either of America Online or Time Warner shall not affect the
representations and warranties of the other.
6.4 Reasonable Best Efforts.
(a) Subject to the terms and conditions of this Agreement, each party will
use its reasonable best efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
this Agreement and applicable laws and regulations to consummate the Mergers
and the other transactions contemplated by this Agreement as soon as
practicable after the date hereof, including (i) preparing and filing as
promptly as practicable all documentation to effect all necessary applications,
notices, petitions, filings, tax ruling requests and other documents and to
obtain as promptly as practicable all Necessary Consents and all other
consents, waivers, licenses, orders, registrations, approvals, permits,
rulings, authorizations and clearances necessary or advisable to be obtained
from any third party and/or any Governmental Entity in order to consummate the
Mergers or any of the other transactions contemplated by this Agreement and the
Stock Option Agreements (collectively, the "Required Approvals") and (ii)
taking all reasonable steps as may be necessary to obtain all such Necessary
Consents and the Required Approvals. In furtherance and not in limitation of
the foregoing, each party hereto agrees to make, as promptly as practicable, to
the extent it has not already done so, (i) an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby (which filing shall be made in any event
within 10 Business Days of the date hereof), (ii) appropriate filings with the
FCC, Franchising Authorities and PUCs with respect to the transactions
contemplated hereby, (iii) appropriate filings with the European Commission in
accordance with applicable competition, merger control, antitrust, investment
or similar laws and any necessary filings
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under the Canadian Investment Regulations within the time periods specified
thereunder and (iv) all other necessary filings with other Governmental
Entities relating to the Mergers, and, in each case, to supply as promptly as
practicable any additional information and documentary material that may be
requested pursuant to such laws or by such authorities and to use reasonable
best efforts to cause the expiration or termination of the applicable waiting
periods under the HSR Act and the receipt of Required Approvals under such
other laws or from such authorities as soon as practicable. Notwithstanding the
foregoing, nothing in this Section 6.4 shall require, or be deemed to require,
(i) America Online or Time Warner to agree to or effect any divestiture, hold
separate any business or assets or take any other action if doing so would,
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect on Holdco after the Mergers or (ii) America Online or
Time Warner to agree to or effect any divestiture, hold separate any business
or take any other action that is not conditional on the consummation of the
Mergers. Neither America Online nor Time Warner shall take or agree to take any
action identified in clause (i) or (ii) of the immediately preceding sentence
without the prior written consent of the other party (which shall not be
unreasonably withheld or delayed).
(b) Each of Time Warner and America Online shall, in connection with the
efforts referenced in Section 6.4(a) to obtain all Required Approvals, use its
reasonable best efforts to (i) cooperate in all respects with each other in
connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by a private
party, (ii) promptly inform the other party of any communication received by
such party from, or given by such party to, the FCC, Franchising Authorities,
PUCs, the Antitrust Division of the Department of Justice (the "DOJ"), the
Federal Trade Commission (the "FTC") or any other Governmental Entity and of
any material communication received or given in connection with any proceeding
by a private party, in each case regarding any of the transactions contemplated
hereby, and (iii) consult with each other in advance to the extent practicable
of any meeting or conference with the FCC, Franchising Authorities, PUCs, the
DOJ, the FTC or any such other Governmental Entity or, in connection with any
proceeding by a private party, with any other Person, and to the extent
permitted by the FCC, PUCs, the DOJ, the FTC or such other applicable
Governmental Entity or other Person, give the other party the opportunity to
attend and participate in such meetings and conferences.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 6.4(a) and 6.4(b), if any administrative or judicial
action or proceeding, including any proceeding by a private party, is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Regulatory Law, or if any
statute, rule, regulation, executive order, decree, injunction or
administrative order is enacted, entered, promulgated or enforced by a
Governmental Entity which would make the Mergers or the other transactions
contemplated hereby illegal or would otherwise prohibit or materially impair or
delay the consummation of the Mergers or the other transactions contemplated
hereby, each of Time Warner and America Online shall cooperate in all respects
with each other and use its reasonable best efforts, including without
limitation, subject to the penultimate sentence of Section 6.4(a), selling,
holding separate or otherwise disposing of or conducting its business in a
specified manner, or agreeing to sell, hold separate or otherwise dispose of or
conduct its business in a specified manner or permitting the sale, holding
separate or other disposition of, any of its assets or the assets of its
Subsidiaries or the conducting of its business in a specified manner, to
contest and resist any such action or proceeding and to have vacated, lifted,
reversed or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that prohibits,
prevents or restricts consummation of the Mergers or the other transactions
contemplated by this Agreement and to have such statute, rule, regulation,
executive order, decree, injunction or administrative order repealed, rescinded
or made inapplicable so as to permit consummation of the transactions
contemplated by this Agreement. Notwithstanding the foregoing or any other
provision of this Agreement, nothing in this Section 6.4 shall limit a party's
right to terminate this Agreement pursuant to Section 8.1(b) or 8.1(c) so long
as such party has up to then complied with its obligations under this Section
6.4. For purposes of this Agreement, "Regulatory Law" means the Sherman Act, as
amended, the EC Merger Regulation, the Clayton Act, as amended, the HSR Act,
the Federal Trade Commission Act, as amended, the Communications Act, the
Canadian Investment Regulations, and all other federal, state and foreign, if
any, statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines and other laws that are designed or intended
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to prohibit, restrict or regulate (i) mergers, acquisitions or other business
combinations, (ii) foreign investment or (iii) actions having the purpose or
effect of monopolization or restraint of trade or lessening of competition.
(d) America Online and its Board of Directors shall, if any state takeover
statute or similar statute becomes applicable to this Agreement, the Mergers,
the Stock Option Agreements or any other transactions contemplated hereby or
thereby, take all action reasonably necessary to ensure that the Mergers and
the other transactions contemplated by this Agreement and the Stock Option
Agreements may be consummated as promptly as practicable on the terms
contemplated hereby or thereby and otherwise to minimize the effect of such
statute or regulation on this Agreement, the Mergers, the Stock Option
Agreements and the other transactions contemplated hereby or thereby.
(e) Time Warner and its Board of Directors shall, if any state takeover
statute or similar statute becomes applicable to this Agreement, the Mergers,
the Stock Option Agreements or any other transactions contemplated hereby or
thereby, take all action reasonably necessary to ensure that the Mergers and
the other transactions contemplated by this Agreement and the Stock Option
Agreements may be consummated as promptly as practicable on the terms
contemplated hereby or thereby and otherwise to minimize the effect of such
statute or regulation on this Agreement, the Mergers, the Stock Option
Agreements and the other transactions contemplated hereby or thereby.
6.5 Acquisition Proposals.
(a) Without limitation on any of such party's other obligations under this
Agreement (including under Article V hereof), each of America Online and Time
Warner agrees that neither it nor any of its Subsidiaries nor any of the
officers and directors of it or its Subsidiaries shall, and that it shall use
its reasonable best efforts to cause its and its Subsidiaries' employees,
agents and representatives (including any investment banker, attorney or
accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, (i) initiate, solicit, encourage or knowingly facilitate any
inquiries or the making of any proposal or offer with respect to, or a
transaction to effect, a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving it or any of its Significant Subsidiaries (as defined in
Rule 1-02 of Regulation S-X of the SEC and, with respect to Time Warner,
including TWE), or any purchase or sale of 20% or more of the consolidated
assets (including without limitation stock of its Subsidiaries) of such party
and its Subsidiaries, taken as a whole, or any purchase or sale of, or tender
or exchange offer for, the equity securities of such party that, if
consummated, would result in any Person (or the stockholders of such Person)
beneficially owning securities representing 20% or more of the total voting
power of such party (or of the surviving parent entity in such transaction) or
any of its Significant Subsidiaries (any such proposal, offer or transaction
(other than a proposal or offer made by the other party or an affiliate
thereof) being hereinafter referred to as an "Acquisition Proposal"), (ii) have
any discussion with or provide any confidential information or data to any
Person relating to an Acquisition Proposal, or engage in any negotiations
concerning an Acquisition Proposal, or knowingly facilitate any effort or
attempt to make or implement an Acquisition Proposal, (iii) approve or
recommend, or propose publicly to approve or recommend, any Acquisition
Proposal or (iv) approve or recommend, or propose to approve or recommend, or
execute or enter into, any letter of intent, agreement in principle, merger
agreement, acquisition agreement, option agreement or other similar agreement
or propose publicly or agree to do any of the foregoing related to any
Acquisition Proposal.
(b) Notwithstanding anything in this Agreement to the contrary, each of
America Online and Time Warner or its Board of Directors shall be permitted to
(A) to the extent applicable, comply with Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal, (B) effect a
Change in the America Online or Time Warner Recommendation, as the case may be,
or (C) engage in any discussions or negotiations with, or provide any
information to, any Person in response to an unsolicited bona fide written
Acquisition Proposal by any such Person, if and only to the extent that, in any
such case referred to in clause (B) or (C), (i) its Stockholders Meeting shall
not have occurred, (ii) (x) in the case of clause (B) above, it has received an
unsolicited bona fide written Acquisition Proposal from a third party and its
Board of Directors
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concludes in good faith that such Acquisition Proposal constitutes a Superior
Proposal (as defined below) and (y) in the case of clause (C) above, its Board
of Directors concludes in good faith that there is a reasonable likelihood that
such Acquisition Proposal could constitute a Superior Proposal, (iii) in the
case of clause (B) or (C) above, its Board of Directors, after consultation
with outside counsel, determines in good faith that the failure to take such
action would be inconsistent with its fiduciary duties under applicable law,
(iv) prior to providing any information or data to any Person in connection
with an Acquisition Proposal by any such Person, its Board of Directors
receives from such Person an executed confidentiality agreement having
provisions that are customary in such agreements, as advised by counsel,
provided that if such confidentiality agreement contains provisions that are
less restrictive than the comparable provision, or omits restrictive
provisions, contained in the Confidentiality Agreement, then the
Confidentiality Agreement will be deemed to be amended to contain only such
less restrictive provisions or to omit such restrictive provisions, as the case
may be, and (v) prior to providing any information or data to any Person or
entering into discussions or negotiations with any Person, such party notifies
the other party promptly of such inquiries, proposals or offers received by,
any such information requested from, or any such discussions or negotiations
sought to be initiated or continued with, any of its representatives
indicating, in connection with such notice, the name of such Person and the
material terms and conditions of any inquiries, proposals or offers. Each of
America Online and Time Warner agrees that it will promptly keep the other
party informed of the status and terms of any such proposals or offers and the
status and terms of any such discussions or negotiations. Each of America
Online and Time Warner agrees that it will, and will cause its officers,
directors and representatives to, immediately cease and cause to be terminated
any activities, discussions or negotiations existing as of the date of this
Agreement with any parties conducted heretofore with respect to any Acquisition
Proposal. Each of America Online and Time Warner agrees that it will use
reasonable best efforts to promptly inform its directors, officers, key
employees, agents and representatives of the obligations undertaken in this
Section 6.5. Nothing in this Section 6.5 shall (x) permit America Online or
Time Warner to terminate this Agreement (except as specifically provided in
Article VIII hereof) or (y) affect any other obligation of America Online or
Time Warner under this Agreement. Neither America Online nor Time Warner shall
submit to the vote of its stockholders any Acquisition Proposal other than the
America Online Merger or Time Warner Merger, respectively. "Superior Proposal"
means with respect to America Online or Time Warner, as the case may be, a bona
fide written proposal made by a Person other than either such party which is
(I) for a merger, reorganization, consolidation, share exchange, business
combination, recapitalization or similar transaction involving such party as a
result of which the other party thereto or its stockholders will own 40% or
more of the combined voting power of the entity surviving or resulting from
such transaction (or the ultimate parent entity thereof) and (II) is on terms
which the Board of Directors of such party in good faith concludes (following
receipt of the advice of its financial advisors and outside counsel), taking
into account, among other things, all legal, financial, regulatory and other
aspects of the proposal and the Person making the proposal, (x) would, if
consummated, result in a transaction that is more favorable to its stockholders
(in their capacities as stockholders), from a financial point of view, than the
transactions contemplated by this Agreement and (y) is reasonably capable of
being completed.
6.6 Fees and Expenses. Subject to Section 8.2, whether or not the Mergers
are consummated, all Expenses (as defined below) incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such Expenses, except (a) if the Mergers are consummated, the
surviving corporation of each Merger shall pay, or cause to be paid, any and
all property or transfer taxes imposed in connection with such Merger and (b)
Expenses incurred in connection with the filing, printing and mailing of the
Joint Proxy Statement/Prospectus and Form S-4, which shall be shared equally by
America Online and Time Warner. As used in this Agreement, "Expenses" includes
all out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants
to a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the Stock Option Agreements and
the Voting Agreement and the transactions contemplated hereby and thereby,
including the preparation, printing, filing and mailing of the Joint Proxy
Statement/Prospectus and Form S-4 and the solicitation of stockholder approvals
and all other matters related to the transactions contemplated hereby and
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thereby. The parties hereto shall cooperate with each other in preparing,
executing and filing any Tax Returns with respect to property or transfer
taxes.
6.7 Directors' and Officers' Indemnification and Insurance. (a) Holdco shall
(i) indemnify and hold harmless, and provide advancement of expenses to, all
past and present directors, officers and employees of Time Warner and its
Subsidiaries (in all of their capacities) (a) to the same extent such persons
are indemnified or have the right to advancement of expenses as of the date of
this Agreement by Time Warner pursuant to Time Warner's certificate of
incorporation, bylaws and indemnification agreements, if any, in existence on
the date hereof with any directors, officers and employees of Time Warner and
its Subsidiaries and (b) without limitation to clause (a), to the fullest
extent permitted by law, in each case for acts or omissions occurring at or
prior to the Effective Time (including for acts or omissions occurring in
connection with the approval of this Agreement and the consummation of the
transactions contemplated hereby), (ii) include and cause to be maintained in
effect in Holdco's (or any successor's) certificate of incorporation and bylaws
after the Effective Time, provisions regarding elimination of liability of
directors, indemnification of officers, directors and employees and advancement
of expenses which are, in the aggregate, no less advantageous to the intended
beneficiaries than the corresponding provisions contained in the current
certificate of incorporation and bylaws of Time Warner and (iii) cause to be
maintained for a period of six years after the Effective Time the current
policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by Time Warner (provided that Holdco (or any
successor) may substitute therefor one or more policies of at least the same
coverage and amounts containing terms and conditions which are, in the
aggregate, no less advantageous to the insured) with respect to claims arising
from facts or events that occurred on or before the Effective Time; provided,
however, that in no event shall Holdco be required to expend in any one year an
amount in excess of 200% of the annual premiums currently paid by Time Warner
for such insurance; and, provided further that if the annual premiums of such
insurance coverage exceed such amount, Holdco shall be obligated to obtain a
policy with the greatest coverage available for a cost not exceeding such
amount. The obligations of Holdco under this Section 6.7(a) shall not be
terminated or modified in such a manner as to adversely affect any indemnitee
to whom this Section 6.7(a) applies without the consent of such affected
indemnitee (it being expressly agreed that the indemnitees to whom this Section
6.7(a) applies shall be third party beneficiaries of this Section 6.7(a)).
(b) Holdco shall (i) indemnify and hold harmless, and provide advancement of
expenses to, all past and present directors, officers and employees of America
Online and its Subsidiaries (in all of their capacities) (a) to the same extent
such persons are indemnified or have the right to advancement of expenses as of
the date of this Agreement by America Online pursuant to America Online's
certificate of incorporation, bylaws and indemnification agreements, if any, in
existence on the date hereof with any directors, officers and employees of
America Online and its Subsidiaries and (b) without limitation to clause (a),
to the fullest extent permitted by law, in each case for acts or omissions
occurring at or prior to the Effective Time (including for acts or omissions
occurring in connection with the approval of this Agreement and the
consummation of the transactions contemplated hereby), (ii) include and cause
to be maintained in effect in Holdco's (or any successor's) certificate of
incorporation and bylaws after the Effective Time, provisions regarding
elimination of liability of directors, indemnification of officers, directors
and employees and advancement of expenses which are, in the aggregate, no less
advantageous to the intended beneficiaries than the corresponding provisions
contained in the current certificate of incorporation and bylaws of America
Online and (iii) cause to be maintained for a period of six years after the
Effective Time the current policies of directors' and officers' liability
insurance and fiduciary liability insurance maintained by America Online
(provided that Holdco (or any successor) may substitute therefor one or more
policies of at least the same coverage and amounts containing terms and
conditions which are, in the aggregate, no less advantageous to the insured)
with respect to claims arising from facts or events that occurred on or before
the Effective Time; provided, however, that in no event shall Holdco be
required to expend in any one year an amount in excess of 200% of the annual
premiums currently paid by America Online for such insurance; and, provided
further that if the annual premiums of such insurance coverage exceed such
amount, Holdco shall be obligated to obtain a policy with the greatest coverage
available for a cost not exceeding such amount. The obligations of Holdco under
this
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Section 6.7(b) shall not be terminated or modified in such a manner as to
adversely affect any indemnitee to whom this Section 6.7(b) applies without the
consent of such affected indemnitee (it being expressly agreed that the
indemnitees to whom this Section 6.7(b) applies shall be third party
beneficiaries of this Section 6.7(b)).
6.8 Public Announcements. America Online and Time Warner shall use
reasonable best efforts to develop a joint communications plan and each party
shall use reasonable best efforts (i) to ensure that all press releases and
other public statements with respect to the transactions contemplated hereby
shall be consistent with such joint communications plan and (ii) unless
otherwise required by applicable law or by obligations pursuant to any listing
agreement with or rules of any securities exchange, to consult with each other
before issuing any press release or, to the extent practical, otherwise making
any public statement with respect to this Agreement or the transactions
contemplated hereby. In addition to the foregoing, except to the extent
disclosed in or consistent with the Joint Proxy Statement/Prospectus in
accordance with the provisions of Section 6.1, neither America Online nor Time
Warner shall issue any press release or otherwise make any public statement or
disclosure concerning the other party or the other party's business, financial
condition or results of operations without the consent of the other party,
which consent shall not be unreasonably withheld or delayed.
6.9 Listing of Shares of Holdco Common Stock. Holdco shall use its
reasonable best efforts to cause the shares of Holdco Common Stock to be issued
in the Merger and the shares of Holdco Common Stock to be reserved for issuance
upon exercise of the Time Warner Stock Options and America Online Stock Options
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
6.10 Rights Agreements. (a) The Board of Directors of America Online shall
take all action to the extent necessary (including amending the America Online
Rights Agreement) in order to render the America Online Rights inapplicable to
the America Online Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreements. Except in connection with the
foregoing sentence, the Board of Directors of America Online shall not, without
the prior written consent of Time Warner, (i) amend the America Online Rights
Agreement or (ii) take any action with respect to, or make any determination
under, the America Online Rights Agreement, including a redemption of the
America Online Rights, in each case in order to facilitate any Acquisition
Proposal with respect to America Online.
(b) The Board of Directors of Time Warner shall take all action to the
extent necessary (including amending the Time Warner Rights Agreement) in order
to render the Time Warner Rights inapplicable to the Time Warner Merger and the
other transactions contemplated by this Agreement and the Stock Option
Agreements. Except in connection with the foregoing sentence, the Board of
Directors of Time Warner shall not, without the prior written consent of
America Online, (i) amend the Time Warner Rights Agreement or (ii) take any
action with respect to, or make any determination under, the Time Warner Rights
Agreement, including a redemption of the Time Warner Rights, in each case in
order to facilitate any Acquisition Proposal with respect to Time Warner.
Notwithstanding the preceding sentence, Time Warner may, in its sole
discretion, either resolve to redeem the Time Warner Rights effective as of, or
amend the expiration date of the Time Warner Rights Agreement to provide that
the Time Warner Rights shall not be exercisable from and after, the close of
business on the date of Time Warner's 2000 annual meeting of stockholders;
provided, however, that if prior to, on, or following such date a Person has
(i) indicated (either publicly or in a manner which becomes known to America
Online or Time Warner) its intention to accumulate Time Warner Capital Stock
other than for investment purposes, (ii) indicated (either publicly or in a
manner which becomes known to America Online or Time Warner) its intention to
make an Acquisition Proposal with respect to Time Warner or (iii) made an
Acquisition Proposal with respect to Time Warner, then, upon the written
request of America Online, Time Warner shall within 10 Business Days following
such request take all action necessary to enter into a new stockholder rights
plan no less favorable to Time Warner or America Online than the Time Warner
Rights Agreement. Time Warner shall give America Online prompt notice of any
information known by Time Warner with respect to the occurrence of an event set
forth in clauses (i), (ii) and (iii) of the immediately preceding sentence.
Upon the implementation of such new stockholder rights plan, Time Warner shall
be subject to this Section 6.10(b) without giving effect to the second
preceding sentence.
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6.11 Affiliates.
(a) Not less than 45 days prior to the date of the Time Warner Stockholders
Meeting, Time Warner shall deliver to America Online a letter identifying all
Persons who, in the judgment of Time Warner, may be deemed at the time this
Agreement is submitted for adoption by the stockholders of Time Warner,
"affiliates" of Time Warner for purposes of Rule 145 under the Securities Act
and applicable SEC rules and regulations, and such list shall be updated as
necessary to reflect changes from the date thereof. Time Warner shall use
reasonable best efforts to cause each Person identified on such list to deliver
to Holdco not less than 30 days prior to the Effective Time, a written
agreement substantially in the form attached as Exhibit 6.11 hereto (an
"Affiliate Agreement").
(b) Not less than 45 days prior to the date of the America Online
Stockholders Meeting, America Online shall deliver to Time Warner a letter
identifying all Persons who, in the judgment of America Online, may be deemed
at the time this Agreement is submitted for adoption by the stockholders of
America Online, "affiliates" of America Online for purposes of Rule 145 under
the Securities Act and applicable SEC rules and regulations, and such list
shall be updated as necessary to reflect changes from the date thereof. America
Online shall use reasonable best efforts to cause each Person identified on
such list to deliver to Holdco not less than 30 days prior to the Effective
Time, an Affiliate Agreement.
6.12 Section 16 Matters. Prior to the Effective Time, America Online and
Time Warner shall take all such steps as may be required to cause any
dispositions of Time Warner Capital Stock or America Online Common Stock
(including derivative securities with respect to Time Warner Capital Stock or
America Online Common Stock) or acquisitions of Holdco Common Stock (including
derivative securities with respect to Holdco Common Stock) resulting from the
transactions contemplated by Article I or Article II of this Agreement by each
individual who is subject to the reporting requirements of Section 16(a) of the
Exchange Act with respect to America Online and Time Warner to be exempt under
Rule 16b-3 promulgated under the Exchange Act.
6.13 America Online Indebtedness and Time Warner Indebtedness. With respect
to America Online Indebtedness and Time Warner Indebtedness issued under
indentures qualified under the Trust Indenture Act of 1939, and any other
America Online Indebtedness or Time Warner Indebtedness the terms of which
require Holdco to assume such debt in order to avoid default thereunder
(collectively, the "Assumed Indentures"), Holdco shall execute and deliver to
the trustees or other representatives in accordance with the terms of the
respective Assumed Indentures, supplemental indentures or other instruments, in
form satisfactory to the respective trustees or other representatives,
expressly assuming the obligations of America Online or Time Warner, as
applicable, with respect to the due and punctual payment of the principal of
(and premium, if any) and interest, if any, on, and conversion obligations
under, all debt securities issued by America Online or Time Warner, as
applicable, under the respective Assumed Indentures and the due and punctual
performance of all the terms, covenants and conditions of the respective
Assumed Indentures to be kept or performed by America Online or Time Warner,
respectively, and shall deliver such supplemental indentures or other
instruments to the respective trustees or other representatives under the
Assumed Indentures.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect its Respective
Merger. The respective obligations of Time Warner and America Online to effect
the Time Warner Merger and America Online Merger are subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. (i) Time Warner shall have obtained the Required
Time Warner Vote in connection with the adoption of this Agreement by the
stockholders of Time Warner and (ii) America Online shall have obtained the
Required America Online Vote in connection with the adoption of this Agreement
by the stockholders of America Online.
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(b) No Injunctions or Restraints, Illegality. No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect, having the effect of
making the Mergers illegal or otherwise prohibiting consummation of the
Mergers.
(c) HSR Act; EC Merger Regulation; Canadian Investment Regulations. The
waiting period (and any extension thereof) applicable to the Mergers under the
HSR Act shall have been terminated or shall have expired and any required
approval of the Mergers of the European Commission or Canadian Governmental
Entities shall have been obtained pursuant to the EC Merger Regulation and the
Canadian Investment Regulations, respectively.
(d) FCC Approvals. All material orders and approvals of the FCC required in
connection with the consummation of the transactions contemplated hereby shall
have been obtained and become final; provided, however, that the provisions of
this Section 7.1(d) shall not be available to any party whose failure to
fulfill its obligations pursuant to Section 6.4 has been the cause of, or shall
have resulted in, the failure to obtain such order or approval.
(e) Cable Franchising Authorities and PUCs Approvals. All consents,
approvals and actions of, filings with and notices to any Cable Franchising
Authorities or PUCs required of America Online, Time Warner or any of their
Subsidiaries to consummate the Mergers and the other transactions contemplated
hereby, the failure of which to be obtained or taken, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Holdco after giving effect to the Mergers, shall have been obtained or taken;
provided, however, that the provisions of this Section 7.1(e) shall not be
available to any party whose failure to fulfill its obligations pursuant to
Section 6.4 has been the cause of, or shall have resulted in, the failure to
obtain such consent or approval or action.
(f) NYSE Listing. The shares of Holdco Common Stock to be issued in the
Mergers and such other shares of Holdco Common Stock to be reserved for
issuance in connection with the Mergers shall have been approved for listing on
the NYSE, subject to official notice of issuance.
(g) Effectiveness of the Form S-4. The Form S-4 shall have been declared
effective by the SEC under the Securities Act and no stop order suspending the
effectiveness of the Form S-4 shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
7.2 Additional Conditions to Obligations of America Online. The obligations
of America Online to effect the America Online Merger are subject to the
satisfaction, or waiver by America Online, on or prior to the Closing Date of
the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of Time Warner set forth in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
Material Adverse Effect, shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent that such representations and warranties speak as of
another date, in which case such representations and warranties shall be true
and correct as of such other date), except where the failure of such
representations and warranties to be true and correct would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
on Time Warner; and America Online shall have received a certificate of a
senior executive officer and a senior financial officer of Time Warner to such
effect.
(b) Performance of Obligations of Time Warner. Time Warner shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that are
qualified as to materiality or Material Adverse Effect and shall have performed
or complied in all material respects with all other material agreements and
covenants required to be performed by it under this Agreement at or prior to
the Closing Date that are not so qualified, and America Online shall have
received a certificate of a senior executive officer and a senior financial
officer of Time Warner to such effect.
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(c) Tax Opinion. America Online shall have received from Simpson Thacher &
Bartlett, counsel to America Online, on the Closing Date, a written opinion to
the effect that for federal income tax purposes each Merger will constitute an
exchange to which Section 351 of the Code applies or a reorganization within
the meaning of Section 368(a) of the Code, or both. In rendering such opinion,
counsel to America Online shall be entitled to rely upon information,
representations and assumptions provided by Holdco, America Online and Time
Warner substantially in the form of Exhibits 7.2(c)(1), 7.2(c)(2) and 7.2(c)(3)
(allowing for such amendments to the representations as counsel to America
Online deems reasonably necessary).
(d) Time Warner Conditions. The conditions set forth in Section 7.3 (other
than Section 7.3(d)) shall have been satisfied or waived by Time Warner.
7.3 Additional Conditions to Obligations of Time Warner. The obligations of
Time Warner to effect the Time Warner Merger are subject to the satisfaction,
or waiver by Time Warner, on or prior to the Closing Date of the following
additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of America Online set forth in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
Material Adverse Effect, shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent that such representations and warranties speak as of
another date, in which case such representations and warranties shall be true
and correct as of such other date), except where the failure of such
representations and warranties to be true and correct would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
on America Online; and Time Warner shall have received a certificate of a
senior executive officer and a senior financial officer of America Online to
such effect.
(b) Performance of Obligations of America Online. America Online shall have
performed or complied with all agreements and covenants required to be
performed by it under this Agreement at or prior to the Closing Date that are
qualified as to materiality or Material Adverse Effect and shall have performed
or complied in all material respects with all other material agreements and
covenants required to be performed by it under this Agreement at or prior to
the Closing Date that are not so qualified, and Time Warner shall have received
a certificate of a senior executive officer and a senior financial officer of
America Online to such effect.
(c) Tax Opinion. Time Warner shall have received from Cravath, Swaine &
Moore, counsel to Time Warner, on the Closing Date, a written opinion to the
effect that for federal income tax purposes each Merger will constitute an
exchange to which Section 351 of the Code applies or a reorganization within
the meaning of Section 368(a) of the Code, or both. In rendering such opinion,
counsel to Time Warner shall be entitled to rely upon information,
representations and assumptions provided by Holdco, America Online and Time
Warner substantially in the form of Exhibits 7.2(c)(1), 7.2(c)(2) and 7.2(c)(3)
(allowing for such amendments to the representations as counsel to Time Warner
deems reasonably necessary).
(d) America Online Conditions. The conditions set forth in Section 7.2
(other than 7.2(d)) shall have been satisfied or waived by America Online.
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ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties, and except as provided below, whether before or
after approval of the matters presented in connection with the Mergers by the
stockholders of Time Warner or America Online:
(a) By mutual written consent of America Online and Time Warner;
(b) By either Time Warner or America Online, if the Effective Time shall not
have occurred on or before May 31, 2001 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 8.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement (including without limitation such party's obligations set
forth in Section 6.4) has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) By either Time Warner or America Online, if any Governmental Entity (i)
shall have issued an order, decree or ruling or taken any other action (which
the parties shall have used their reasonable best efforts to resist, resolve or
lift, as applicable, in accordance with Section 6.4) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action, and such denial of a request to issue such
order, decree, ruling or take such other action shall have become final and
nonappealable (which order, decree, ruling or other action the parties shall
have used their reasonable best efforts to obtain, in accordance with Section
6.4), in the case of each of (i) and (ii) which is necessary to fulfill the
conditions set forth in Section 7.1(c), (d) or (e), as applicable; provided,
however, that the right to terminate this Agreement under this Section 8.1(c)
shall not be available to any party whose failure to comply with Section 6.4
has been the cause of such action or inaction;
(d) By either Time Warner or America Online, if the approvals of the
stockholders of either America Online or Time Warner contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of stockholders or of any adjournment
thereof at which the vote was taken;
(e) By America Online, if Time Warner shall have (i) failed to make the Time
Warner Recommendation or effected a Change in the Time Warner Recommendation
(or resolved to take any such action), whether or not permitted by the terms
hereof or (ii) materially breached its obligations under this Agreement by
reason of a failure to call the Time Warner Stockholders Meeting in accordance
with Section 6.1(b) or a failure to prepare and mail to its stockholders the
Joint Proxy Statement/Prospectus in accordance with Section 6.1(a);
(f) By Time Warner, if America Online shall have (i) failed to make the
America Online Recommendation or effected a Change in the America Online
Recommendation (or resolved to take any such action), whether or not permitted
by the terms hereof, or (ii) materially breached its obligations under this
Agreement by reason of a failure to call the America Online Stockholders
Meeting in accordance with Section 6.1(c) or a failure to prepare and mail to
its stockholders the Joint Proxy Statement/Prospectus in accordance with
Section 6.1(a);
(g) By Time Warner, if America Online shall have breached or failed to
perform any of its representations, warranties, covenants or other agreements
contained in this Agreement, such that the conditions set forth in Section
7.3(a) or (b) are not capable of being satisfied on or before the Termination
Date; or
(h) By America Online, if Time Warner shall have breached or failed to
perform any of its representations, warranties, covenants or other agreements
contained in this Agreement, such that the conditions set forth in Section
7.2(a) or (b) are not capable of being satisfied on or before the Termination
Date.
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8.2 Effect of Termination.
(a) In the event of termination of this Agreement by either Time Warner or
America Online as provided in Section 8.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of any of
the parties or their respective officers or directors except with respect to
Section 4.1(k), Section 4.2(k), the second sentence of Section 6.3, Section
6.6, this Section 8.2 and Article IX, which provisions shall survive such
termination, and except that, notwithstanding anything to the contrary
contained in this Agreement, neither America Online nor Time Warner shall be
relieved or released from any liabilities or damages arising out of its wilful
and material breach of this Agreement.
(b) If (A) (I) America Online or Time Warner shall terminate this Agreement
pursuant to Section 8.1(d) (provided that the basis for such termination is the
failure of Time Warner's stockholders to adopt this Agreement) or pursuant to
Section 8.1(b) without the Time Warner Stockholder Meeting having occurred,
(II) at any time after the date of this Agreement and before such termination
an Acquisition Proposal with respect to Time Warner shall have been publicly
announced or otherwise communicated to the senior management, Board of
Directors or stockholders of Time Warner (a "Time Warner Public Proposal") and
(III) within twelve months of such termination Time Warner or any of its
Subsidiaries enters into any definitive agreement with respect to, or
consummates, any Acquisition Proposal (for purposes of this clause (III), the
term "Acquisition Proposal" shall have the meaning assigned to such term in
Section 6.5(a) except that references to "20%" therein shall be deemed to be
references to "40%") or (B) America Online shall terminate this Agreement
pursuant to Section 8.1(e); then Time Warner shall promptly, but in no event
later than the date of such termination (or in the case of clause (A), if
later, the date Time Warner or its Subsidiary enters into such agreement with
respect to or consummates such Acquisition Proposal), pay America Online an
amount equal to the Time Warner Termination Fee (less any amounts previously
paid or payable by Time Warner pursuant to Section 8.2(d)), by wire transfer of
immediately available funds. The "Time Warner Termination Fee" shall be an
amount equal to 2.75% of the product of (x) the number of shares of Time Warner
Common Stock outstanding as of the date hereof (assuming the exercise of all
outstanding options (other than the option granted pursuant to the Time Warner
Stock Option Agreement) and the conversion into Time Warner Common Stock of all
securities of Time Warner convertible into Time Warner Common Stock) multiplied
by (y) the Exchange Ratio multiplied by (z) the last sale price of America
Online Common Stock on the NYSE on January 7, 2000 (such product, the "Time
Warner Amount").
(c) If (A) (I) America Online or Time Warner shall terminate this Agreement
pursuant to Section 8.1(d) (provided that the basis for such termination is the
failure of America Online's stockholders to adopt this Agreement) or pursuant
to Section 8.1(b) without the America Online Stockholders Meeting having
occurred, (II) at any time after the date of this Agreement and before such
termination an Acquisition Proposal with respect to America Online shall have
been publicly announced or otherwise communicated to the senior management,
Board of Directors or stockholders of America Online (an "America Online Public
Proposal") and (III) within twelve months of such termination America Online or
any of its Subsidiaries enters into any definitive agreement with respect to,
or consummates, any Acquisition Proposal (for purposes of this clause (III),
the term "Acquisition Proposal" shall have the meaning assigned to such term in
Section 6.5(a) except that references to "20%" therein shall be deemed to be
references to "40%") or (B) Time Warner shall terminate this Agreement pursuant
to Section 8.1(f); then America Online shall promptly, but in no event later
than the date of such termination (or in the case of clause (A), if later, the
date America Online or its Subsidiary enters into such agreement with respect
to or consummates such Acquisition Proposal), pay Time Warner an amount equal
to the America Online Termination Fee (less any amounts previously paid or
payable by America Online pursuant to Section 8.2(d)), by wire transfer of
immediately available funds. The "America Online Termination Fee" shall be an
amount equal to 2.75% of the product of (x) the number of shares of America
Online Common Stock outstanding as of the date hereof (assuming exercise of all
outstanding options (other than the option granted pursuant to the America
Online Stock Option Agreement) and the conversion into America Online Common
Stock of all securities of America Online convertible into America Online
Common Stock) multiplied by (y) the last sale price of America Online Common
Stock on the NYSE on January 7, 2000 (such product, the "America Online
Amount").
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(d) If America Online or Time Warner shall terminate this Agreement pursuant
to Section 8.1(d) and the basis for such termination is the failure of Time
Warner's stockholders to adopt this Agreement, then Time Warner shall promptly,
but in no event later than the date of such termination, pay America Online an
amount equal to one percent of the Time Warner Amount, payable by wire transfer
of immediately available funds; provided that no payment shall be made pursuant
to this sentence if the Time Warner Termination Fee has been paid pursuant to
Section 8.2(b). If America Online or Time Warner shall terminate this Agreement
pursuant to Section 8.1(d) and the basis for such termination is the failure of
America Online's stockholders to adopt this Agreement, then America Online
shall promptly, but in no event later than the date of such termination, pay
Time Warner an amount equal to one percent of the America Online Amount,
payable by wire transfer of immediately available funds; provided that no
payment shall be made pursuant to this sentence if the America Online
Termination Fee has been paid pursuant to Section 8.2(c).
(e) The parties acknowledge that the agreements contained in this Section
8.2 are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, none of the parties would enter into this
Agreement; accordingly, if either America Online or Time Warner fails promptly
to pay any amount due pursuant to this Section 8.2, and, in order to obtain
such payment, the other party commences a suit which results in a judgment
against such party for the fee set forth in this Section 8.2, such party shall
pay to the other party its costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made notwithstanding the provisions of Section 6.6. The
parties agree that any remedy or amount payable pursuant to this Section 8.2
shall not preclude any other remedy or amount payable hereunder and shall not
be an exclusive remedy for any breach of any representation, warranty, covenant
or agreement contained in this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the
Mergers by the stockholders of Time Warner and America Online, but, after any
such approval, no amendment shall be made which by law or in accordance with
the rules of any relevant stock exchange requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Boards of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and other agreements in this Agreement
or in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants,
agreements and other provisions, shall survive the Effective Time, except for
those covenants, agreements and other provisions contained herein (including
Section 6.7, Section 6.2 and Schedule 6.2(a)) that by their terms apply or are
to be performed in whole or in part after the Effective Time and this Article
IX.
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9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to America Online to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Fax: (703) 265-1495
Attention: Paul T. Cappuccio, Esq.
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Fax: (212) 455-2502
Attention: Richard I. Beattie, Esq.
(b) if to Time Warner to:
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Fax: (212) 265-2646
Attention: Christopher P. Bogart, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax: (212) 474-3700
Attention: Robert A. Kindler, Esq.
(c) if to Holdco, America Online Merger Sub or Time Warner Merger Sub to
each of the parties entitled to receive notice pursuant to this Section 9.2 for
America Online and Time Warner.
9.3 Interpretation. When a reference is made in this Agreement to Articles,
Sections, Exhibits or Schedules, such reference shall be to an Article or
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." In addition, each Section of this Agreement is
qualified by the matters set forth with respect to such Section on the America
Online Disclosure Schedule, the Time Warner Disclosure Schedule and the
Schedules to this Agreement, as applicable, to the extent specified therein and
such other Sections of this Agreement to the extent a matter in such Section is
disclosed in such a way as to make its relevance called for by such other
Section readily apparent.
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9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
9.5 Entire Agreement; No Third Party Beneficiaries.
(a) The exhibits and schedules to or delivered in connection with the
Original Agreement shall be attached as exhibits and schedules to this
Agreement, other than Exhibit C, which shall be attached as an exhibit to this
Agreement as such exhibit has been amended and restated and attached to the
First Amendment and Restatement, and Exhibits D-1 and D-2, which shall be
amended and restated in their entirety and attached, as so amended and
restated, to this Agreement. This Agreement, the Stock Option Agreements, the
Confidentiality Agreement and the exhibits and schedules hereto and the other
agreements and instruments of the parties delivered in connection herewith
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement, other than
Section 6.7 (which is intended to be for the benefit of the Persons covered
thereby).
9.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
9.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
9.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
9.9 Submission to Jurisdiction; Waivers. Each of the parties to this
Agreement irrevocably agrees that any legal action or proceeding with respect
to this Agreement or for recognition and enforcement of any judgment in respect
hereof brought by any other party hereto or its successors or assigns may be
brought and determined in the Chancery or other Courts of the State of
Delaware, and each party hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
party hereby irrevocably waives, and agrees not to assert, by way of motion, as
a defense, counterclaim or otherwise, in any action or proceeding with respect
to this Agreement, (a) any claim that it is not personally subject to the
jurisdiction of the above-named courts for any reason other than the failure to
lawfully serve process (b) that it or its property is exempt or immune from
jurisdiction of any such court or from any legal process commenced in such
courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or
otherwise), (c) to the fullest extent permitted by applicable law, that (i) the
suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper and (iii)
this Agreement, or the subject matter hereof, may not be enforced in or by such
courts and (d) any right to a trial by jury.
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9.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
9.11 Definitions. As used in this Agreement:
(a) "beneficial ownership" or "beneficially own" shall have the meaning
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(b) "Benefit Plans" means, with respect to any Person, each employee benefit
plan, program, arrangement and contract (including, without limitation, any
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and any bonus, deferred
compensation, stock bonus, stock purchase, restricted stock, stock option,
employment, termination, stay agreement or bonus, change in control and
severance plan, program, arrangement and contract) in effect on the date of
this Agreement or disclosed on the Time Warner Disclosure Schedule or the
America Online Disclosure Schedule, as the case may be, to which such Person or
its Subsidiary is a party, which is maintained or contributed to by such
Person, or with respect to which such Person could incur material liability
under Sections 4069, 4201 or 4212(c) of ERISA.
(c) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
(d) "Business Day" means any day on which banks are not required or
authorized to close in the City of New York.
(e) "known" or "knowledge" means, with respect to any party, the knowledge
of such party's executive officers after reasonable inquiry.
(f) "Material Adverse Effect" means, with respect to any entity any event,
change, circumstance or effect that is or is reasonably likely to be materially
adverse to (i) the business, financial condition or results of operations of
such entity and its Subsidiaries taken as a whole, other than any event,
change, circumstance or effect relating (x) to the economy or financial markets
in general or (y) in general to the industries in which such entity operates
and not specifically relating to (or having the effect of specifically relating
to or having a materially disproportionate effect (relative to most other
industry participants) on) such entity or (ii) the ability of such entity to
consummate the transactions contemplated by this Agreement.
(g) "the other party" means, with respect to Time Warner, America Online and
means, with respect to America Online, Time Warner.
(h) "Person" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(i) "Subsidiary" when used with respect to any party means any corporation
or other organization, whether incorporated or unincorporated, at least a
majority of the securities or other interests of which having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. For the avoidance of doubt, TWE and TWE-AN Partnership shall each
be considered a Subsidiary of Time Warner.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its respective officers thereunto duly authorized, all as of the
date first written above.
AMERICA ONLINE, INC.
/s/ J. Michael Kelly
By: ______________________________
Name: J. Michael Kelly
Title: Senior Vice President &
Chief Financial Officer
TIME WARNER INC.
/s/ Gerald M. Levin
By: ______________________________
Name: Gerald M. Levin
Title: Chairman & Chief
Executive Officer
AOL TIME WARNER INC.
/s/ Gerald M. Levin
By: ______________________________
Name: Gerald M. Levin
Title: Chief Executive Officer
AMERICA ONLINE MERGER SUB INC.
/s/ J. Michael Kelly
By: ______________________________
Name: J. Michael Kelly
Title: Chairman of the Board,
Chief Executive Officer &
Treasurer
TIME WARNER MERGER SUB INC.
/s/ Susan A. Waxenberg
By: ______________________________
Name: Susan A. Waxenberg
Title: Vice-President
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<PAGE>
ANNEX B
STOCK OPTION AGREEMENT, dated as of January 10, 2000 (the "Agreement"),
between Time Warner Inc., a Delaware corporation ("Grantee"), and America
Online, Inc., a Delaware corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer are, concurrently with the execution and
delivery of this Agreement, entering into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement;" capitalized terms used
without definition herein having the meanings assigned to them in the Merger
Agreement), pursuant to which the parties will engage in a business combination
in a merger of equals (the "Merger"); and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Grantee has required that Issuer agree, and believing it to be in
the best interests of Issuer, Issuer has agreed, among other things, to grant
to Grantee the Option (as hereinafter defined) to purchase shares of common
stock, par value $.01 per share, of Issuer ("Issuer Common Stock") at a price
per share equal to the Exercise Price (as hereinafter defined).
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
OPTION TO PURCHASE SHARES
1.1 Grant of Option.
(a) Issuer hereby grants to Grantee an irrevocable option to purchase, in
whole or in part, an aggregate of up to 452,535,148 duly authorized, validly
issued, fully paid and nonassessable shares of Issuer Common Stock
(representing 19.9% of the outstanding shares of Issuer Common Stock as of
January 5, 2000) on the terms and subject to the conditions set forth herein
(the "Option"); provided, however, that in no event shall the number of shares
of Issuer Common Stock for which this Option is exercisable exceed 19.9% of the
issued and outstanding shares of Issuer Common Stock at the time of exercise
without giving effect to the issuance of any Option Shares (as hereinafter
defined). The number of shares of Issuer Common Stock that may be received upon
the exercise of the Option and the Exercise Price are subject to adjustment as
herein set forth.
(b) In the event that any additional shares of Issuer Common Stock are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement and other than pursuant to an event described
in Section 3.1 hereof), the number of shares of Issuer Common Stock subject to
the Option shall be increased so that, after such issuance, such number
together with any shares of Issuer Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Issuer Common Stock then issued
and outstanding without giving effect to any shares subject or issued pursuant
to the Option. Nothing contained in this Section 1.1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer to breach or fail to comply with
any provision of the Merger Agreement. As used herein, the term "Option Shares"
means the shares of Issuer Common Stock issuable pursuant to the Option, as the
number of such shares shall be adjusted pursuant to the terms hereof.
1.2 Exercise of Option.
(a) The Option may be exercised by Grantee, in whole or in part, at any
time, or from time to time, commencing upon the Exercise Date and prior to the
Expiration Date. As used herein, the term "Exercise
B-1
<PAGE>
Date" means the date on which Grantee becomes unconditionally entitled to
receive the America Online Termination Fee pursuant to Section 8.2(c) of the
Merger Agreement. As used herein, the term "Expiration Date" means the first to
occur prior to Grantee's exercise of the Option pursuant to Section 1.2(b) of:
(i) the Effective Time;
(ii) written notice of termination of this Agreement by Grantee to
Issuer;
(iii) 12 months after the first occurrence of an Exercise Date; or
(iv) the date of termination of the Merger Agreement, unless, in the
case of this clause (iv), Grantee has the right to receive the America
Online Termination Fee either (x) upon or (y) following such termination
upon the occurrence of certain events, in which case the Option will not
terminate until the later of (x) 15 business days following the time the
America Online Termination Fee becomes unconditionally payable and (y) the
expiration of the period in which Grantee has such right to receive the
America Online Termination Fee.
Notwithstanding the termination of the Option, Grantee shall be entitled to
purchase those Option Shares with respect to which it may have exercised the
Option by delivery of an Option Notice (as defined below) prior to the
Expiration Date, and the termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior to or at the
Expiration Date.
(b) In the event Grantee wishes to exercise the Option, Grantee shall send a
written notice to Issuer of its intention to so exercise the Option (an "Option
Notice"), specifying the number of Option Shares to be purchased (and the
denominations of the certificates, if more than one), whether the aggregate
Exercise Price will be paid in cash or by surrendering a portion of the Option
in accordance with Section 1.3(b) or a combination thereof, and the place in
the United States, time and date of the closing of such purchase (the "Option
Closing" and the date of such Closing, the "Option Closing Date"), which date
shall not be less than two Business Days nor more than ten Business Days from
the date on which an Option Notice is delivered; provided that the Option
Closing shall be held only if (i) such purchase would not otherwise violate or
cause the violation of, any applicable material law, statute, ordinance, rule
or regulation (collectively, "Laws") (including the HSR Act and the
Communications Act), and (ii) no material judgment, order, writ, injunction,
ruling or decree of any Governmental Entity (collectively, "Orders") shall have
been promulgated, enacted, entered into, or enforced by any Governmental Entity
which prohibits delivery of the Option Shares, whether temporary, preliminary
or permanent; provided, however, that the parties hereto shall use their
reasonable best efforts to (x) promptly make and process all necessary filings
and applications and obtain all consents, approvals, Orders, authorizations,
registrations and declarations or expiration or termination of any required
waiting periods (collectively, "Approvals") and to comply with any such
applicable Laws and (y) have any such Order vacated or reversed. In the event
the Option Closing is delayed pursuant to clause (i) or (ii) above, the Option
Closing shall be within ten Business Days following the cessation of such
restriction, violation, Law or Order or the receipt of any necessary Approval,
as the case may be (so long as the Option Notice was delivered prior to the
Expiration Date); provided further that, notwithstanding any prior Option
Notice, Grantee shall be entitled to rescind such Option Notice and shall not
be obligated to purchase any Option Shares in connection with such exercise
upon written notice to such effect to Issuer.
(c) At any Option Closing, (i) Issuer shall deliver to Grantee all of the
Option Shares to be purchased by delivery of a certificate or certificates
evidencing such Option Shares in the denominations designated by Grantee in the
Option Notice, and (ii) if the Option is exercised in part and/or surrendered
in part to pay the aggregate Exercise Price pursuant to Section 1.3(b), Issuer
and Grantee shall execute and deliver an amendment to this Agreement reflecting
the Option Shares for which the Option has not been exercised and/or
surrendered. If at the time of issuance of any Option Shares pursuant to an
exercise of all or part of the Option hereunder, Issuer shall have issued any
rights or other securities which are attached to or otherwise associated with
the Issuer Common Stock, then each Option Share issued pursuant to such
exercise shall also represent such rights or other securities with terms
substantially the same as and at least as favorable to Grantee as are provided
B-2
<PAGE>
under any shareholder rights agreement or similar agreement of Issuer then in
effect. At the Option Closing, Grantee shall pay to Issuer by wire transfer of
immediately available funds to an account specified by Issuer to Grantee in
writing at least two Business Days prior to the Option Closing an amount equal
to the Exercise Price multiplied by the number of Option Shares to be purchased
for cash pursuant to this Article I; provided that the failure or refusal of
Issuer to specify an account shall not affect Issuer's obligation to issue the
Option Shares.
(d) Upon the delivery by Grantee to Issuer of the Option Notice and the
tender of the applicable aggregate Exercise Price in immediately available
funds or the requisite portion of the Option in accordance with Section 1.3,
Grantee shall be deemed to be the holder of record of the Option Shares
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer may then be closed, that certificates representing such Option Shares
may not then have been actually delivered to Grantee, or Issuer may have failed
or refused to take any action required of it hereunder. Issuer shall pay all
expenses that may be payable in connection with the preparation, issuance and
delivery of stock certificates or an amendment to this Agreement under this
Section 1.2 and any filing fees and other expenses arising from the performance
of the transactions contemplated hereby.
1.3 Payments.
(a) The purchase and sale of the Option Shares pursuant to Section 1.2 of
this Agreement shall be at a purchase price equal to $73.75 per Share (as such
amount may be adjusted pursuant to the terms hereof, the "Exercise Price"),
payable at Grantee's option in cash, by surrender of a portion of the Option in
accordance with Section 1.3(b), or a combination thereof.
(b) Grantee may elect to purchase Option Shares issuable, and pay some or
all of the aggregate Exercise Price payable, upon an exercise of the Option by
surrendering a portion of the Option with respect to such number of Option
Shares as is determined by dividing (i) the aggregate Exercise Price payable in
respect of the number of Option Shares being purchased in such manner by (ii)
the excess of the Fair Market Value (as defined below) per share of Issuer
Common Stock as of the last trading day preceding the date Grantee delivers its
Option Notice (such date, the "Option Exercise Date") over the per share
Exercise Price. The "Fair Market Value" per share of Issuer Common Stock shall
be (i) if the Issuer Common Stock is listed on the New York Stock Exchange,
Inc. (the "NYSE") or any other nationally recognized exchange or trading system
as of the Option Exercise Date, the average of last reported sale prices per
share of Issuer Common Stock thereon for the 10 trading days commencing on the
12th trading day immediately preceding the Option Exercise Date, or (ii) if the
Issuer Common Stock is not listed on the NYSE or any other nationally
recognized exchange or trading system as of the Option Exercise Date, the
amount determined by a mutually acceptable independent investment banking firm
as the value per share the Issuer Common Stock would have if publicly traded on
a nationally recognized exchange or trading system (assuming no discount for
minority interest, illiquidity or restrictions on transfer). That portion of
the Option so surrendered under this Section 1.3(b) shall be canceled and shall
thereafter be of no further force and effect.
(c) Certificates for the Option Shares delivered at an Option Closing will
have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JANUARY 10,
2000, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF AMERICA ONLINE,
INC. AT ITS PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares
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have been registered pursuant to the Securities Act, such Option Shares have
been sold in reliance on and in accordance with Rule 144 under the Securities
Act or Grantee has delivered to Issuer a copy of a letter from the staff of the
SEC, or an opinion of counsel in form and substance reasonably satisfactory to
Issuer and its counsel, to the effect that such legend is not required for
purposes of the Securities Act and (ii) the reference to restrictions pursuant
to this Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do
not require the retention of such reference.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that any Option Shares or other securities acquired by
Grantee upon exercise of the Option will not be taken with a view to the public
distribution thereof and will not be transferred or otherwise disposed of
except in a transaction registered or exempt from registration under the
Securities Act.
2.2 Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Option Shares. Issuer has taken all necessary corporate and other action
to authorize and reserve for issuance, and, subject to receipt of any
Approvals, to permit it to issue, the Option Shares and all additional shares
or other securities which may be issued pursuant to Section 3.1 upon exercise
of the Option, and, at all times from the date hereof until such time as the
obligation to deliver Option Shares hereunder terminates, will have reserved
for issuance upon exercise of the Option the Option Shares and such other
additional shares or securities, if any. All of the Option Shares and all
additional shares or other securities or property which may be issuable
pursuant to Section 3.1, upon exercise of the Option and issuance pursuant
hereto, shall be duly authorized, validly issued, fully paid and nonassessable,
shall be delivered free and clear of all Liens of any nature whatsoever, and
shall not be subject to any preemptive or similar right of any Person.
(b) No Restrictions. No Delaware law or other takeover statute or similar
Law and no provision of the Restated Certificate of Incorporation or Bylaws of
Issuer or any agreement to which Issuer is a party (a) would or would purport
to impose restrictions which might adversely affect or delay the consummation
of the transactions contemplated by this Agreement, or (b) as a result of the
consummation of the transactions contemplated by this Agreement, (i) would or
would purport to restrict or impair the ability of Grantee to vote or otherwise
exercise the rights of a shareholder with respect to securities of Issuer or
any of its Subsidiaries that may be acquired or controlled by Grantee or (ii)
would or would purport to entitle any Person to acquire securities of Issuer.
ARTICLE III
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
3.1 Adjustment Upon Changes in Capitalization. In addition to the adjustment
in the number of shares of Issuer Common Stock that may be purchased upon
exercise of the Option pursuant to Section 1.1 of this Agreement, the number of
shares of Issuer Common Stock that may be purchased upon the exercise of the
Option and the Exercise Price shall be subject to adjustment from time to time
as provided in this Section 3.1. In the event of any change in the number of
issued and outstanding shares of Issuer Common Stock by reason of any stock
dividend, split-up, merger, recapitalization, combination, conversion, exchange
of shares, spin-off or other change in the corporate or capital structure of
Issuer which would have the effect of diluting or
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otherwise diminishing Grantee's rights hereunder, the number and kind of Option
Shares or other securities subject to the Option and the Exercise Price
therefor shall be appropriately adjusted so that Grantee shall receive upon
exercise of the Option (or, if such a change occurs between exercise and the
Option Closing, upon the Option Closing) the number and kind of shares or other
securities or property that Grantee would have received in respect of the
Option Shares that Grantee is entitled to purchase upon exercise of the Option
if the Option had been exercised (or the purchase thereunder had been
consummated, as the case may be) immediately prior to such event or the record
date for such event, as applicable. The rights of Grantee under this Section
shall be in addition to, and shall in no way limit, its rights against Issuer
for breach of or the failure to perform any provision of the Merger Agreement.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Registration of Option Shares Under the Securities Act.
(a) If requested by Grantee at any time and from time to time within two
years after receipt by Grantee of Option Shares (the "Registration Period"),
Issuer shall use its reasonable best efforts, as promptly as practicable, to
effect the registration under the Securities Act and any applicable state law
(a "Demand Registration") of such number of Option Shares or such other Issuer
securities owned by or issuable to Grantee in accordance with the method of
sale or other disposition contemplated by Grantee, including a "shelf"
registration statement under Rule 415 of the Securities Act or any successor
provision, and to obtain all consents or waivers of other parties that are
required therefor. Grantee agrees to use reasonable best efforts to cause, and
to use reasonable best efforts to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that
upon consummation thereof no purchaser or transferee will own beneficially more
than 3% of the then-outstanding voting power of Issuer. Except with respect to
such a "shelf" registration, Issuer shall keep such Demand Registration
effective for a period of not less than 150 days, unless, in the written
opinion of counsel to Issuer, which opinion shall be delivered to Grantee and
which shall be satisfactory in form and substance to Grantee and its counsel,
such registration under the Securities Act is not required in order to lawfully
sell and distribute such Option Shares or other Issuer securities in the manner
contemplated by Grantee. Issuer shall only have the obligation to effect three
Demand Registrations pursuant to this Section 4.1; provided that only requests
relating to a registration statement that has become effective under the
Securities Act shall be counted for purposes of determining the number of
Demand Registrations made. Issuer shall be entitled to postpone for up to 150
days from receipt of Grantee's request for a Demand Registration the filing of
any registration statement in connection therewith if the Board of Directors of
Issuer determines in its good faith reasonable judgment that such registration
would materially interfere with or require premature disclosure of, any
material acquisition, reorganization, pending or proposed offering of Issuer
Securities or other transaction involving Issuer or any other material contract
under active negotiation by Issuer; and provided further that Issuer shall not
have postponed any Demand Registration pursuant to this sentence during the
twelve month period immediately preceding the date of delivery of Grantee's
request for a Demand Registration.
(b) If Issuer effects a registration under the Securities Act of Issuer
Common Stock for its own account or for any other stockholders of Issuer (other
than on Form S-4 or Form S-8, or any successor form), Grantee shall have the
right to participate in such registration and include in such registration the
number of shares of Issuer Common Stock or such other Issuer securities as
Grantee shall designate by notice to Issuer (an "Incidental Registration" and,
together with a Demand Registration, a "Registration"); provided, however,
that, if the managing underwriters of such offering advise Issuer in writing
that in their opinion the number of shares of Issuer Common Stock or other
securities requested to be included in such Incidental Registration exceeds the
number which can be sold in such offering, Issuer shall include therein (i)
first, all shares proposed to be included therein by Issuer, (ii) second,
subject to the rights of any other holders of registration rights in effect as
of the date hereof, the shares requested to be included therein by Grantee and
(iii) third, shares
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proposed to be included therein by any other stockholder of Issuer.
Participation by Grantee in any Incidental Registration shall not affect the
obligation of Issuer to effect Demand Registrations under this Section 4.1.
Issuer may withdraw any registration under the Securities Act that gives rise
to an Incidental Registration without the consent of Grantee.
(c) In connection with any Registration pursuant to this Section 4.1, (i)
Issuer and Grantee shall provide each other and any underwriter of the offering
with customary representations, warranties, covenants, indemnification and
contribution obligations in connection with such Registration, and (ii) Issuer
shall use reasonable best efforts to cause any Option Shares included in such
Registration to be approved for listing on the NYSE or any other nationally
recognized exchange or trading system upon which Issuer's securities are then
listed, subject to official notice of issuance, which notice shall be given by
Issuer upon issuance. Grantee will provide all information reasonably requested
by Issuer for inclusion in any registration statement to be filed hereunder.
The costs and expenses incurred by Issuer in connection with any Registration
pursuant to this Section 4.1 (including any fees related to qualifications
under Blue Sky Laws and SEC filing fees) (the "Registration Expenses") shall be
borne by Issuer, excluding legal fees of Grantee's counsel and underwriting
discounts or commissions with respect to Option Shares to be sold by Grantee
included in a Registration.
4.2 Transfers of Option Shares. The Option Shares may not be sold, assigned,
transferred, or otherwise disposed of except (i) in an underwritten public
offering as provided in Section 4.1 or (ii) to any purchaser of transferee who
would not, to the knowledge of the Grantee after reasonable inquiry,
immediately following such sale, assignment, transfer or disposal beneficially
own more than 3% of the then-outstanding voting power of the Issuer; provided,
however, that Grantee shall be permitted to sell any Option Shares if such sale
is made pursuant to a tender or exchange offer that has been approved or
recommended by a majority of the members of the Board of Directors of Issuer
(which majority shall include a majority of directors who were directors as of
the date hereof).
ARTICLE V
REPURCHASE RIGHTS; SUBSTITUTE OPTIONS
5.1 Repurchase Rights.
(a) Subject to Section 6.1, at any time on or after the Exercise Date and
prior to the Expiration Date, Grantee shall have the right (the "Repurchase
Right") to require Issuer to repurchase from Grantee (i) the Option or any part
thereof as Grantee shall designate at a price (the "Option Repurchase Price")
equal to the amount, subject to reduction at the sole discretion of Grantee
pursuant to clause (iii) of Section 6.1(a), by which (A) the Market/Offer Price
(as defined below) exceeds (B) the Exercise Price, multiplied by the number of
Option Shares as to which the Option is to be repurchased and (ii) such number
of Option Shares as Grantee shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated. The term "Market/Offer Price" shall mean the
highest of (i) the highest price per share of Issuer Common Stock offered or
paid in any Acquisition Proposal, or (ii) the highest closing price for shares
of Issuer Common Stock during the six-month period immediately preceding the
date Grantee gives the Repurchase Notice (as hereinafter defined). In
determining the Market/Offer Price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by Grantee and reasonably acceptable to Issuer, which determination, absent
manifest error, shall be conclusive for all purposes of this Agreement.
(b) Grantee shall exercise its Repurchase Right by delivering to Issuer
written notice (a "Repurchase Notice") stating that Grantee elects to require
Issuer to repurchase all or a portion of the Option and/or the Option Shares as
specified therein. The closing of the Repurchase Right (the "Repurchase
Closing") shall take place in the United States at the place, time and date
specified in the Repurchase Notice, which date shall not be less than two
Business Days nor more than ten Business Days from the date on which the
Repurchase Notice is delivered. At the Repurchase Closing, subject to the
receipt of a writing evidencing the surrender of the Option and/or certificates
representing Option Shares, as the case may be, Issuer shall deliver to Grantee
the
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Option Repurchase Price therefor or the Option Share Repurchase Price therefor,
as the case may be, or the portion thereof that Issuer is not then prohibited
under applicable Law from so delivering. At the Repurchase Closing, (i) Issuer
shall pay to Grantee the Option Repurchase Price for the portion of the Option
which is to be repurchased or the Option Shares Repurchase Price for the number
of Option Shares to be repurchased, as the case may be, by wire transfer of
immediately available funds to an account specified by Grantee at least 24
hours prior to the Repurchase Closing and (ii) if the Option is repurchased
only in part, Issuer and Grantee shall execute and deliver an amendment to this
Agreement reflecting the Option Shares for which the Option is not being
repurchased.
(c) To the extent that Issuer is prohibited under applicable Law from
repurchasing the portion of the Option or the Option Shares designated in such
Repurchase Notice, Issuer shall immediately so notify Grantee and thereafter
deliver, from time to time, to Grantee the portion of the Option Repurchase
Price and the Option Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within five Business Days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any
time after delivery of a Repurchase Notice is prohibited under applicable Law
from delivering to Grantee the full amount of the Option Repurchase Price and
the Option Share Repurchase Price for the Option or Option Shares to be
repurchased, respectively, Grantee may rescind the exercise of the Repurchase
Right, whether in whole, in part or to the extent of the prohibition, and, to
the extent rescinded, no part of the amounts, terms or the rights with respect
to the Option or Repurchase Right shall be changed or affected as if such
Repurchase Right were not exercised. Issuer shall use its reasonable best
efforts to obtain all required regulatory and legal approvals and to file any
required notices to permit Grantee to exercise its Repurchase Right and shall
use its reasonable best efforts to avoid or cause to be rescinded or rendered
inapplicable any prohibition on Issuer's repurchase of the Option or the Option
Shares.
5.2 Substitute Option.
(a) In the event that Issuer enters into an agreement (i) to consolidate
with or merge into any Person, other than Grantee or any Subsidiary of Grantee
(each an "Excluded Person"), and Issuer is not the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any Person, other
than an Excluded Person, to merge into Issuer and Issuer shall be the
continuing or surviving or acquiring corporation, but, in connection with such
merger, the then outstanding shares of Issuer Common Stock shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property or the then outstanding shares of Issuer Common Stock shall
after such merger represent less than 50% of the outstanding voting securities
of the merged or acquiring company, or (iii) to sell or otherwise transfer all
or substantially all of its assets to any Person, other than an Excluded
Person, then, and in each such case, the agreement governing such transaction
shall make proper provision so that, unless earlier exercised by Grantee, the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire the number and class of
shares or other securities or property that Grantee would have received in
respect of Issuer Common Stock if the Option had been exercised immediately
prior to such consolidation, merger, sale, or transfer, or the record date
therefor, as applicable and make any other necessary adjustments; provided,
however, that if such a conversion or exchange cannot, because of applicable
Law be the same as the Option, such terms shall be as similar as possible and
in no event less advantageous to Grantee than the Option.
(b) In addition to any other restrictions or covenants, Issuer agrees that
it shall not enter or agree to enter into any transaction described in Section
5.2(a) unless the Acquiring Corporation (as hereinafter defined) and any Person
that controls the Acquiring Corporation assume in writing all the obligations
of Issuer hereunder and agree for the benefit of Grantee to comply with this
Article V.
(c) For purposes of this Section 5.2, the term "Acquiring Corporation" shall
mean (i) the continuing or surviving Person of a consolidation or merger with
Issuer (if other than Issuer), (ii) Issuer in a consolidation or merger in
which Issuer is the continuing or surviving or acquiring Person, and (iii) the
transferee of all or substantially all of Issuer's assets.
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ARTICLE VI
MISCELLANEOUS
6.1 Total Profit.
(a) Notwithstanding any other provision of this Agreement, in no event shall
Grantee's Total Profit (as hereinafter defined) plus any America Online
Termination Fee paid pursuant to Section 8.2(c) and any fees paid by Issuer
pursuant to Section 8.2(d) of the Merger Agreement (such America Online
Termination Fee and such fees paid pursuant to Section 8.2(d) of the Merger
Agreement, collectively, the "Total Issuer Fees") exceed in the aggregate an
amount (the "Limitation Amount") equal to 2.75% of the product of (x) the
number of shares of Issuer Common Stock outstanding as of the date hereof
(assuming the exercise of all outstanding options (other than the Option) and
the conversion into Issuer Common Stock of all securities of the Issuer
convertible into Issuer Common Stock) multiplied by (y) the last sale price of
Issuer Common Stock on the NYSE on January 7, 2000, and, if the total amount
that would otherwise be received by Grantee otherwise would exceed such amount,
Grantee, at its sole election, shall either (i) reduce the number of shares of
Issuer Common Stock subject to this Option, (ii) deliver to Issuer for
cancellation Option Shares previously purchased by Grantee, (iii) reduce the
amount of the Option Repurchase Price or the Option Share Repurchase Price,
(iv) pay cash to Issuer, or (v) any combination thereof, so that Grantee's
actually realized Total Profit, when aggregated with the Total Issuer Fees so
paid to Grantee, shall not exceed the Limitation Amount after taking into
account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Option may
not be exercised for a number of Option Shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) which, together
with the Total Issuer Fees theretofore paid to Grantee, would exceed the
Limitation Amount; provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount received by Grantee pursuant to
Issuer's repurchase of the Option (or any portion thereof) pursuant to Section
5.1, (ii) (x) the amount received by Grantee pursuant to Issuer's repurchase of
Option Shares pursuant to Section 5.1, less (y) Grantee's purchase price for
such Option Shares, (iii) (x) the net cash amounts or the fair market value of
any property received by Grantee pursuant to any consummated arm's-length sales
of Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party, less (y) Grantee's purchase
price of such Option Shares.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Option Shares as to which Grantee may propose to exercise the Option
shall be the Total Profit determined as of the date of such proposal assuming
that the Option was exercised on such date for such number of Option Shares and
assuming that such Option Shares, together with all other Option Shares held by
Grantee and its affiliates as of such date, were sold for cash at the closing
market price (less customary brokerage commissions) for shares of Issuer Common
Stock on the preceding trading day on the NYSE (or on any other nationally
recognized exchange or trading system on which shares of Issuer Common Stock
are then so listed or traded).
6.2 Further Assurances; Listing.
(a) From time to time, at the other party's request and without further
consideration, each party hereto shall execute and deliver such additional
documents and take all such further action as may be necessary or desirable to
consummate the transactions contemplated by this Agreement, including, without
limitation, to vest in Grantee good and marketable title, free and clear of all
Liens, to any Option Shares purchased hereunder. Issuer agrees not to avoid or
seek to avoid (whether by charter amendment or through reorganization,
consolidation, merger, issuance of rights or securities, the America Online
Rights Agreement or similar agreement, dissolution or sale of assets, or by any
other voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by it.
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(b) If the Issuer Common Stock or any other securities to be acquired upon
exercise of the Option are then listed on the NYSE (or any other national
securities exchange or trading system), Issuer, upon the request of Grantee,
will promptly file an application to list the shares of Issuer Common Stock or
such other securities to be acquired upon exercise of the Option on the NYSE
(and any other national securities exchange or trading system) and will use
reasonable best efforts to obtain approval of such listing as promptly as
practicable.
6.3 Division of Option; Lost Options. The Agreement (and the Option granted
hereby) are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other agreements providing for Options of different denominations entitling
Grantee to purchase, on the same terms and subject to the same conditions as
are set forth herein, in the aggregate the same number of Option Shares
purchasable hereunder. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft or destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new agreement of
like tenor and date.
6.4 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
6.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to Grantee to:
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Fax: (212) 265-2646
Attention: Christopher P. Bogart, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax: (212) 474-3700
Attention: Robert A. Kindler, Esq.
(b) if to Issuer to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia
Fax: (703) 265-1495
Attention: Paul T. Cappuccio, Esq.
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Fax: (212) 455-2502
Attention: Richard I. Beattie, Esq.
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6.6 Interpretation. When a reference is made in this Agreement to Articles,
Sections, Exhibits or Schedules, such reference shall be to an Article or
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
6.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
6.8 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement and the other agreements of the parties referred to
herein constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
6.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
6.10 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
6.11 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such assignment
without such consent shall be null and void. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
6.12 Submission to Jurisdiction; Waivers. Each of Grantee and Issuer
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, and
each of Grantee and Issuer hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Grantee and Issuer hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counterclaim or otherwise, in any action or
proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process, (b) that it or its property
is exempt or immune from jurisdiction of any such court or from any legal
process commenced in such courts (whether through service of notice, attachment
prior to judgment, attachment in aid of execution of judgment, execution of
judgment or otherwise), (c) to the fullest extent permitted by applicable law,
that (i) the suit, action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit,
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action or proceeding is improper and (iii) this Agreement, or the subject
matter hereof, may not be enforced in or by such courts and (d) any right to a
trial by jury.
6.13 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
6.14 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
will impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor will any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not exclusive of, any
rights or remedies otherwise available.
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IN WITNESS WHEREOF, Grantee and Issuer have caused this Agreement to be duly
executed as of the date first above written.
AMERICA ONLINE, INC.
/s/ Stephen M. Case
By: _________________________________
Name: Stephen M. Case
Title: Chairman & Chief Executive
Officer
TIME WARNER INC.
/s/ Gerald M. Levin
By: _________________________________
Name: Gerald M. Levin
Title: Chairman & Chief Executive
Officer
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ANNEX C
STOCK OPTION AGREEMENT, dated as of January 10, 2000 (the "Agreement"),
between America Online, Inc., a Delaware corporation ("Grantee"), and Time
Warner Inc., a Delaware corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer are, concurrently with the execution and
delivery of this Agreement, entering into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement;" capitalized terms used
without definition herein having the meanings assigned to them in the Merger
Agreement), pursuant to which the parties will engage in a business combination
in a merger of equals (the "Merger"); and
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Grantee has required that Issuer agree, and believing it to be in
the best interests of Issuer, Issuer has agreed, among other things, to grant
to Grantee the Option (as hereinafter defined) to purchase shares of common
stock, par value $.01 per share, of Issuer ("Issuer Common Stock") at a price
per share equal to the Exercise Price (as hereinafter defined).
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
OPTION TO PURCHASE SHARES
1.1 Grant of Option.
(a) Issuer hereby grants to Grantee an irrevocable option to purchase, in
whole or in part, an aggregate of up to 233,263,204 duly authorized, validly
issued, fully paid and nonassessable shares of Issuer Common Stock
(representing 19.9% of the outstanding shares of Issuer Common Stock as of
November 30, 1999) on the terms and subject to the conditions set forth herein
(the "Option"); provided, however, that in no event shall the number of shares
of Issuer Common Stock for which this Option is exercisable exceed 19.9% of the
issued and outstanding shares of Issuer Common Stock at the time of exercise
without giving effect to the issuance of any Option Shares (as hereinafter
defined). The number of shares of Issuer Common Stock that may be received upon
the exercise of the Option and the Exercise Price are subject to adjustment as
herein set forth.
(b) In the event that any additional shares of Issuer Common Stock are
issued or otherwise become outstanding after the date of this Agreement (other
than pursuant to this Agreement and other than pursuant to an event described
in Section 3.1 hereof), the number of shares of Issuer Common Stock subject to
the Option shall be increased so that, after such issuance, such number
together with any shares of Issuer Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Issuer Common Stock then issued
and outstanding without giving effect to any shares subject or issued pursuant
to the Option. Nothing contained in this Section 1.1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer to breach or fail to comply with
any provision of the Merger Agreement. As used herein, the term "Option Shares"
means the shares of Issuer Common Stock issuable pursuant to the Option, as the
number of such shares shall be adjusted pursuant to the terms hereof.
1.2 Exercise of Option.
(a) The Option may be exercised by Grantee, in whole or in part, at any
time, or from time to time, commencing upon the Exercise Date and prior to the
Expiration Date. As used herein, the term "Exercise Date" means the date on
which Grantee becomes unconditionally entitled to receive the Time Warner
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Termination Fee pursuant to Section 8.2(b) of the Merger Agreement. As used
herein, the term "Expiration Date" means the first to occur prior to Grantee's
exercise of the Option pursuant to Section 1.2(b) of:
(i) the Effective Time;
(ii) written notice of termination of this Agreement by Grantee to
Issuer;
(iii) 12 months after the first occurrence of an Exercise Date; or
(iv) the date of termination of the Merger Agreement, unless, in the
case of this clause (iv), Grantee has the right to receive the Time Warner
Termination Fee either (x) upon or (y) following such termination upon the
occurrence of certain events, in which case the Option will not terminate
until the later of (x) 15 business days following the time the Time Warner
Termination Fee becomes unconditionally payable and (y) the expiration of
the period in which Grantee has such right to receive the Time Warner
Termination Fee.
Notwithstanding the termination of the Option, Grantee shall be entitled to
purchase those Option Shares with respect to which it may have exercised the
Option by delivery of an Option Notice (as defined below) prior to the
Expiration Date, and the termination of the Option will not affect any rights
hereunder which by their terms do not terminate or expire prior to or at the
Expiration Date.
(b) In the event Grantee wishes to exercise the Option, Grantee shall send a
written notice to Issuer of its intention to so exercise the Option (an "Option
Notice"), specifying the number of Option Shares to be purchased (and the
denominations of the certificates, if more than one), whether the aggregate
Exercise Price will be paid in cash or by surrendering a portion of the Option
in accordance with Section 1.3(b) or a combination thereof, and the place in
the United States, time and date of the closing of such purchase (the "Option
Closing" and the date of such Closing, the "Option Closing Date"), which date
shall not be less than two Business Days nor more than ten Business Days from
the date on which an Option Notice is delivered; provided that the Option
Closing shall be held only if (i) such purchase would not otherwise violate or
cause the violation of, any applicable material law, statute, ordinance, rule
or regulation (collectively, "Laws") (including the HSR Act and the
Communications Act), and (ii) no material judgment, order, writ, injunction,
ruling or decree of any Governmental Entity (collectively, "Orders") shall have
been promulgated, enacted, entered into, or enforced by any Governmental Entity
which prohibits delivery of the Option Shares, whether temporary, preliminary
or permanent; provided, however, that the parties hereto shall use their
reasonable best efforts to (x) promptly make and process all necessary filings
and applications and obtain all consents, approvals, Orders, authorizations,
registrations and declarations or expiration or termination of any required
waiting periods (collectively, "Approvals") and to comply with any such
applicable Laws and (y) have any such Order vacated or reversed. In the event
the Option Closing is delayed pursuant to clause (i) or (ii) above, the Option
Closing shall be within ten Business Days following the cessation of such
restriction, violation, Law or Order or the receipt of any necessary Approval,
as the case may be (so long as the Option Notice was delivered prior to the
Expiration Date); provided further that, notwithstanding any prior Option
Notice, Grantee shall be entitled to rescind such Option Notice and shall not
be obligated to purchase any Option Shares in connection with such exercise
upon written notice to such effect to Issuer.
(c) At any Option Closing, (i) Issuer shall deliver to Grantee all of the
Option Shares to be purchased by delivery of a certificate or certificates
evidencing such Option Shares in the denominations designated by Grantee in the
Option Notice, and (ii) if the Option is exercised in part and/or surrendered
in part to pay the aggregate Exercise Price pursuant to Section 1.3(b), Issuer
and Grantee shall execute and deliver an amendment to this Agreement reflecting
the Option Shares for which the Option has not been exercised and/or
surrendered. If at the time of issuance of any Option Shares pursuant to an
exercise of all or part of the Option hereunder, Issuer shall have issued any
rights or other securities which are attached to or otherwise associated with
the Issuer Common Stock, then each Option Share issued pursuant to such
exercise shall also represent such rights or other securities with terms
substantially the same as and at least as favorable to Grantee as are provided
under any shareholder rights agreement or similar agreement of Issuer then in
effect. At the Option Closing,
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Grantee shall pay to Issuer by wire transfer of immediately available funds to
an account specified by Issuer to Grantee in writing at least two Business Days
prior to the Option Closing an amount equal to the Exercise Price multiplied by
the number of Option Shares to be purchased for cash pursuant to this Article
I; provided that the failure or refusal of Issuer to specify an account shall
not affect Issuer's obligation to issue the Option Shares.
(d) Upon the delivery by Grantee to Issuer of the Option Notice and the
tender of the applicable aggregate Exercise Price in immediately available
funds or the requisite portion of the Option in accordance with Section 1.3,
Grantee shall be deemed to be the holder of record of the Option Shares
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer may then be closed, that certificates representing such Option Shares
may not then have been actually delivered to Grantee, or Issuer may have failed
or refused to take any action required of it hereunder. Issuer shall pay all
expenses that may be payable in connection with the preparation, issuance and
delivery of stock certificates or an amendment to this Agreement under this
Section 1.2 and any filing fees and other expenses arising from the performance
of the transactions contemplated hereby.
1.3 Payments.
(a) The purchase and sale of the Option Shares pursuant to Section 1.2 of
this Agreement shall be at a purchase price equal to $110.63 per Share (as such
amount may be adjusted pursuant to the terms hereof, the "Exercise Price"),
payable at Grantee's option in cash, by surrender of a portion of the Option in
accordance with Section 1.3(b), or a combination thereof.
(b) Grantee may elect to purchase Option Shares issuable, and pay some or
all of the aggregate Exercise Price payable, upon an exercise of the Option by
surrendering a portion of the Option with respect to such number of Option
Shares as is determined by dividing (i) the aggregate Exercise Price payable in
respect of the number of Option Shares being purchased in such manner by (ii)
the excess of the Fair Market Value (as defined below) per share of Issuer
Common Stock as of the last trading day preceding the date Grantee delivers its
Option Notice (such date, the "Option Exercise Date") over the per share
Exercise Price. The "Fair Market Value" per share of Issuer Common Stock shall
be (i) if the Issuer Common Stock is listed on the New York Stock Exchange,
Inc. (the "NYSE") or any other nationally recognized exchange or trading system
as of the Option Exercise Date, the average of last reported sale prices per
share of Issuer Common Stock thereon for the 10 trading days commencing on the
12th trading day immediately preceding the Option Exercise Date, or (ii) if the
Issuer Common Stock is not listed on the NYSE or any other nationally
recognized exchange or trading system as of the Option Exercise Date, the
amount determined by a mutually acceptable independent investment banking firm
as the value per share the Issuer Common Stock would have if publicly traded on
a nationally recognized exchange or trading system (assuming no discount for
minority interest, illiquidity or restrictions on transfer). That portion of
the Option so surrendered under this Section 1.3(b) shall be canceled and shall
thereafter be of no further force and effect.
(c) Certificates for the Option Shares delivered at an Option Closing will
have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JANUARY 10,
2000, A COPY OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF TIME WARNER
INC. AT ITS PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have been
sold in reliance on and in
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accordance with Rule 144 under the Securities Act or Grantee has delivered to
Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act and
(ii) the reference to restrictions pursuant to this Agreement in the above
legend will be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that any Option Shares or other securities acquired by
Grantee upon exercise of the Option will not be taken with a view to the public
distribution thereof and will not be transferred or otherwise disposed of
except in a transaction registered or exempt from registration under the
Securities Act.
2.2 Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Option Shares. Issuer has taken all necessary corporate and other action
to authorize and reserve for issuance, and, subject to receipt of any
Approvals, to permit it to issue, the Option Shares and all additional shares
or other securities which may be issued pursuant to Section 3.1 upon exercise
of the Option, and, at all times from the date hereof until such time as the
obligation to deliver Option Shares hereunder terminates, will have reserved
for issuance upon exercise of the Option the Option Shares and such other
additional shares or securities, if any. All of the Option Shares and all
additional shares or other securities or property which may be issuable
pursuant to Section 3.1, upon exercise of the Option and issuance pursuant
hereto, shall be duly authorized, validly issued, fully paid and nonassessable,
shall be delivered free and clear of all Liens of any nature whatsoever, and
shall not be subject to any preemptive or similar right of any Person.
(b) No Restrictions. No Delaware law or other takeover statute or similar
Law and no provision of the Restated Certificate of Incorporation or Bylaws of
Issuer or any agreement to which Issuer is a party (a) would or would purport
to impose restrictions which might adversely affect or delay the consummation
of the transactions contemplated by this Agreement, or (b) as a result of the
consummation of the transactions contemplated by this Agreement, (i) would or
would purport to restrict or impair the ability of Grantee to vote or otherwise
exercise the rights of a shareholder with respect to securities of Issuer or
any of its Subsidiaries that may be acquired or controlled by Grantee or (ii)
would or would purport to entitle any Person to acquire securities of Issuer.
ARTICLE III
ADJUSTMENT UPON CHANGES IN CAPITALIZATION
3.1 Adjustment Upon Changes in Capitalization. In addition to the adjustment
in the number of shares of Issuer Common Stock that may be purchased upon
exercise of the Option pursuant to Section 1.1 of this Agreement, the number of
shares of Issuer Common Stock that may be purchased upon the exercise of the
Option and the Exercise Price shall be subject to adjustment from time to time
as provided in this Section 3.1. In the event of any change in the number of
issued and outstanding shares of Issuer Common Stock by reason of any stock
dividend, split-up, merger, recapitalization, combination, conversion, exchange
of shares, spin-off or other change in the corporate or capital structure of
Issuer which would have the effect of diluting or otherwise diminishing
Grantee's rights hereunder, the number and kind of Option Shares or other
securities subject to the Option and the Exercise Price therefor shall be
appropriately adjusted so that Grantee shall receive upon exercise of the
Option (or, if such a change occurs between exercise and the Option Closing,
upon
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the Option Closing) the number and kind of shares or other securities or
property that Grantee would have received in respect of the Option Shares that
Grantee is entitled to purchase upon exercise of the Option if the Option had
been exercised (or the purchase thereunder had been consummated, as the case
may be) immediately prior to such event or the record date for such event, as
applicable. The rights of Grantee under this Section shall be in addition to,
and shall in no way limit, its rights against Issuer for breach of or the
failure to perform any provision of the Merger Agreement.
ARTICLE IV
REGISTRATION RIGHTS
4.1 Registration of Option Shares Under the Securities Act.
(a) If requested by Grantee at any time and from time to time within two
years after receipt by Grantee of Option Shares (the "Registration Period"),
Issuer shall use its reasonable best efforts, as promptly as practicable, to
effect the registration under the Securities Act and any applicable state law
(a "Demand Registration") of such number of Option Shares or such other Issuer
securities owned by or issuable to Grantee in accordance with the method of
sale or other disposition contemplated by Grantee, including a "shelf"
registration statement under Rule 415 of the Securities Act or any successor
provision, and to obtain all consents or waivers of other parties that are
required therefor. Grantee agrees to use reasonable best efforts to cause, and
to use reasonable best efforts to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that
upon consummation thereof no purchaser or transferee will own beneficially more
than 3% of the then-outstanding voting power of Issuer. Except with respect to
such a "shelf" registration, Issuer shall keep such Demand Registration
effective for a period of not less than 150 days, unless, in the written
opinion of counsel to Issuer, which opinion shall be delivered to Grantee and
which shall be satisfactory in form and substance to Grantee and its counsel,
such registration under the Securities Act is not required in order to lawfully
sell and distribute such Option Shares or other Issuer securities in the manner
contemplated by Grantee. Issuer shall only have the obligation to effect three
Demand Registrations pursuant to this Section 4.1; provided that only requests
relating to a registration statement that has become effective under the
Securities Act shall be counted for purposes of determining the number of
Demand Registrations made. Issuer shall be entitled to postpone for up to 150
days from receipt of Grantee's request for a Demand Registration the filing of
any registration statement in connection therewith if the Board of Directors of
Issuer determines in its good faith reasonable judgment that such registration
would materially interfere with or require premature disclosure of, any
material acquisition, reorganization, pending or proposed offering of Issuer
Securities or other transaction involving Issuer or any other material contract
under active negotiation by Issuer; and provided further that Issuer shall not
have postponed any Demand Registration pursuant to this sentence during the
twelve month period immediately preceding the date of delivery of Grantee's
request for a Demand Registration.
(b) If Issuer effects a registration under the Securities Act of Issuer
Common Stock for its own account or for any other stockholders of Issuer (other
than on Form S-4 or Form S-8, or any successor form), Grantee shall have the
right to participate in such registration and include in such registration the
number of shares of Issuer Common Stock or such other Issuer securities as
Grantee shall designate by notice to Issuer (an "Incidental Registration" and,
together with a Demand Registration, a "Registration"); provided, however,
that, if the managing underwriters of such offering advise Issuer in writing
that in their opinion the number of shares of Issuer Common Stock or other
securities requested to be included in such Incidental Registration exceeds the
number which can be sold in such offering, Issuer shall include therein (i)
first, all shares proposed to be included therein by Issuer, (ii) second,
subject to the rights of any other holders of registration rights in effect as
of the date hereof, the shares requested to be included therein by Grantee and
(iii) third, shares proposed to be included therein by any other stockholder of
Issuer. Participation by Grantee in any Incidental Registration shall not
affect the obligation of Issuer to effect Demand Registrations under this
Section 4.1. Issuer may withdraw any registration under the Securities Act that
gives rise to an Incidental Registration without the consent of Grantee.
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(c) In connection with any Registration pursuant to this Section 4.1, (i)
Issuer and Grantee shall provide each other and any underwriter of the offering
with customary representations, warranties, covenants, indemnification and
contribution obligations in connection with such Registration, and (ii) Issuer
shall use reasonable best efforts to cause any Option Shares included in such
Registration to be approved for listing on the NYSE or any other nationally
recognized exchange or trading system upon which Issuer's securities are then
listed, subject to official notice of issuance, which notice shall be given by
Issuer upon issuance. Grantee will provide all information reasonably requested
by Issuer for inclusion in any registration statement to be filed hereunder.
The costs and expenses incurred by Issuer in connection with any Registration
pursuant to this Section 4.1 (including any fees related to qualifications
under Blue Sky Laws and SEC filing fees) (the "Registration Expenses") shall be
borne by Issuer, excluding legal fees of Grantee's counsel and underwriting
discounts or commissions with respect to Option Shares to be sold by Grantee
included in a Registration.
4.2 Transfers of Option Shares. The Option Shares may not be sold, assigned,
transferred, or otherwise disposed of except (i) in an underwritten public
offering as provided in Section 4.1 or (ii) to any purchaser of transferee who
would not, to the knowledge of the Grantee after reasonable inquiry,
immediately following such sale, assignment, transfer or disposal beneficially
own more than 3% of the then-outstanding voting power of the Issuer; provided,
however, that Grantee shall be permitted to sell any Option Shares if such sale
is made pursuant to a tender or exchange offer that has been approved or
recommended by a majority of the members of the Board of Directors of Issuer
(which majority shall include a majority of directors who were directors as of
the date hereof).
ARTICLE V
REPURCHASE RIGHTS; SUBSTITUTE OPTIONS
5.1 Repurchase Rights.
(a) Subject to Section 6.1, at any time on or after the Exercise Date and
prior to the Expiration Date, Grantee shall have the right (the "Repurchase
Right") to require Issuer to repurchase from Grantee (i) the Option or any part
thereof as Grantee shall designate at a price (the "Option Repurchase Price")
equal to the amount, subject to reduction at the sole discretion of Grantee
pursuant to clause (iii) of Section 6.1(a), by which (A) the Market/Offer Price
(as defined below) exceeds (B) the Exercise Price, multiplied by the number of
Option Shares as to which the Option is to be repurchased and (ii) such number
of Option Shares as Grantee shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated. The term "Market/Offer Price" shall mean the
highest of (i) the highest price per share of Issuer Common Stock offered or
paid in any Acquisition Proposal, or (ii) the highest closing price for shares
of Issuer Common Stock during the six-month period immediately preceding the
date Grantee gives the Repurchase Notice (as hereinafter defined). In
determining the Market/Offer Price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by Grantee and reasonably acceptable to Issuer, which determination, absent
manifest error, shall be conclusive for all purposes of this Agreement.
(b) Grantee shall exercise its Repurchase Right by delivering to Issuer
written notice (a "Repurchase Notice") stating that Grantee elects to require
Issuer to repurchase all or a portion of the Option and/or the Option Shares as
specified therein. The closing of the Repurchase Right (the "Repurchase
Closing") shall take place in the United States at the place, time and date
specified in the Repurchase Notice, which date shall not be less than two
Business Days nor more than ten Business Days from the date on which the
Repurchase Notice is delivered. At the Repurchase Closing, subject to the
receipt of a writing evidencing the surrender of the Option and/or certificates
representing Option Shares, as the case may be, Issuer shall deliver to Grantee
the Option Repurchase Price therefor or the Option Share Repurchase Price
therefor, as the case may be, or the portion thereof that Issuer is not then
prohibited under applicable Law from so delivering. At the Repurchase Closing,
(i) Issuer shall pay to Grantee the Option Repurchase Price for the portion of
the Option which is to be repurchased or the Option Shares Repurchase Price for
the number of Option Shares to be repurchased, as
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the case may be, by wire transfer of immediately available funds to an account
specified by Grantee at least 24 hours prior to the Repurchase Closing and (ii)
if the Option is repurchased only in part, Issuer and Grantee shall execute and
deliver an amendment to this Agreement reflecting the Option Shares for which
the Option is not being repurchased.
(c) To the extent that Issuer is prohibited under applicable Law from
repurchasing the portion of the Option or the Option Shares designated in such
Repurchase Notice, Issuer shall immediately so notify Grantee and thereafter
deliver, from time to time, to Grantee the portion of the Option Repurchase
Price and the Option Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within five Business Days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any
time after delivery of a Repurchase Notice is prohibited under applicable Law
from delivering to Grantee the full amount of the Option Repurchase Price and
the Option Share Repurchase Price for the Option or Option Shares to be
repurchased, respectively, Grantee may rescind the exercise of the Repurchase
Right, whether in whole, in part or to the extent of the prohibition, and, to
the extent rescinded, no part of the amounts, terms or the rights with respect
to the Option or Repurchase Right shall be changed or affected as if such
Repurchase Right were not exercised. Issuer shall use its reasonable best
efforts to obtain all required regulatory and legal approvals and to file any
required notices to permit Grantee to exercise its Repurchase Right and shall
use its reasonable best efforts to avoid or cause to be rescinded or rendered
inapplicable any prohibition on Issuer's repurchase of the Option or the Option
Shares.
5.2 Substitute Option.
(a) In the event that Issuer enters into an agreement (i) to consolidate
with or merge into any Person, other than Grantee or any Subsidiary of Grantee
(each an "Excluded Person"), and Issuer is not the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any Person, other
than an Excluded Person, to merge into Issuer and Issuer shall be the
continuing or surviving or acquiring corporation, but, in connection with such
merger, the then outstanding shares of Issuer Common Stock shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property or the then outstanding shares of Issuer Common Stock shall
after such merger represent less than 50% of the outstanding voting securities
of the merged or acquiring company, or (iii) to sell or otherwise transfer all
or substantially all of its assets to any Person, other than an Excluded
Person, then, and in each such case, the agreement governing such transaction
shall make proper provision so that, unless earlier exercised by Grantee, the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
with identical terms appropriately adjusted to acquire the number and class of
shares or other securities or property that Grantee would have received in
respect of Issuer Common Stock if the Option had been exercised immediately
prior to such consolidation, merger, sale, or transfer, or the record date
therefor, as applicable and make any other necessary adjustments; provided,
however, that if such a conversion or exchange cannot, because of applicable
Law be the same as the Option, such terms shall be as similar as possible and
in no event less advantageous to Grantee than the Option.
(b) In addition to any other restrictions or covenants, Issuer agrees that
it shall not enter or agree to enter into any transaction described in Section
5.2(a) unless the Acquiring Corporation (as hereinafter defined) and any Person
that controls the Acquiring Corporation assume in writing all the obligations
of Issuer hereunder and agree for the benefit of Grantee to comply with this
Article V.
(c) For purposes of this Section 5.2, the term "Acquiring Corporation" shall
mean (i) the continuing or surviving Person of a consolidation or merger with
Issuer (if other than Issuer), (ii) Issuer in a consolidation or merger in
which Issuer is the continuing or surviving or acquiring Person, and (iii) the
transferee of all or substantially all of Issuer's assets.
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ARTICLE VI
MISCELLANEOUS
6.1 Total Profit.
(a) Notwithstanding any other provision of this Agreement, in no event shall
Grantee's Total Profit (as hereinafter defined) plus any Time Warner
Termination Fee paid pursuant to Section 8.2(b) and any fees paid by Issuer
pursuant to Section 8.2(d) of the Merger Agreement (such Time Warner
Termination Fee and such fees paid pursuant to Section 8.2(d) of the Merger
Agreement, collectively, the "Total Issuer Fees") exceed in the aggregate an
amount (the "Limitation Amount") equal to 2.75% of the product of (x) the
number of shares of Issuer Common Stock outstanding as of the date hereof
(assuming the exercise of all outstanding options (other than the Option) and
the conversion into Issuer Common Stock of all securities of the Issuer
convertible into Issuer Common Stock) multiplied by (y) the Exchange Ratio
multiplied by (z) the last sale price of the common stock, par value $0.01 per
share, of Grantee on the NYSE on January 7, 2000, and, if the total amount that
would otherwise be received by Grantee otherwise would exceed such amount,
Grantee, at its sole election, shall either (i) reduce the number of shares of
Issuer Common Stock subject to this Option, (ii) deliver to Issuer for
cancellation Option Shares previously purchased by Grantee, (iii) reduce the
amount of the Option Repurchase Price or the Option Share Repurchase Price,
(iv) pay cash to Issuer, or (v) any combination thereof, so that Grantee's
actually realized Total Profit, when aggregated with the Total Issuer Fees so
paid to Grantee, shall not exceed the Limitation Amount after taking into
account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Option may
not be exercised for a number of Option Shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) which, together
with the Total Issuer Fees theretofore paid to Grantee, would exceed the
Limitation Amount; provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate amount
(before taxes) of the following: (i) the amount received by Grantee pursuant to
Issuer's repurchase of the Option (or any portion thereof) pursuant to Section
5.1, (ii) (x) the amount received by Grantee pursuant to Issues repurchase of
Option Shares pursuant to Section 5.1, less (y) Grantee's purchase price for
such Option Shares, (iii) (x) the net cash amounts or the fair market value of
any property received by Grantee pursuant to any consummated arm's-length sales
of Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party, less (y) Grantee's purchase
price of such Option Shares.
(d) As used herein, the term "Notional Total Profit" with respect to any
number of Option Shares as to which Grantee may propose to exercise the Option
shall be the Total Profit determined as of the date of such proposal assuming
that the Option was exercised on such date for such number of Option Shares and
assuming that such Option Shares, together with all other Option Shares held by
Grantee and its affiliates as of such date, were sold for cash at the closing
market price (less customary brokerage commissions) for shares of Issuer Common
Stock on the preceding trading day on the NYSE (or on any other nationally
recognized exchange or trading system on which shares of Issuer Common Stock
are then so listed or traded).
6.2 Further Assurances; Listing.
(a) From time to time, at the other party's request and without further
consideration, each party hereto shall execute and deliver such additional
documents and take all such further action as may be necessary or desirable to
consummate the transactions contemplated by this Agreement, including, without
limitation, to vest in Grantee good and marketable title, free and clear of all
Liens, to any Option Shares purchased hereunder. Issuer agrees not to avoid or
seek to avoid (whether by charter amendment or through reorganization,
consolidation, merger, issuance of rights or securities, the Time Warner Rights
Agreement or similar agreement, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by it.
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(b) If the Issuer Common Stock or any other securities to be acquired upon
exercise of the Option are then listed on the NYSE (or any other national
securities exchange or trading system), Issuer, upon the request of Grantee,
will promptly file an application to list the shares of Issuer Common Stock or
such other securities to be acquired upon exercise of the Option on the NYSE
(and any other national securities exchange or trading system) and will use
reasonable best efforts to obtain approval of such listing as promptly as
practicable.
6.3 Division of Option; Lost Options. The Agreement (and the Option granted
hereby) are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other agreements providing for Options of different denominations entitling
Grantee to purchase, on the same terms and subject to the same conditions as
are set forth herein, in the aggregate the same number of Option Shares
purchasable hereunder. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft or destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new agreement of
like tenor and date.
6.4 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
6.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to Grantee to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia
Fax: (703) 265-1495
Attention: Paul T. Cappuccio, Esq.
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Fax: (212) 455-2502
Attention: Richard I. Beattie, Esq.
(b) if to Issuer to:
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Fax: (212) 265-2646
Attention: Christopher P. Bogart, Esq.
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Fax: (212) 474-3700
Attention: Robert A. Kindler, Esq.
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6.6 Interpretation. When a reference is made in this Agreement to Articles,
Sections, Exhibits or Schedules, such reference shall be to an Article or
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated.
The headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "include," "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation."
6.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
6.8 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement and the other agreements of the parties referred to
herein constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other Person any right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
6.9 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
6.10 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
6.11 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior
written consent of the other party, and any attempt to make any such assignment
without such consent shall be null and void. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
6.12 Submission to Jurisdiction; Waivers. Each of Grantee and Issuer
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, and
each of Grantee and Issuer hereby irrevocably submits with regard to any such
action or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Grantee and Issuer hereby irrevocably waives, and agrees not to assert, by
way of motion, as a defense, counterclaim or otherwise, in any action or
proceeding with respect to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-named courts for any reason
other than the failure to lawfully serve process (b) that it or its property is
exempt or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior
to judgment, attachment in aid of execution of judgment, execution of judgment
or otherwise), (c) to the fullest extent permitted by applicable law, that (i)
the suit, action or proceeding in any such court is brought in an inconvenient
forum, (ii) the venue of such suit, action or proceeding is improper and (iii)
this Agreement, or the subject matter hereof, may not be enforced in or by such
courts and (d) any right to a trial by jury.
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6.13 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
6.14 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
will impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor will any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive to, and not exclusive of, any
rights or remedies otherwise available.
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IN WITNESS WHEREOF, Grantee and Issuer have caused this Agreement to be duly
executed as of the date first above written.
AMERICA ONLINE, INC.
/s/ Stephen M. Case
By: _________________________________
Name: Stephen M. Case
Title: Chairman & Chief Executive
Officer
TIME WARNER INC.
/s/ Gerald M. Levin
By: _________________________________
Name: Gerald M. Levin
Title: Chairman & Chief Executive
Officer
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ANNEX D
EXECUTION COPY
AMENDED AND RESTATED VOTING AGREEMENT, dated as of January 10, 2000 (this
"Agreement"), among America Online, Inc., a Delaware corporation ("America
Online"), and the stockholders of Time Warner Inc., a Delaware corporation
("Time Warner"), that are parties hereto (each, a "Stockholder" and,
collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, America Online and Time Warner, concurrently with the original
execution and delivery of this Agreement, entered into an Agreement and Plan of
Merger, dated as of January 10, 2000 (the "Merger Agreement;" capitalized terms
used without definition herein having the meanings assigned to them in the
Merger Agreement), pursuant to which Time Warner will engage in a business
combination in a merger of equals with America Online (the "Time Warner
Merger");
WHEREAS, as of the date hereof, each Stockholder is the record and
beneficial owner of the number of shares of common stock, par value $0.01 per
share, of Time Warner ("Time Warner Common Stock"), as set forth on the
signature page hereof beneath such Stockholder's name (with respect to each
Stockholder, such Stockholder's "Existing Shares" and, together with any shares
of Time Warner Common Stock or other voting capital stock of Time Warner
acquired after the date hereof, whether upon the exercise of warrants, options,
conversion of convertible securities or otherwise, such Stockholder's
"Shares");
WHEREAS, America Online and the Stockholders have entered into a Voting
Agreement dated as of January 10, 2000 (the "Original Agreement"); and
WHEREAS, America Online and the Stockholders wish to amend and restate the
Original Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
VOTING
1.1 Agreement to Vote. Each Stockholder hereby agrees that it shall, and
shall cause the holder of record on any applicable record date to, from time to
time, at the request of America Online, at any meeting (whether annual or
special and whether or not an adjourned or postponed meeting) of stockholders
of Time Warner, however called, or in connection with any written consent of
the holders of Time Warner Common Stock, (a) if a meeting is held, appear at
such meeting or otherwise cause the Shares to be counted as present thereat for
purposes of establishing a quorum, and (b) vote or consent (or cause to be
voted or consented), in person or by proxy, all Shares, and any other voting
securities of Time Warner (whether acquired heretofore or hereafter) that are
beneficially owned or held of record by such Stockholder or as to which such
Stockholder has, directly or indirectly, the right to vote or direct the
voting, in favor of the approval and adoption of the Merger Agreement, the Time
Warner Merger and any action required in furtherance thereof.
1.2 No Ownership Interest. Nothing contained in this Agreement shall be
deemed to vest in America Online any direct or indirect ownership or incidence
of ownership of or with respect to any Shares. All rights, ownership and
economic benefits of and relating to the Shares shall remain vested in and
belong to the Stockholders, and America Online shall have no authority to
manage, direct, superintend, restrict, regulate, govern, or administer any of
the policies or operations of Time Warner or exercise any power or authority to
direct the Stockholders in the voting of any of the Shares, except as otherwise
provided herein, or in the performance of the Stockholder's duties or
responsibilities as stockholders of Time Warner.
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1.3 No Inconsistent Agreements. Each Stockholder hereby covenants and
agrees that, except as contemplated by this Agreement and the Merger
Agreement, the Stockholder (a) has not entered, and shall not enter at any
time while this Agreement remains in effect, into any voting agreement or
voting trust with respect to the Shares and (b) has not granted, and shall not
grant at any time while this Agreement remains in effect, a proxy or power of
attorney with respect to the Shares, in either case, which is inconsistent
with such Stockholder's obligations pursuant to this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
Each Stockholder hereby, severally and not jointly, represents and warrants
to America Online as follows:
2.1 Authorization; Validity of Agreement; Necessary Action. Such
Stockholder has full power and authority to execute and deliver this
Agreement, to perform such Stockholder's obligations hereunder and to
consummate the transactions contemplated hereby. The execution, delivery and
performance by such Stockholder of this Agreement and the consummation by it
of the transactions contemplated hereby have been duly and validly authorized
by such Stockholder and no other actions or proceedings on the part of such
Stockholder are necessary to authorize the execution and delivery by it of
this Agreement and the
consummation by it of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by such Stockholder, and, assuming this
Agreement constitutes a valid and binding obligation of America Online,
constitutes a valid and binding obligation of such Stockholder, enforceable
against it in accordance with its terms.
2.2 Shares. Such Stockholder's Existing Shares are, and all of its Shares
from the date hereof through and on the Closing Date have been and will be,
owned beneficially and of record by such Stockholder (subject to any
dispositions of Shares permitted by Section 3.1(a) hereof). As of the date
hereof, such Stockholder's Existing Shares constitute all of the shares of
Time Warner Common Stock owned of record or beneficially by such Stockholder.
Such Stockholder has or will have sole voting power, sole power of
disposition, sole power to issue instructions with respect to the matters set
forth in Article I hereof, and sole power to agree to all of the matters set
forth in this Agreement, in each case with respect to all of such
Stockholder's Existing Shares and with respect to all of such Stockholder's
Shares on the Closing Date, with no limitations, qualifications or
restrictions on such rights, subject to applicable federal securities laws,
the terms of this Agreement and the terms of the Loan Agreement (as defined
below in Section 3.1(a)).
ARTICLE III
OTHER COVENANTS
3.1 Further Agreements of Stockholders.
(a) Each Stockholder, severally and not jointly, hereby agrees, while this
Agreement is in effect, and except as contemplated hereby, not to sell,
transfer, pledge, encumber, assign or otherwise dispose of (collectively, a
"Transfer") or enforce or permit the execution of the provisions of any
redemption, share purchase or sale, recapitalization or other agreement with
Time Warner or enter into any contract, option or other arrangement or
understanding with respect to the offer for sale, sale, transfer, pledge,
encumbrance, assignment or other disposition of, any of its Existing Shares,
any Shares acquired after the date hereof, any securities exercisable for or
convertible into Time Warner Common Stock, any other capital stock of Time
Warner or any interest in any of the foregoing with any Person, except to a
Person who agrees in writing, in an instrument reasonably acceptable to
America Online, to be bound by this Agreement as a Stockholder and be subject
to Section 1.1; provided, however, that the Stockholders collectively may
Transfer an aggregate of up to
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<PAGE>
five percent of the Existing Shares held of record by the Stockholders hereof
collectively as of the date hereof without compliance with this Section 3.1(a);
and provided further that the restrictions contained in this Section 3.1(a) do
not apply to Existing Shares now pledged by Stockholders to Merrill Lynch
International Bank Limited (the "Bank") to secure a revolving credit facility
to R.E. Turner pursuant to that certain Loan and Collateral Account Agreement
dated April 4, 1996, as amended, between the Bank and R.E. Turner (the "Loan
Agreement").
(b) In the event of a stock dividend or distribution, or any change in Time
Warner Common Stock by reason of any stock dividend or distribution, or any
change in Time Warner Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all such
stock dividends and distributions and any securities into which or for which
any or all of the Shares may be changed or exchanged or which are received in
such transaction.
(c) Each Stockholder covenants and agrees with the other Stockholders and
for the benefit of Time Warner (which shall be a third party beneficiary of
this Section 3.1(c)) to comply with and perform all its obligations under this
Agreement.
ARTICLE IV
MISCELLANEOUS
4.1 Termination. This Agreement shall terminate and no party shall have any
rights or duties hereunder upon the earlier of (a) the Effective Time or (b)
termination of the Merger Agreement pursuant to Section 8.1 thereof. Nothing in
this Section 4.1 shall relieve or otherwise limit any party of liability for
breach of this Agreement.
4.2 Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate the transactions contemplated by this Agreement.
4.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (b)
on the first Business Day following the date of dispatch if delivered by a
recognized next-day courier service, or (c) on the tenth Business Day following
the date of mailing if delivered by registered or certified mail, return
receipt requested, postage prepaid. All notices hereunder shall be delivered as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) if to America Online to:
22000 AOL Way
Dulles, Virginia 20166
Fax: (703) 265-1495
Attention: Paul T. Cappuccio,
Senior Vice President and General Counsel
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<PAGE>
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Fax: (212) 455-2502
Attention: Richard I. Beattie, Esq.
(b) if to a Stockholder, as provided on the signature page hereof.
4.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
4.5 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
4.6 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
4.7 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
4.8 Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, including the Original
Agreement, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
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<PAGE>
IN WITNESS WHEREOF, America Online and each of the Stockholders have caused
this Agreement to be signed by their respective officers or other authorized
person thereunto duly authorized as of the date first written above.
AMERICA ONLINE, INC.
/s/ Paul T. Cappuccio
By: _________________________________
Name: Paul T. Cappuccio
Title: Senior Vice President and
General Counsel
/s/ R.E. Turner, III
_____________________________________
R.E. Turner, III
Number of Existing Shares:
95,843,076
Notices
Address: One CNN Center
Box 105366
Atlanta, GA 30348-5366
Fax: (404) 827-3000
Attention: R.E. Turner, III
TURNER PARTNERS, L.P.
/s/ R.E. Turner, III
By: _________________________________
Name: R.E. Turner, III
Title: General Partner
Number of Existing Shares: 6,028,896
Notices
Address: One CNN Center
Box 105366
Atlanta, GA 30348-5366
Fax: (404) 827-3000
Attention: R.E. Turner, III
TURNER OUTDOOR, INC.
/s/ R.E. Turner, III
By: _________________________________
Name: R.E. Turner, III
Title: President
Number of Existing Shares: 579,884
Notices
Address: One CNN Center
Box 105366
Atlanta, GA 30348-5366
Fax: (404) 827-3000
Attention: R.E. Turner, III
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<PAGE>
ANNEX E
SALOMON SMITH BARNEY
A member of citigroup [LOGO]
January 9, 2000
Board of Directors
America Online, Inc.
22000 AOL Way
Dulles, VA 20166
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to America Online, Inc. ("AOL"), of the Exchange Ratio (as defined below)
contemplated by the Agreement and Plan of Merger (the "Merger Agreement") to be
entered into between AOL and Time Warner Inc. ("Time Warner"), pursuant to
which, among other things, a new holding company ("Holdco") and two subsidiary
companies of Holdco ("AOL Merger Sub" and "Time Warner Merger Sub",
respectively) will be organized under the laws of the State of Delaware in
order to effect a business combination of AOL and Time Warner. The Merger
Agreement provides, among other things, that AOL Merger Sub will be merged with
and into AOL (the "AOL Merger"), with AOL continuing as the surviving
corporation, and Time Warner Merger Sub will be merged with and into Time
Warner (the "Time Warner Merger" and, together with the AOL Merger, the
"Mergers"), with Time Warner continuing as the surviving corporation. The
Merger Agreement provides, among other things, that (i) in the AOL Merger, each
outstanding share (other than such shares owned or held by AOL which will be
cancelled) of common stock, par value $.01 per share, of AOL (the "AOL Common
Stock"), together with the associated right to purchase Series A-1 Junior
Participating Preferred Stock of AOL, will be converted into the right to
receive one share of common stock, par value $.01 per share, of Holdco (the
"Holdco Common Stock"), and (ii) in the Time Warner Merger, each outstanding
share (other than such shares owned or held by Time Warner which will be
cancelled) of common stock, par value $.01 per share, of Time Warner (the "Time
Warner Common Stock"), together with the associated right to purchase Series A
Participating Cumulative Preferred Stock of Time Warner, will be converted into
the right to receive 1.5 shares of Holdco Common Stock (the "Exchange Ratio").
In arriving at our opinion, we reviewed the draft dated January 9, 2000 of
the Merger Agreement and held discussions with certain senior officers and
other representatives and advisors of AOL and certain senior officers and other
representatives and advisors of Time Warner concerning the business, operations
and prospects of AOL and Time Warner. We examined certain publicly available
business and financial information relating to AOL and Time Warner as well as
certain estimates and other data for AOL and Time Warner prepared by our and
Morgan Stanley & Co. Incorporated's research analysts. In addition, we examined
certain information relating to certain of the strategic implications and
operational benefits anticipated from the Mergers. We also evaluated the
potential pro forma financial impact of the Mergers on AOL. In addition to the
foregoing, we conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to or otherwise reviewed by or
discussed with us. We relied on estimates prepared by our research analysts,
based on our own independent evaluation of this information and indications by
the management of AOL that the estimates regarding AOL were reasonably
consistent with their own and indications by the management of Time Warner that
estimates regarding Time Warner prepared by Morgan Stanley & Co. Incorporated's
research analysts were reasonably consistent with their own. We determined that
our research analysts' estimates regarding Time
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<PAGE>
Board of Directors
America Online, Inc.
January 9, 2000
Warner were generally consistent with Morgan Stanley & Co. Incorporated's
research analysts' estimates regarding Time Warner, which was acknowledged by
the managements of AOL and Time Warner. With respect to the anticipated
strategic, financial and operational benefits of the Mergers, we assumed that
the information provided was reasonably prepared on bases reflecting the best
currently available estimates and judgments as to the strategic implications
and operational benefits anticipated to result from the Mergers. We also
assumed that the final form of the Merger Agreement will be substantially the
same as the last draft reviewed by us. In addition, we have assumed, with your
consent, that the Mergers will be treated as a tax-free "reorganization" for
federal income tax purposes.
We are not expressing any opinion as to what the value of the Holdco Common
Stock actually will be when issued to stockholders pursuant to the Mergers or
the price at which the Holdco Common Stock will trade subsequent to the
Mergers. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of AOL or Time
Warner nor have we made any physical inspection of the properties or assets of
AOL or Time Warner. We have not been asked to consider, and our opinion does
not address, the relative merits of the Mergers as compared to any alternative
business strategies that might exist for AOL or the effect of any other
transaction in which AOL might engage. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has been engaged to render financial advisory
services to AOL in connection with the Mergers and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Mergers. We also will receive a fee upon the delivery of our opinion. In
the ordinary course of our business, we may hold or actively trade the equity
and debt securities of AOL and Time Warner for our own account or for the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
Citigroup Inc. and its affiliates) may maintain business relationships with AOL
and Time Warner.
Our advisory services and the opinion expressed herein are provided for the
use of the Board of Directors of AOL in its evaluation of the proposed Mergers,
and our opinion is not intended to be and does not constitute a recommendation
to any stockholder as to how such stockholder should vote in connection with
the proposed Mergers. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Salomon Smith Barney Inc. be
made, without our prior written consent which consent will not be unreasonably
withheld.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair,
from a financial point of view, to AOL.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
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ANNEX F
[LETTERHEAD OF MORGAN STANLEY & CO. INCORPORATED]
January 9, 2000
Board of Directors
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
Members of the Board:
We understand that Time Warner Inc. ("Time Warner" or the "Company") and
America Online, Inc. ("America Online") will enter, into an Agreement and Plan
of Merger substantially in the form of the draft dated as of January 9, 2000
reviewed by us (the "Merger Agreement") which provides, among other things, for
(i) the creation of a new holding company ("Holdco") which will have two
subsidiaries, Time Warner Merger Corp. ("Time Warner Merger Sub") and America
Online Merger Corp. ("America Online Merger Sub"), (ii) the merger (the "Time
Warner Merger") of Time Warner Merger Sub with and into Time Warner whereby
each issued and outstanding share of common stock, par value $0.01 per share,
of Time Warner Merger Sub shall be converted into one fully paid and non-
assessable share of common stock, par value $0.01 per share of the surviving
corporation in the Time Warner Merger, and (iii) the merger (the "America
Online Merger", and together with the Time Warner Merger, the "Mergers") of
America Online Merger Sub with and into America Online whereby each issued and
outstanding share of common stock, par value $0.01 per share, of America Online
Merger Sub shall be converted into one fully paid and non-assessable share of
common stock, par value $0.01 per share of the surviving corporation in the
America Online Merger. Pursuant to the Time Warner Merger, among other things,
(i) each issued and outstanding share of common stock, par value $0.01 per
share ("Time Warner Common Stock"), of Time Warner will be converted into the
right to receive 1.5 shares of common stock, par value $0.01 per share ("Holdco
Common Stock") of Holdco, (ii) each issued and outstanding share of Series
LMCN-V Common Stock, par value $0.01 per share (the "Time Warner Series LMCN-V
Common Stock"), of Time Warner will be converted into the right to receive 1.5
shares of Series LMCN-V Common Stock, par value $0.01 per share, of Holdco, and
(iii) each issued and outstanding share of Series LMC Common Stock, par value
$0.01 per share (the "Time Warner Series LMC Common Stock", and together with
the Time Warner Series LMCN-V Common Stock, the "Time Warner Series Stock") of
Time Warner will be converted into the right to receive 1.5 shares of Series
LMC Common Stock, par value $0.01 per share, of Holdco, each at the effective
time of the Time Warner Merger. The exchange ratio of 1.5 for each of the Time
Warner Common Stock and Time Warner Series Stock is referred to as the
"Exchange Ratio". Pursuant to the America Online Merger, each issued and
outstanding share of common stock, par value $0.01 per share ("America Online
Common Stock") of America Online will be converted into the right to receive
one share of Holdco Common Stock. The terms and conditions of the Mergers are
more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio is fair from
a financial point of view to the holders of Time Warner Common Stock and Time
Warner Series LMCN-V Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of America Online and Time Warner respectively;
(ii) discussed the past and current operations and financial condition and
the prospects of America Online and Time Warner with senior
executives of America Online and Time Warner, respectively;
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(iii) discussed with senior executives of America Online and Time Warner
certain strategic, financial and operational benefits they
anticipate from the Mergers;
(iv) reviewed the reported prices and trading activity for Time Warner
Common Stock and America Online Common Stock;
(v) compared the financial performance of America Online and Time
Warner and the prices and trading activity of America Online Common
Stock and Time Warner Common Stock with those of certain other
comparable publicly-traded companies and their securities;
(vi) reviewed the financial terms, to the extent publicly available, of
certain precedent transactions we deemed relevant;
(vii) participated in certain discussions and negotiations among
representatives of America Online and Time Warner and their
financial and legal advisors;
(viii) reviewed the Merger Agreement, the Voting Agreement to be entered
into between America Online and certain shareholders of Time Warner
substantially in the form of the draft dated as of January 9, 2000
reviewed by us (the "Voting Agreement") and the Stock Option
Agreements to be entered into between America Online and Time
Warner each substantially in the form of the drafts dated January
9, 2000 reviewed by us (the "Stock Option Agreements") and certain
related documents; and
(ix) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. We did not receive financial forecasts for Time Warner or America
Online and have instead relied on the publicly available estimates of certain
analysts, including those at Morgan Stanley & Co. Incorporated, ("Morgan
Stanley"), who report on America Online and Time Warner. With respect to the
anticipated strategic, financial and operational benefits of the Mergers,
including assumptions regarding America Online's and Time Warner's existing and
future products and technologies, we have assumed that the information provided
has been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial and operational performance of
America Online and Time Warner, respectively. We have not made and have not
assumed responsibility for making any independent valuation or appraisal of the
assets or liabilities of America Online or Time Warner, nor have we been
furnished with any such appraisals. We have assumed that the executed versions
of the Merger Agreement, Voting Agreement and Stock Option Agreements will not
differ in any material respect from the last drafts thereof we have reviewed.
We have assumed that the Mergers will be consummated in accordance with the
terms set forth in the Merger Agreement without material modification or waiver
and that the Mergers will be tax-free reorganizations or exchanges under the
Internal Revenue Code of 1986, as amended. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, the
information made available to us as of, and the financial condition of America
Online and Time Warner on, the date hereof.
We have acted as financial advisor to the Board of Directors of Time Warner
in connection with this transaction and will receive a fee for our services, a
significant portion of which is contingent on the consummation of the Mergers.
In the past, Morgan Stanley and its affiliates have provided financial advisory
and financing services for America Online and Time Warner and have received
fees for the rendering of these services. In the ordinary course of business,
Morgan Stanley may from time to time trade in the securities or indebtedness of
America Online and Time Warner for its own account, the accounts of investment
funds and other clients under the management of Morgan Stanley and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities or indebtedness.
It is understood that this letter is for the information of the Board of
Directors of Time Warner and may not be used for any purpose without our prior
written consent, except that this opinion may be included in its
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entirety in any filing made by America Online, Time Warner or Holdco in respect
of the Mergers with the Securities and Exchange Commission. This opinion does
not in any manner address the prices at which shares of America Online Common
Stock or Time Warner Common Stock will trade prior to the consummation of the
Mergers or the prices at which shares of Holdco Common Stock will trade
following the consummation of the Mergers, and we express no opinion or
recommendation as to how the stockholders of America Online or Time Warner
should vote at the respective stockholders' meetings to be held in connection
with the Mergers.
Based on and subject to the foregoing, we are of the opinion that, on the
date hereof, the Exchange Ratio is fair from a financial point of view to the
holders of Time Warner Common Stock and Time Warner Series LMCN-V Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
/s/ Paul J. Taubman
By: _________________________________
Paul J. Taubman
Managing Director
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Annex G
RESTATED CERTIFICATE OF INCORPORATION
OF
AOL TIME WARNER INC.
ARTICLE I
The name of the corporation (hereinafter called the "Corporation") is AOL
TIME WARNER INC.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE IV
SECTION 1. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 27.55 billion shares, consisting
of (1) 750 million shares of Preferred Stock, par value $0.10 per share
("Preferred Stock") (2) 25 billion shares of Common Stock, par value $0.01 per
share("Common Stock"), and (3) 1.8 billion shares of Series Common Stock, par
value $0.01 per share ("Series Common Stock"). The number of authorized shares
of any of the Preferred Stock, the Common Stock or the Series Common Stock may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority in voting
power of the stock of the Corporation entitled to vote thereon irrespective of
the provisions of Section 242(b)(2) of the General Corporation Law of the State
of Delaware (or any successor provision thereto), and no vote of the holders of
any of the Preferred Stock, the Common Stock or the Series Common Stock voting
separately as a class shall be required therefor.
SECTION 2. The Board of Directors of the Corporation (the "Board of
Directors") is hereby expressly authorized, by resolution or resolutions, to
provide, out of the unissued shares of Preferred Stock, for series of Preferred
Stock and, with respect to each such series, to fix the number of shares
constituting such series and the designation of such series, the voting powers
(if any) of the shares of such series, and the preferences and relative,
participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.
SECTION 3. The Board of Directors is hereby expressly authorized, by
resolution or resolutions, to provide, out of the unissued shares of Series
Common Stock, for series of Series Common Stock and, with respect to each such
series, to fix the number of shares constituting such series and the
designation of such series, the voting powers (if any) of the shares of such
series, and the preferences and relative, participating, optional or other
special rights, if any, and any qualifications, limitations or restrictions
thereof, of the shares of such series. The powers, preferences and relative,
participating, optional and other special rights of each series of Series
Common Stock, and the qualifications, limitations or restrictions thereof, if
any, may differ from those of any and all other series at any time outstanding.
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SECTION 4. (a) Each holder of Common Stock, as such, shall be entitled to
one vote for each share of Common Stock held of record by such holder on all
matters on which stockholders generally are entitled to vote; provided,
however, that, except as otherwise required by law, holders of Common Stock, as
such, shall not be entitled to vote on any amendment to this Restated
Certificate of Incorporation (including any Certificate of Designation relating
to any series of Preferred Stock or Series Common Stock) that relates solely to
the terms of one or more outstanding series of Preferred Stock or Series Common
Stock if the holders of such affected series are entitled, either separately or
together with the holders of one or more other such series, to vote thereon
pursuant to this Restated Certificate of Incorporation (including any
Certificate of Designation relating to any series of Preferred Stock or Series
Common Stock) or pursuant to the General Corporation Law of the State of
Delaware.
(b) Except as otherwise required by law, holders of a series of Preferred
Stock or Series Common Stock, as such, shall be entitled only to such voting
rights, if any, as shall expressly be granted thereto by this Restated
Certificate of Incorporation (including any Certificate of Designation relating
to such series).
(c) Subject to applicable law and the rights, if any, of the holders of any
outstanding series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over or the right to participate with the
Common Stock with respect to the payment of dividends, dividends may be
declared and paid on the Common Stock at such times and in such amounts as the
Board of Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the Corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock or Series Common Stock or any class or series of stock having a
preference over or the right to participate with the Common Stock with respect
to the distribution of assets of the Corporation upon such dissolution,
liquidation or winding up of the Corporation, the holders of the Common Stock,
as such, shall be entitled to receive the assets of the Corporation available
for distribution to its stockholders ratably in proportion to the number of
shares held by them.
SECTION 5. Notwithstanding any other provision of this Restated Certificate
of Incorporation to the contrary, but subject to the provisions of any
resolution or resolutions of the Board of Directors adopted pursuant to this
Article IV creating (i) any series of Preferred Stock, (ii) any series of any
other class or series of stock having a preference over the Common Stock as to
dividends or upon dissolution, liquidation or winding up or (iii) any series of
Series Common Stock, outstanding shares of Common Stock, Series Common Stock,
Preferred Stock or any other class or series of stock of the Corporation shall
always be subject to redemption by the Corporation, by action of the Board of
Directors, if in the judgment of the Board of Directors such action should be
taken, pursuant to Section 151(b) of the General Corporation Law of the State
of Delaware (or by any other applicable provision of law), to the extent
necessary to prevent the loss or secure the reinstatement of any license or
franchise from any governmental agency held by the Corporation or any
Subsidiary to conduct any portion of the business of the Corporation or such
Subsidiary, which license or franchise is conditioned upon some or all of the
holders of the Corporation's stock of any class or series possessing prescribed
qualifications. The terms and conditions of such redemption shall be as
follows:
(a) the redemption price of the shares to be redeemed pursuant to this
Section 5 shall be equal to the Fair Market Value of such shares;
(b) the redemption price of such shares may be paid in cash, Redemption
Securities or any combination thereof;
(c) if less than all the shares held by Disqualified Holders are to be
redeemed, the shares to be redeemed shall be selected in such manner as
shall be determined by the Board of Directors, which may include selection
first of the most recently purchased shares thereof, selection by lot or
selection in any other manner determined by the Board of Directors;
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(d) at least 30 days' written notice of the Redemption Date shall be
given to the record holders of the shares selected to be redeemed (unless
waived in writing by such holder); provided that the Redemption Date may be
the date on which written notice shall be given to record holders if the
cash or Redemption Securities necessary to effect the redemption shall have
been deposited in trust for the benefit of such record holders and subject
to immediate withdrawal by them upon surrender of the stock certificates
for their shares to be redeemed;
(e) from and after the Redemption Date, any and all rights of whatever
nature, which may be held by the owners of shares selected for redemption
(including without limitation any rights to vote or participate in
dividends declared on stock of the same class or series as such shares),
shall cease and terminate and they shall thenceforth be entitled only to
receive the cash or Redemption Securities payable upon redemption; and
(f) such other terms and conditions as the Board of Directors shall
determine.
For purposes of this Section 5:
(i) "Disqualified Holder" shall mean any holder of shares of stock of
the Corporation of any class or series whose holding of such stock may
result in the loss of any license or franchise from any governmental agency
held by the Corporation or any Subsidiary to conduct any portion of the
business of the Corporation or any Subsidiary.
(ii) "Fair Market Value" of a share of the Corporation's stock of any
class or series shall mean the average (unweighted) Closing Price for such
a share for each of the 45 most recent days on which shares of stock of
such class or series shall have been traded preceding the day on which
notice of redemption shall be given pursuant to paragraph (d) of this
Section 5; provided, however, that if shares of stock of such class or
series are not traded on any securities exchange or in the over-the-counter
market, "Fair Market Value" shall be determined by the Board of Directors
in good faith; and provided further, however, that "Fair Market Value" as
to any stockholder who purchased his stock within 120 days of a Redemption
Date need not (unless otherwise determined by the Board of Directors)
exceed the purchase price paid by him. "Closing Price" on any day means the
reported last sales price regular way or, in case no such sale takes place,
the average of the reported closing bid and asked prices regular way on the
New York Stock Exchange Composite Tape, or, if stock of the class or series
in question is not quoted on such Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such exchange, on the
principal United States registered securities exchange on which such stock
is listed, or, if such stock is not listed on any such exchange, the
highest closing sales price or bid quotation for such stock on The Nasdaq
Stock Market or any system then in use, or if no such prices or quotations
are available, the fair market value on the day in question as determined
by the Board of Directors in good faith.
(iii) "Redemption Date" shall mean the date fixed by the Board of
Directors for the redemption of any shares of stock of the Corporation
pursuant to this Section 5.
(iv) "Redemption Securities" shall mean any debt or equity securities of
the Corporation, any Subsidiary or any other corporation, or any
combination thereof, having such terms and conditions as shall be approved
by the Board of Directors and which, together with any cash to be paid as
part of the redemption price, in the opinion of any nationally recognized
investment banking firm selected by the Board of Directors (which may be a
firm which provides other investment banking, brokerage or other services
to the Corporation), has a value, at the time notice of redemption is given
pursuant to paragraph (d) of this Section 5, at least equal to the Fair
Market Value of the shares to be redeemed pursuant to this Section 5
(assuming, in the case of Redemption Securities to be publicly traded, such
Redemption Securities were fully distributed and subject only to normal
trading activity).
(v) "Subsidiary" shall mean any corporation more than 50% of whose
outstanding stock having ordinary voting power in the election of directors
is owned by the Corporation, by a Subsidiary or by the Corporation and one
or more Subsidiaries.
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ARTICLE V
SECTION 1. Except as otherwise fixed by or pursuant to the provisions of
Article IV of this Restated Certificate of Incorporation relating to the rights
of the holders of any series of Preferred Stock or Series Common Stock or any
class or series of stock having a preference over the Common Stock as to
dividends or upon dissolution, liquidation or winding up, the number of the
directors of the Corporation shall be fixed from time to time by or pursuant to
the By-laws of the Corporation. The directors, other than those who may be
elected by the holders of any series of Preferred Stock or Series Common Stock
or any class or series of stock having a preference over the Common Stock as to
dividends or upon dissolution, liquidation or winding up pursuant to the terms
of this Restated Certificate of Incorporation or any resolution or resolutions
providing for the issue of such class or series of stock adopted by the Board
of Directors, shall be elected by the stockholders entitled to vote thereon at
each annual meeting of stockholders and shall hold office until the next annual
meeting of stockholders and until each of their successors shall have been
elected and qualified. The election of directors need not be by written ballot.
No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
SECTION 2. Advance notice of nominations for the election of directors shall
be given in the manner and to the extent provided in the By-laws of the
Corporation.
SECTION 3. Except as otherwise provided for or fixed by or pursuant to the
provisions of Article IV of this Restated Certificate of Incorporation relating
to the rights of the holders of any series of Preferred Stock or Series Common
Stock or any class or series of stock having a preference over the Common Stock
as to dividends or upon dissolution, liquidation or winding up, newly created
directorships resulting from any increase in the number of directors may be
filled by the Board of Directors, or as otherwise provided in the By-laws of
the Corporation, and any vacancies on the Board of Directors resulting from
death, resignation, removal or other cause shall only be filled by the Board of
Directors, and not by the stockholders, by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of
the Board of Directors, or by a sole remaining director, or as otherwise
provided in the By-laws of the Corporation. Any director elected in accordance
with the preceding sentence of this Section 3 shall hold office until the next
annual meeting of stockholders and until such director's successor shall have
been elected and qualified.
ARTICLE VI
Subject to the rights of the holders of any series of Preferred Stock or
Series Common Stock or any class or series of stock having a preference over
the Common Stock as to dividends or upon dissolution, liquidation or winding
up, any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject
to the rights of the holders of any series of Preferred Stock or Series Common
Stock or any class or series of stock having a preference over the Common Stock
as to dividends or upon dissolution, liquidation or win, special meetings of
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors or as otherwise provided in the By-laws of the Corporation.
ARTICLE VII
In furtherance and not in limitation of the powers conferred upon it by law,
the Board of Directors is expressly authorized to adopt, repeal, alter or amend
the By-laws of the Corporation by the vote of a majority of the entire Board of
Directors or such greater vote as shall be specified in the By-laws of the
Corporation. In addition to any requirements of law and any other provision of
this Restated Certificate of Incorporation or any resolution or resolutions of
the Board of Directors adopted pursuant to Article IV of this Restated
Certificate of Incorporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated
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Certificate of Incorporation or any such resolution or resolutions), the
affirmative vote of the holders of 80% or more of the combined voting power of
the then outstanding shares of the outstanding shares of all classes and series
of capital stock of the Corporation entitled generally to vote in the election
of directors of the corporation ("Voting Stock"), voting together as a single
class, shall be required for stockholders to adopt, amend, alter or repeal any
provision of the By-laws of the Corporation.
ARTICLE VIII
In addition to any requirements of law and any other provisions of this
Restated Certificate of Incorporation or any resolution or resolutions of the
Board of Directors adopted pursuant to Article IV of this Restated Certificate
of Incorporation (and notwithstanding the fact that a lesser percentage may be
specified by law, this Restated Certificate of Incorporation or any such
resolution or resolutions), the affirmative vote of the holders of 80% or more
of the combined voting power of the then outstanding shares of Voting Stock,
voting together as a single class, shall be required to amend, alter or repeal,
or adopt any provision inconsistent with, this Article VIII or Article VII, or
Section 5 of Article IV, of this Restated Certificate of Incorporation. Subject
to the foregoing provisions of this Article VIII, the Corporation reserves the
right to amend, alter or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are subject to this
reservation.
ARTICLE IX
SECTION 1. To the fullest extent that the General Corporation Law of the
State of Delaware or any other law of the State of Delaware as it exists or as
it may hereafter be amended permits the limitation or elimination of the
liability of directors, no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. No amendment to or repeal of this Article IX shall apply to
or have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
SECTION 2. In addition to any requirements of law and any other provisions
of this Restated Certificate of Incorporation or any resolution or resolutions
of the Board of Directors adopted pursuant to Article IV of this Restated
Certificate of Incorporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Restated Certificate of Incorporation
or any such resolution or resolutions), the affirmative vote of the holders of
80% or more of the combined voting power of the then outstanding shares of
Voting Stock, voting together as a single class, shall be required to amend,
alter or repeal, or adopt any provision inconsistent with, this Article IX.
[The provisions of the certificates of designations with respect to the
Series E Convertible Preferred Stock, Series F Convertible Preferred Stock,
Series I Convertible Preferred Stock, Series J Convertible Preferred Stock,
Series LMC Common Stock and Series LMCN-V Common Stock filed as exhibits to the
Form S-4 will be incorporated into AOL Time Warner Inc.'s Restated Certificate
of Incorporation mutatis mutandis.]
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Annex H
AOL TIME WARNER INC.
BY-LAWS
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of AOL TIME WARNER INC.
(hereinafter called the "Corporation") in the State of Delaware shall be at
1013 Centre Road, City of Wilmington, County of New Castle, and the registered
agent shall be Corporation Service Company, or such other office or agent as
the Board of Directors of the Corporation (the "Board") shall from time to time
select.
SECTION 2. Other Offices. The Corporation may also have an office or
offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. Place of Meeting. All meetings of the stockholders of the
Corporation (the "stockholders") shall be held seriatim (sequentially) in New
York City, New York, Los Angeles, California, Atlanta, Georgia and Dulles,
Virginia.
SECTION 2. Annual Meetings. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date and at such hour as
shall from time to time be fixed by the Board. Any previously scheduled annual
meeting of the stockholders may be postponed by action of the Board taken prior
to the time previously scheduled for such annual meeting of the stockholders.
SECTION 3. Special Meetings. Except as otherwise required by law or the
Restated Certificate of Incorporation of the Corporation (the "Certificate")
and subject to the rights of the holders of any series of Preferred Stock or
Series Common Stock or any class or series of stock having a preference over
the Common Stock as to dividends or upon dissolution, liquidation or winding
up, special meetings of the stockholders for any purpose or purposes may be
called by the Chief Executive Officer or a majority of the entire Board. Only
such business as is specified in the notice of any special meeting of the
stockholders shall come before such meeting.
SECTION 4. Notice of Meetings. Except as otherwise provided by law, notice
of each meeting of the stockholders, whether annual or special, shall be given
not less than 10 days nor more than 60 days before the date of the meeting to
each stockholder of record entitled to notice of the meeting. If mailed, such
notice shall be deemed given when deposited in the United States mail, postage
prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation. Each such notice shall state the
place, date and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. Notice of any meeting of
the stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy without protesting, prior to or at
the commencement of the meeting, the lack of proper notice to such stockholder,
or who shall waive notice thereof as provided in Article X of these By-laws.
Notice of adjournment of a meeting of the stockholders need not be given if the
time and place to which it is adjourned are announced at such meeting, unless
the adjournment is for more than 30 days or, after adjournment, a new record
date is fixed for the adjourned meeting.
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SECTION 5. Quorum. Except as otherwise provided by law or by the
Certificate, the holders of a majority of the votes entitled to be cast by the
stockholders entitled to vote generally, present in person or by proxy, shall
constitute a quorum at any meeting of the stockholders; provided, however, that
in the case of any vote to be taken by classes or series, the holders of a
majority of the votes entitled to be cast by the stockholders of a particular
class or series, present in person or by proxy, shall constitute a quorum of
such class or series.
SECTION 6. Adjournments. The chairman of the meeting or the holders of a
majority of the votes entitled to be cast by the stockholders who are present
in person or by proxy may adjourn the meeting from time to time whether or not
a quorum is present. In the event that a quorum does not exist with respect to
any vote to be taken by a particular class or series, the chairman of the
meeting or the holders of a majority of the votes entitled to be cast by the
stockholders of such class or series who are present in person or by proxy may
adjourn the meeting with respect to the vote(s) to be taken by such class or
series. At any such adjourned meeting at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 7. Order of Business. At each meeting of the stockholders, the
Chairman of the Board or, in the absence of the Chairman of the Board, the
Chief Executive Officer or, in the absence of the Chairman of the Board and the
Chief Executive Officer, such person as shall be selected by the Board shall
act as chairman of the meeting. The order of business at each such meeting
shall be as determined by the chairman of the meeting. The chairman of the
meeting shall have the right and authority to prescribe such rules, regulations
and procedures and to do all such acts and things as are necessary or desirable
for the proper conduct of the meeting, including, without limitation, the
establishment of procedures for the maintenance of order and safety,
limitations on the time allotted to questions or comments on the affairs of the
Corporation, restrictions on entry to such meeting after the time prescribed
for the commencement thereof and the opening and closing of the voting polls.
At any annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the annual meeting (i) by or at the
direction of the chairman of the meeting or (ii) by any stockholder who is a
holder of record at the time of the giving of the notice provided for in this
Section 7, who is entitled to vote at the meeting and who complies with the
procedures set forth in this Section 7.
For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in proper
written form to the Secretary of the Corporation (the "Secretary"). To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 90 days nor
more than 120 days prior to the first anniversary of the date of the
immediately preceding annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days earlier or more than 60
days later than such anniversary date, notice by the stockholder to be timely
must be so delivered or received not earlier than the 120th day prior to such
annual meeting and not later than the close of business on the later of the
90th day prior to such annual meeting or the 10th day following the day on
which public announcement of the date of such meeting is first made. To be in
proper written form, a stockholder's notice to the Secretary shall set forth in
writing as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting; (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business; (iii) the class and number of
shares of the Corporation which are beneficially owned by the stockholder; (iv)
any material interest of the stockholder in such business; and (v) if the
stockholder intends to solicit proxies in support of such stockholder's
proposal, a representation to that effect. The foregoing notice requirements
shall be deemed satisfied by a stockholder if the stockholder has notified the
Corporation of his or her intention to present a proposal at an annual meeting
and such stockholder's proposal has been included in a proxy statement that has
been prepared by management of the Corporation to solicit proxies for such
annual meeting; provided, however, that if such stockholder does not appear or
send a qualified representative to present such proposal at such
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annual meeting, the Corporation need not present such proposal for a vote at
such meeting, notwithstanding that proxies in respect of such vote may have
been received by the Corporation. Notwithstanding anything in these By-laws to
the contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 7. The chairman of an
annual meeting may refuse to permit any business to be brought before an annual
meeting which fails to comply with the foregoing procedures or, in the case of
a stockholder proposal, if the stockholder solicits proxies in support of such
stockholder's proposal without having made the representation required by
clause (v) of the third preceding sentence.
SECTION 8. List of Stockholders. It shall be the duty of the Secretary or
other officer who has charge of the stock ledger to prepare and make, at least
10 days before each meeting of the stockholders, a complete list of the
stockholders entitled to vote thereat, arranged in alphabetical order, and
showing the address of each stockholder and the number of shares registered in
such stockholder's name. Such list shall be produced and kept available at the
times and places required by law.
SECTION 9. Voting. Except as otherwise provided by law or by the
Certificate, each stockholder of record of any series of Preferred Stock or
Series Common Stock shall be entitled at each meeting of the stockholders to
such number of votes, if any, for each share of such stock as may be fixed in
the Certificate or in the resolution or resolutions adopted by the Board
providing for the issuance of such stock, and each stockholder of record of
Common Stock shall be entitled at each meeting of the stockholders to one vote
for each share of such stock, in each case, registered in such stockholder's
name on the books of the Corporation:
(1) on the date fixed pursuant to Section 6 of Article VII of these By-
laws as the record date for the determination of stockholders entitled to
notice of and to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at the close
of business on the day next preceding the day on which notice of such
meeting is given, or, if notice is waived, at the close of business on the
day next preceding the day on which the meeting is held.
Each stockholder entitled to vote at any meeting of the stockholders may
authorize not in excess of three persons to act for such stockholder by proxy.
Any such proxy shall be delivered to the secretary of such meeting at or prior
to the time designated for holding such meeting, but in any event not later
than the time designated in the order of business for so delivering such
proxies. No such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
At each meeting of the stockholders, all corporate actions to be taken by
vote of the stockholders (except as otherwise required by law and except as
otherwise provided in the Certificate or these By-laws) shall be authorized by
a majority of the votes cast by the stockholders entitled to vote thereon who
are present in person or represented by proxy, and where a separate vote by
class or series is required, a majority of the votes cast by the stockholders
of such class or series who are present in person or represented by proxy shall
be the act of such class or series.
Unless required by law or determined by the chairman of the meeting to be
advisable, the vote on any matter, including the election of directors, need
not be by written ballot.
SECTION 10. Inspectors. The chairman of the meeting shall appoint two or
more inspectors to act at any meeting of the stockholders. Such inspectors
shall perform such duties as shall be required by law or specified by the
chairman of the meeting. Inspectors need not be stockholders. No director or
nominee for the office of director shall be appointed such inspector.
SECTION 11. Public Announcements. For the purpose of Section 7 of this
Article II and Section 3 of Article III, "public announcement" shall mean
disclosure (i) in a press release reported by the Dow Jones News Service,
Reuters Information Service or any similar or successor news wire service or
(ii) in a communication distributed generally to stockholders and in a document
publicly filed by the Corporation with
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the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of
the Securities Exchange Act of 1934 or any successor provisions thereto.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation shall
be managed by or under the direction of the Board, which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
law or by the Certificate directed or required to be exercised or done by the
stockholders.
SECTION 2. Number, Qualification and Election. Except as otherwise fixed by
or pursuant to the provisions of Article IV of the Certificate relating to the
rights of the holders of any series of Preferred Stock or Series Common Stock
or any class or series of stock having preference over the Common Stock as to
dividends or upon dissolution, liquidation or winding up, subject to Section 15
of this Article III, the number of directors constituting the Whole Board shall
be determined from time to time by the Board and shall initially be 16. The
term "Whole Board" shall mean the total number of authorized directors, whether
or not there exist any vacancies or unfilled previously authorized
directorships.
The directors, other than those who may be elected by the holders of shares
of any series of Preferred Stock or Series Common Stock or any class or series
of stock having a preference over the Common Stock of the Corporation as to
dividends or upon dissolution, liquidation or winding up pursuant to the terms
of Article IV of the Certificate or any resolution or resolutions providing for
the issuance of such stock adopted by the Board, shall be elected by the
stockholders entitled to vote thereon at each annual meeting of the
stockholders, and shall hold office until the next annual meeting of the
stockholders and until each of their successors shall have been duly elected
and qualified.
Each director shall be at least 21 years of age. Directors need not be
stockholders of the Corporation.
In any election of directors, the persons receiving a plurality of the votes
cast, up to the number of directors to be elected in such election, shall be
deemed elected.
A majority of the members of the Board shall be persons determined by the
Board to be eligible to be classified as independent directors. In its
determination of a director's eligibility to be classified as an independent
director pursuant to this Section 2, the Board shall consider, among such other
factors as it may in any case deem relevant, that the director: (i) has not
been employed by the Corporation as an executive officer within the past three
years; (ii) is not a paid adviser or consultant to the Corporation and derives
no financial benefit from any entity as a result of advice or consultancy
provided to the Corporation by such entity; (iii) is not an executive officer,
director or significant stockholder of a significant customer or supplier of
the Corporation; (iv) has no personal services contract with the Corporation;
(v) is not an executive officer or director of a tax-exempt entity receiving a
significant part of its annual contributions from the Corporation; (vi) is not
a member of the immediate family of any director who is not considered an
independent director; and (vii) is free of any other relationship that would
interfere with the exercise of independent judgment by such director.
SECTION 3. Notification of Nominations. Subject to the rights of the holders
of any series of Preferred Stock or Series Common Stock or any class or series
of stock having a preference over the Common Stock as to dividends or upon
dissolution, liquidation or winding up, nominations for the election of
directors may be made by the Board or by any stockholder who is a stockholder
of record at the time of giving of the notice of nomination provided for in
this Section 3 and who is entitled to vote for the election of directors. Any
stockholder of record entitled to vote for the election of directors at a
meeting may nominate persons for election as directors only if timely written
notice of such stockholder's intent to make such nomination is
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given, either by personal delivery or by United States mail, postage prepaid,
to the Secretary. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation (i)
with respect to an election to be held at an annual meeting of the
stockholders, not less than 90 days nor more than 120 days prior to the first
anniversary of the date of the immediately preceding annual meeting; provided,
however, that in the event that the date of the annual meeting is more than 30
days earlier or more than 60 days later than such anniversary date, notice by
the stockholder to be timely must be so delivered or received not earlier than
the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made and (ii) with respect to an election to be held at a special
meeting of the stockholders for the election of directors, not earlier than the
90th day prior to such special meeting and not later than the close of business
on the later of the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees to be elected at such meeting. Each such
notice shall set forth: (a) the name and address of the stockholder who intends
to make the nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the stockholder; (d) such other information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had each nominee been nominated, or intended to be
nominated, by the Board; (e) the consent of each nominee to serve as a director
of the Corporation if so elected; and (f) if the stockholder intends to solicit
proxies in support of such stockholder's nominee(s), a representation to that
effect. The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure or if the
stockholder solicits proxies in favor of such stockholder's nominee(s) without
having made the representation required by the immediately preceding sentence.
Only such persons who are nominated in accordance with the procedures set forth
in this Section 3 shall be eligible to serve as directors of the Corporation.
Notwithstanding anything in the immediately preceding paragraph of this
Section 3 to the contrary, in the event that the number of directors to be
elected to the Board at an annual meeting of the stockholders is increased and
there is no public announcement naming all of the nominees for directors or
specifying the size of the increased Board made by the Corporation at least 90
days prior to the first anniversary of the date of the immediately preceding
annual meeting, a stockholder's notice required by this Section 3 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to or mailed to and received
by the Secretary at the principal executive offices of the Corporation not
later than the close of business on the 10th day following the day on which
such public announcement is first made by the Corporation.
SECTION 4. Quorum and Manner of Acting. Except as otherwise provided by law,
the Certificate or these By-laws, a majority of the Whole Board shall
constitute a quorum for the transaction of business at any meeting of the
Board, and, except as so provided, the vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board. The chairman of the meeting or a majority of the directors present may
adjourn the meeting to another time and place whether or not a quorum is
present. At any adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
called.
SECTION 5. Place of Meeting. Subject to Sections 6 and 7 of this Article
III, the Board may hold its meetings at such place or places within or without
the State of Delaware as the Board may from time to time determine or as shall
be specified or fixed in the respective notices or waivers of notice thereof.
SECTION 6. Regular Meetings. No fewer than six regular meetings per year of
the Board shall be held at such times as the Board shall from time to time by
resolution determine, such meetings to be held
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seriatim (sequentially) in New York City and Northern Virginia. If any day
fixed for a regular meeting shall be a legal holiday under the laws of the
place where the meeting is to be held, the meeting which would otherwise be
held on that day shall be held at the same hour on the next succeeding business
day.
SECTION 7. Special Meetings. Special meetings of the Board shall be held
whenever called by the Chairman of the Board, the Chief Executive Officer or by
a majority of the directors, and shall be held at such place, on such date and
at such time as he or they, as applicable, shall fix.
SECTION 8. Notice of Meetings. Notice of regular meetings of the Board or of
any adjourned meeting thereof need not be given. Notice of each special meeting
of the Board shall be given by overnight delivery service or mailed to each
director, in either case addressed to such director at such director's
residence or usual place of business, at least two days before the day on which
the meeting is to be held or shall be sent to such director at such place by
telecopy or by electronic transmission or be given personally or by telephone,
not later than the day before the meeting is to be held, but notice need not be
given to any director who shall, either before or after the meeting, submit a
waiver of such notice or who shall attend such meeting without protesting,
prior to or at its commencement, the lack of notice to such director. Every
such notice shall state the time and place but need not state the purpose of
the meeting.
SECTION 9. Rules and Regulations. The Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate or
these By-laws for the conduct of its meetings and management of the affairs of
the Corporation as the Board may deem proper.
SECTION 10. Participation in Meeting by Means of Communications
Equipment. Any one or more members of the Board or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other or as otherwise
permitted by law, and such participation in a meeting shall constitute presence
in person at such meeting.
SECTION 11. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board or any committee thereof may be taken without
a meeting if all of the members of the Board or of any such committee consent
thereto in writing or as otherwise permitted by law and, if required by law,
the writing or writings are filed with the minutes or proceedings of the Board
or of such committee.
SECTION 12. Resignations. Any director of the Corporation may at any time
resign by giving written notice to the Board, the Chairman of the Board, the
Chief Executive Officer or the Secretary. Such resignation shall take effect at
the time specified therein or, if the time be not specified therein, upon
receipt thereof; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 13. Vacancies. Subject to the rights of the holders of any series of
Preferred Stock or Series Common Stock or any class or series of stock having a
preference over the Common Stock of the Corporation as to dividends or upon
dissolution, liquidation or winding up, any vacancies on the Board resulting
from death, resignation, removal or other cause shall only be filled by the
Board, and not by the stockholders, by the affirmative vote of a majority of
the remaining directors then in office, even though less than a quorum of the
Board, or by a sole remaining director, and newly created directorships
resulting from any increase in the number of directors, which increase shall be
subject to Section 15 of this Article III, shall only be filled by the Board,
or if not so filled, by the stockholders at the next annual meeting thereof or
at a special meeting called for that purpose in accordance with Section 3 of
Article II of these By-laws. Any director elected in accordance with the
preceding sentence of this Section 13 shall hold office until the next annual
meeting of the stockholders and until such director's successor shall have been
elected and qualified.
SECTION 14. Compensation. Each director, in consideration of such person
serving as a director, shall be entitled to receive from the Corporation such
amount per annum and such fees (payable in cash or
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stock) for attendance at meetings of the Board or of committees of the Board,
or both, as the Board shall from time to time determine. In addition, each
director shall be entitled to receive from the Corporation reimbursement for
the reasonable expenses incurred by such person in connection with the
performance of such person's duties as a director. Nothing contained in this
Section 14 shall preclude any director from serving the Corporation or any of
its subsidiaries in any other capacity and receiving proper compensation
therefor.
SECTION 15. Certain Modifications. Notwithstanding anything to the contrary
contained in these By-laws, the following actions taken either directly or
indirectly by the Board shall require the affirmative vote of not less than 75%
of the Whole Board: (i) any change in the size of the Board; and (ii) any
proposal to amend these By-laws to be submitted to the stockholders of the
Corporation by the Board.
ARTICLE IV
Committees of the Board of Directors
SECTION 1. Establishment of Committees of the Board of Directors; Election
of Members of Committees of the Board of Directors; Functions of Committees of
the Board of Directors
(a) The Corporation shall have four standing committees: the nominating and
governance committee, the audit and finance committee, the compensation
committee and the values and human development committee.
(b) The nominating and governance committee shall have the following powers
and authority: (i) evaluating and recommending director candidates to the
Board, (ii) assessing Board performance not less frequently than every three
years, (iii) recommending director compensation and benefits policy for the
Corporation, (iv) reviewing individual director performance as issues arise,
(v) evaluating and recommending candidates for Chief Executive Officer to the
Board and (vi) periodically reviewing the Corporation's corporate governance
profile. None of the members of the nominating and governance committee shall
be an officer or full-time employee of the Corporation or of any subsidiary or
affiliate of the Corporation.
(c) The audit and finance committee shall have the following powers and
authority: (i) employing independent public accountants to audit the books of
account, accounting procedures and financial statements of the Corporation and
to perform such other duties from time to time as the audit committee may
prescribe, (ii) receiving the reports and comments of the Corporation's
internal auditors and of the independent public accountants employed by the
committee and taking such action with respect thereto as it deems appropriate,
(iii) requesting the Corporation's consolidated subsidiaries and affiliated
companies to employ independent public accountants to audit their respective
books of account, accounting procedures and financial statements, (iv)
requesting the independent public accountants to furnish to the compensation
committee the certifications required under any present or future stock option,
incentive compensation or employee benefit plan of the Corporation, (v)
reviewing the adequacy of internal financial controls, (vi) approving the
accounting principles employed in financial reporting, (vii) approving the
appointment or removal of the Corporation's general auditor, (viii) reviewing
the accounting principles employed in financial reporting, (ix) reviewing and
making recommendations to the Board concerning the financial structure and
financial condition of the Company and its subsidiaries, including annual
budgets, long-term financial plans, corporate borrowings, investments, capital
expenditures, long-term commitments and the issuance of stock and (x) approving
such matters that are consistent with the general financial policies and
direction from time to time determined by the Board. None of the members of the
audit and finance committee shall be an officer or full-time employee of the
Corporation or of any subsidiary or affiliate of the Corporation.
(d) The compensation committee shall have the following powers and
authority: (i) determining and fixing the compensation for all senior officers
of the Corporation and its subsidiaries and divisions that the compensation
committee shall from time to time consider appropriate, as well as all
employees of the Corporation compensated at a rate in excess of such amount per
annum as may be fixed or determined from time to time by the Board, (ii)
performing the duties of the committees of the Board provided for in any
present or future stock option, incentive compensation or employee benefit plan
of the Corporation and (iii) reviewing
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the operations of and policies pertaining to any present or future stock
option, incentive compensation or employee benefit plan of the Corporation that
the compensation committee shall from time to time consider appropriate. None
of the members of the compensation committee shall be an officer or full-time
employee of the Corporation or of any subsidiary or affiliate of the
Corporation.
(e) The values and human development committee shall have the following
powers and authority: (i) developing and articulating the Corporation's core
values, commitments and social responsibilities, (ii) developing strategies for
ensuring the Corporation's involvement in the communities in which it does
business, (iii) establishing a strategy for developing its human resources and
leadership for the future and (iv) finding practical ways to increase workforce
diversity at all levels and to evaluate the Corporation's performance in
advancing the goal of greater workforce diversity.
(f) Any modification to the power and authority of any committee shall
require the affirmative vote of not less than 75% of the Whole Board.
(g) In addition, the Board may, with the affirmative vote of not less than
75% of the Whole Board and in accordance with and subject to the General
Corporation Law of the State of Delaware (the "DGCL"), from time to time
establish additional committees of the Board to exercise such powers and
authorities of the Board, and to perform such other functions, as the Board may
from time to time determine.
(h) The Board may remove a director from a committee, change the size of any
committee or terminate any committee or change the chairmanship of a committee
only with the affirmative vote of not less than 75% of the Whole Board.
(i) The Board may designate one or more directors as new members of any
committee to fill any vacancy on a committee and to fill a vacant chairmanship
of a committee occurring as a result of a member or chairman leaving the
committee, whether through death, resignation, removal or otherwise; provided
that any such designation or any designation by the Board of a director as an
alternate member of any committee in accordance with Section 141(c)(2) of the
DGCL may only be made with the affirmative vote of not less than 75% of the
Whole Board.
SECTION 2. Procedure; Meetings; Quorum. Regular meetings of committees of
the Board, of which no notice shall be necessary, may be held at such times and
places as shall be fixed by resolution adopted by a majority of the authorized
members thereof. Special meetings of any committee of the Board shall be called
at the request of any member thereof. Notice of each special meeting of any
committee of the Board shall be sent by overnight delivery service, or mailed
to each member thereof, in either case addressed to such member at such
member's residence or usual place of business, at least two days before the day
on which the meeting is to be held or shall be sent to such member at such
place by telecopy or by electronic transmission or be given personally or by
telephone, not later than the day before the meeting is to be held, but notice
need not be given to any member who shall, either before or after the meeting,
submit a waiver of such notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of such notice to such
member. Any special meeting of any committee of the Board shall be a legal
meeting without any notice thereof having been given, if all the members
thereof shall be present thereat and no member shall protest the lack of notice
to such member. Notice of any adjourned meeting of any committee of the Board
need not be given. Any committee of the Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate or
these By-laws for the conduct of its meetings as such committee of the Board
may deem proper. A majority of the authorized members of any committee of the
Board shall constitute a quorum for the transaction of business at any meeting,
and the vote of a majority of the members thereof present at any meeting at
which a quorum is present shall be the act of such committee. Each committee of
the Board shall keep written minutes of its proceedings and shall report on
such proceedings to the Board.
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ARTICLE V
Officers
SECTION 1. Number; Term of Office. The officers of the Corporation shall be
elected by the Board and shall consist of: a Chairman of the Board, a Chief
Executive Officer, two Chief Operating Officers, a Chief Financial Officer and
one or more Vice Chairmen and Vice Presidents (including, without limitation,
Assistant, Executive, Senior and Group Vice Presidents) and a Treasurer,
Secretary and Controller and such other officers or agents with such titles and
such duties as the Board may from time to time determine, each to have such
authority, functions or duties as in these By-laws provided or as the Board may
from time to time determine, and each to hold office for such term as may be
prescribed by the Board and until such person's successor shall have been
chosen and shall qualify, or until such person's death or resignation, or until
such person's removal in the manner hereinafter provided. The Chairman of the
Board, the Chief Executive Officer and the Vice Chairmen shall be elected from
among the directors. One person may hold the offices and perform the duties of
any two or more of said officers; provided, however, that no officer shall
execute, acknowledge or verify any instrument in more than one capacity if such
instrument is required by law, the Certificate or these By-laws to be executed,
acknowledged or verified by two or more officers. The Board may require any
officer or agent to give security for the faithful performance of such person's
duties.
SECTION 2. Removal. Subject to Section 14 of this Article V, any officer may
be removed, either with or without cause, by the Board at any meeting thereof
called for the purpose or, except in the case of any officer elected by the
Board or as provided in Section 4 of this Article V, by any superior officer
upon whom such power may be conferred by the Board.
SECTION 3. Resignation. Any officer may resign at any time by giving notice
to the Board, the Chief Executive Officer or the Secretary. Any such
resignation shall take effect at the date of receipt of such notice or at any
later date specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4. Chairman of the Board. The Chairman of the Board shall be an
officer of the Corporation, subject to the control of the Board, and shall
report directly to the Board. The Chairman of the Board shall have supervisory
responsibility over the functional areas of global public policy (particularly
with respect to the Internet), technology policy and future innovation,
venture-type investments and philanthropy, operating and discharging those
responsibilities with the assistance of the following officers reporting
directly to the Chairman of the Board: Kenneth J. Novack, George Vradenburg,
III and William J. Raduchel and their successors (such officers to be appointed
and removed only with the Chairman of the Board's approval or upon action of
the Board), shall play an active role in helping to build and lead the
Corporation, working closely with the Chief Executive Officer to set the
Corporation's strategy, and shall be the co-spokesman for the Corporation along
with the Chief Executive Officer.
SECTION 5. Chief Executive Officer. The Chief Executive Officer shall have
general supervision and direction of the business and affairs of the
Corporation, subject to the control of the Board and the provisions of Section
4 of this Article V, and shall report directly to the Board. The Chief
Executive Officer shall, if present and in the absence of the Chairman of the
Board, preside at meetings of the stockholders and of the Board.
SECTION 6. Chief Operating Officers. Each Chief Operating Officer shall
perform such senior duties in connection with the operations of the Corporation
as the Board or the Chief Executive Officer shall from time to time determine,
and shall report directly to the Chief Executive Officer. Each Chief Operating
Officer, shall, when requested, counsel with and advise the other officers of
the Corporation and shall perform such other duties as may be agreed with the
Chief Executive Officer or as the Board may from time to time determine.
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SECTION 7. Vice Chairmen. Any Vice Chairman shall, when requested, counsel
with and advise the other officers of the Corporation and shall perform such
other duties as he may agree with the Chief Executive Officer or as the Board
may from time to time determine.
SECTION 8. Chief Financial Officer. The Chief Financial Officer shall
perform all the powers and duties of the office of the chief financial officer
and in general have overall supervision of the financial operations of the
Corporation. The Chief Financial Officer shall, when requested, counsel with
and advise the other officers of the Corporation and shall perform such other
duties as he may agree with the Chief Executive Officer or as the Board may
from time to time determine. The Chief Financial Officer shall report directly
to the Chief Executive Officer.
SECTION 9. Vice Presidents. Any Vice President shall have such powers and
duties as shall be prescribed by his superior officer or the Board. A Vice
President shall, when requested, counsel with and advise the other officers of
the Corporation and shall perform such other duties as he may agree with the
Chief Executive Officer or as the Board may from time to time determine. A Vice
President need not be an officer of the Corporation.
SECTION 10. Treasurer. The Treasurer, if one shall have been elected, shall
supervise and be responsible for all the funds and securities of the
Corporation; the deposit of all moneys and other valuables to the credit of the
Corporation in depositories of the Corporation; borrowings and compliance with
the provisions of all indentures, agreements and instruments governing such
borrowings to which the Corporation is a party; the disbursement of funds of
the Corporation and the investment of its funds; and in general shall perform
all of the duties incident to the office of the Treasurer. The Treasurer shall,
when requested, counsel with and advise the other officers of the Corporation
and shall perform such other duties as he may agree with the Chief Executive
Officer or as the Board may from time to time determine.
SECTION 11. Controller. The Controller shall be the chief accounting officer
of the Corporation. The Controller shall, when requested, counsel with and
advise the other officers of the Corporation and shall perform such other
duties as he may agree with the Chief Executive Officer or the Chief Financial
Officer or as the Board may from time to time determine.
SECTION 12. Secretary. It shall be the duty of the Secretary to act as
secretary at all meetings of the Board, of the committees of the Board and of
the stockholders and to record the proceedings of such meetings in a book or
books to be kept for that purpose; the Secretary shall see that all notices
required to be given by the Corporation are duly given and served; the
Secretary shall be custodian of the seal of the Corporation and shall affix the
seal or cause it to be affixed to all certificates of stock of the Corporation
(unless the seal of the Corporation on such certificates shall be a facsimile,
as hereinafter provided) and to all documents, the execution of which on behalf
of the Corporation under its seal is duly authorized in accordance with the
provisions of these By-laws; the Secretary shall have charge of the books,
records and papers of the Corporation and shall see that the reports,
statements and other documents required by law to be kept and filed are
properly kept and filed; and in general shall perform all of the duties
incident to the office of Secretary. The Secretary shall, when requested,
counsel with and advise the other officers of the Corporation and shall perform
such other duties as he may agree with the Chief Executive Officer or as the
Board may from time to time determine.
SECTION 13. Assistant Treasurers and Assistant Secretaries. Any Assistant
Treasurers and Assistant Secretaries shall perform such duties as shall be
assigned to them by the Board. Any Assistant Treasurer or Assistant Secretary
shall perform such duties as shall be assigned to them by the Treasurer or
Secretary, respectively, or by the Chief Executive Officer.
SECTION 14. Certain Actions. Notwithstanding anything to the contrary
contained in these By-laws, until December 31, 2003: (i) the removal of Gerald
M. Levin from the office of Chief Executive Officer, any modification to the
provisions of his employment contract which provide for his term of office or
any
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modification to the role, duties, authority or reporting line of the Chief
Executive Officer and (ii) the removal of Stephen M. Case from the office of
Chairman of the Board, any modification to the role, duties, authority or
reporting line of the Chairman of the Board, each shall require the affirmative
vote of 75% of the Whole Board. From and after the end of the period set forth
in the preceding sentence, any of the actions set forth in the immediately
preceding sentence may be taken upon the affirmative vote of the number of
directors which shall constitute, under the terms of these By-laws, the action
of the Board.
ARTICLE VI
Indemnification
SECTION 1. Right to Indemnification. The Corporation, to the fullest extent
permitted or required by the DGCL or other applicable law, as the same exists
or may hereafter be amended (but, in the case of any such amendment and unless
applicable law otherwise requires, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment), shall indemnify
and hold harmless any person who is or was a director or officer of the
Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, any action, suit or proceedings by or in the
right of the Corporation to procure a judgment in its favor) (a "Proceeding")
by reason of the fact that such person is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including, without
limitation, any employee benefit plan) (a "Covered Entity") against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such Proceeding; provided, however, that the foregoing shall not apply to a
director or officer of the Corporation with respect to a Proceeding that was
commenced by such director or officer unless the proceeding was commenced after
a Change in Control (as hereinafter defined in Section 4(e) of this Article
VI). Any director or officer of the Corporation entitled to indemnification as
provided in this Section 1 is hereinafter called an "Indemnitee". Any right of
an Indemnitee to indemnification shall be a contract right and shall include
the right to receive, prior to the conclusion of any Proceeding, payment of any
expenses incurred by the Indemnitee in connection with such Proceeding,
consistent with the provisions of applicable law as then in effect and the
other provisions of this Article VI.
SECTION 2. Insurance, Contracts and Funding. The Corporation may purchase
and maintain insurance to protect itself and any director, officer, employee or
agent of the Corporation or of any Covered Entity against any expenses,
judgments, fines and amounts paid in settlement as specified in Section 1 of
this Article VI or incurred by any such director, officer, employee or agent in
connection with any Proceeding referred to in Section 1 of this Article VI,
whether or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the DGCL. The Corporation may
enter into contracts with any director, officer, employee or agent of the
Corporation or of any Covered Entity in furtherance of the provisions of this
Article VI and may create a trust fund, grant a security interest or use other
means (including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided or
authorized in this Article VI.
SECTION 3. Indemnification Not Exclusive Right. The right of indemnification
provided in this Article VI shall not be exclusive of any other rights to which
an Indemnitee may otherwise be entitled, and the provisions of this Article VI
shall inure to the benefit of the heirs and legal representatives of any
Indemnitee under this Article VI and shall be applicable to Proceedings
commenced or continuing after the adoption of this Article VI, whether arising
from acts or omissions occurring before or after such adoption.
SECTION 4. Advancement of Expenses; Procedures; Presumptions and Effect of
Certain Proceedings; Remedies. In furtherance, but not in limitation of the
foregoing provisions, the following
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procedures, presumptions and remedies shall apply with respect to advancement
of expenses and the right to indemnification under this Article VI:
(a) Advancement of Expenses. All reasonable expenses (including
attorneys' fees) incurred by or on behalf of the Indemnitee in connection
with any Proceeding shall be advanced to the Indemnitee by the Corporation
within 20 days after the receipt by the Corporation of a statement or
statements from the Indemnitee requesting such advance or advances from
time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall
reasonably evidence the expenses incurred by the Indemnitee and, if
required by law at the time of such advance, shall include or be
accompanied by an undertaking by or on behalf of the Indemnitee to repay
the amounts advanced if ultimately it should be determined that the
Indemnitee is not entitled to be indemnified against such expenses pursuant
to this Article VI.
(b) Procedure for Determination of Entitlement to
Indemnification. (i) To obtain indemnification under this Article VI, an
Indemnitee shall submit to the Secretary a written request, including such
documentation and information as is reasonably available to the Indemnitee
and reasonably necessary to determine whether and to what extent the
Indemnitee is entitled to indemnification (the "Supporting Documentation").
The determination of the Indemnitee's entitlement to indemnification shall
be made not later than 60 days after receipt by the Corporation of the
written request for indemnification together with the Supporting
Documentation. The Secretary shall, promptly upon receipt of such a request
for indemnification, advise the Board in writing that the Indemnitee has
requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under this Article
VI shall be determined in one of the following ways: (A) by a majority vote
of the Disinterested Directors (as hereinafter defined in Section 4(e) of
this Article VI), whether or not they constitute a quorum of the Board, or
by a committee of Disinterested Directors designated by a majority vote of
the Disinterested Directors; (B) by a written opinion of Independent
Counsel (as hereinafter defined in Section 4(e) of this Article VI) if (x)
a Change in Control shall have occurred and the Indemnitee so requests or
(y) there are no Disinterested Directors or a majority of such
Disinterested Directors so directs; (C) by the stockholders of the
Corporation; or (D) as provided in Section 4(c) of this Article VI.
(iii) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 4(b)(ii) of this
Article VI, a majority of the Disinterested Directors shall select the
Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object; provided, however, that if a Change
in Control shall have occurred, the Indemnitee shall select such
Independent Counsel, but only an Independent Counsel to which a majority of
the Disinterested Directors does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Article VI, if a Change in Control shall have
occurred, the Indemnitee shall be presumed to be entitled to
indemnification under this Article VI (with respect to actions or omissions
occurring prior to such Change in Control) upon submission of a request for
indemnification together with the Supporting Documentation in accordance
with Section 4(b)(i) of this Article VI, and thereafter the Corporation
shall have the burden of proof to overcome that presumption in reaching a
contrary determination. In any event, if the person or persons empowered
under Section 4(b) of this Article VI to determine entitlement to
indemnification shall not have been appointed or shall not have made a
determination within 60 days after receipt by the Corporation of the
request therefor, together with the Supporting Documentation, the
Indemnitee shall be deemed to be, and shall be, entitled to indemnification
unless (A) the Indemnitee misrepresented or failed to disclose a material
fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. The
termination of any Proceeding described in Section 1 of this Article VI, or
of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, adversely affect the right of the Indemnitee to indemnification
or create a presumption that the Indemnitee did not act in good faith and
in a manner which the Indemnitee reasonably believed to be in or not
opposed to the best interests of the
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Corporation or, with respect to any criminal proceeding, that the
Indemnitee had reasonable cause to believe that such conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is
made pursuant to Section 4(b) of this Article VI that the Indemnitee is not
entitled to indemnification under this Article VI, (A) the Indemnitee shall
be entitled to seek an adjudication of entitlement to such indemnification
either, at the Indemnitee's sole option, in (x) an appropriate court of the
State of Delaware or any other court of
competent jurisdiction or (y) an arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association;
(B) any such judicial proceeding or arbitration shall be de novo and the
Indemnitee shall not be prejudiced by reason of such adverse determination;
and (C) if a Change in Control shall have occurred, in any such judicial
proceeding or arbitration, the Corporation shall have the burden of proving
that the Indemnitee is not entitled to indemnification under this Article
VI (with respect to actions or omissions occurring prior to such Change in
Control).
(ii) If a determination shall have been made or deemed to have been
made, pursuant to Section 4(b) or (c) of this Article VI, that the
Indemnitee is entitled to indemnification, the Corporation shall be
obligated to pay the amounts constituting such indemnification within five
days after such determination has been made or deemed to have been made and
shall be conclusively bound by such determination unless (A) the Indemnitee
misrepresented or failed to disclose a material fact in making the request
for indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law. In the event that (X) advancement of
expenses is not timely made pursuant to Section 4(a) of this Article VI or
(Y) payment of indemnification is not made within five days after a
determination of entitlement to indemnification has been made or deemed to
have been made pursuant to Section 4(b) or (c) of this Article VI, the
Indemnitee shall be entitled to seek judicial enforcement of the
Corporation's obligation to pay to the Indemnitee such advancement of
expenses or indemnification. Notwithstanding the foregoing, the Corporation
may bring an action, in an appropriate court in the State of Delaware or
any other court of competent jurisdiction, contesting the right of the
Indemnitee to receive indemnification hereunder due to the occurrence of an
event described in sub-clause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 4(d) that the
procedures and presumptions of this Article VI are not valid, binding and
enforceable and shall stipulate in any such court or before any such
arbitrator that the Corporation is bound by all the provisions of this
Article VI.
(iv) In the event that the Indemnitee, pursuant to this Section 4(d),
seeks a judicial adjudication of or an award in arbitration to enforce
rights under, or to recover damages for breach of, this Article VI, the
Indemnitee shall be entitled to recover from the Corporation, and shall be
indemnified by the Corporation against, any expenses actually and
reasonably incurred by the Indemnitee if the Indemnitee prevails in such
judicial adjudication or arbitration. If it shall be determined in such
judicial adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or advancement of expenses
sought, the expenses incurred by the Indemnitee in connection with such
judicial adjudication or arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Section 4:
(i) "Authorized Officer" means any one of the Chief Executive
Officer, any Chief Operating Officer, the Chief Financial Officer, any
Vice President or the Secretary of the Corporation.
(ii) "Change in Control" means the occurrence of any of the
following (w) any merger or consolidation of the Corporation in which
the Corporation is not the continuing or surviving corporation or
pursuant to which shares of the Corporation's Common Stock would be
converted into cash, securities or other property, other than a merger
of the Corporation in which the holders of the Corporation's Common
Stock immediately prior to the merger have the same proportionate
ownership
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of common stock of the surviving corporation immediately after the
merger, (x) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or
substantially all, the assets of the Corporation, or the liquidation or
dissolution of the Corporation or (y) individuals who would constitute
a majority of the members of the Board elected at any meeting of
stockholders or by written consent (without regard to any members of
the Board elected pursuant to the terms of any series of Preferred
Stock) shall be elected to the Board and the election or the nomination
for election by the stockholders of such directors was not approved by
a vote of at least two-thirds of the directors in office immediately
prior to such election.
(iii) "Disinterested Director" means a director of the Corporation
who is not or was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.
(iv) "Independent Counsel" means a law firm or a member of a law
firm that neither presently is, nor in the past five years has been,
retained to represent: (x) the Corporation or the Indemnitee in any
matter material to either such party or (y) any other party to the
Proceeding giving rise to a claim for indemnification under this
Article VI. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing under the law of the
State of Delaware, would have a conflict of interest in representing
either the Corporation or the Indemnitee in an action to determine the
Indemnitee's rights under this Article VI.
SECTION 5. Severability. If any provision or provisions of this Article VI
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article VI (including, without limitation, all portions of
any paragraph of this Article VI containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article VI (including,
without limitation, all portions of any paragraph of this Article VI containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or enforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
SECTION 6. Indemnification of Employees Serving as Directors. The
Corporation, to the fullest extent of the provisions of this Article VI with
respect to the indemnification of directors and officers of the Corporation,
shall indemnify any person who is or was an employee of the Corporation and who
is or was involved in any manner (including, without limitation, as a party or
a witness) or is threatened to be made so involved in any threatened, pending
or completed Proceeding by reason of the fact that such employee is or was
serving (a) as a director of a corporation in which the Corporation had at the
time of such service, directly or indirectly, a 50% or greater equity interest
(a "Subsidiary Director") and (b) at the written request of an Authorized
Officer, as a director of another corporation in which the Corporation had at
the time of such service, directly or indirectly, a less than 50% equity
interest (or no equity interest at all) or in a capacity equivalent to that of
a director for any partnership, joint venture, trust or other enterprise
(including, without limitation, any employee benefit plan) in which the
Corporation has an interest (a "Requested Employee"), against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such Subsidiary Director or Requested
Employee in connection with such Proceeding. The Corporation may also advance
expenses incurred by any such Subsidiary Director or Requested Employee in
connection with any such Proceeding, consistent with the provisions of this
Article VI with respect to the advancement of expenses of directors and
officers of the Corporation.
SECTION 7. Indemnification of Employees and Agents. Notwithstanding any
other provision or provisions of this Article VI, the Corporation, to the
fullest extent of the provisions of this Article VI with respect to the
indemnification of directors and officers of the Corporation, may indemnify any
person other than a director or officer of the Corporation, a Subsidiary
Director or a Requested Employee, who is or was an employee or agent of the
Corporation and who is or was involved in any manner (including, without
limitation,
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as a party or a witness) or is threatened to be made so involved in any
threatened, pending or completed Proceeding by reason of the fact that such
person is or was a director, officer, employee or agent of the Corporation or
of a Covered Entity against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such Proceeding. The Corporation may
also advance expenses incurred by such employee or agent in connection with any
such Proceeding, consistent with the provisions of this Article VI with respect
to the advancement of expenses of directors and officers of the Corporation.
ARTICLE VII
Capital Stock
SECTION 1. Certificates for Shares. The shares of stock of the Corporation
shall be represented by certificates, or shall be uncertificated shares that
may be evidenced by a book-entry system maintained by the registrar of such
stock, or a combination of both. To the extent that shares are represented by
certificates, such certificates whenever authorized by the Board, shall be in
such form as shall be approved by the Board. The certificates representing
shares of stock of each class shall be signed by, or in the name of, the
Corporation by the Chairman of the Board and the Chief Executive Officer, or by
any Vice President and by the Secretary or any Assistant Secretary or the
Treasurer or any Assistant Treasurer of the Corporation, and sealed with the
seal of the Corporation, which may be a facsimile thereof. Any or all such
signatures may be facsimiles if countersigned by a transfer agent or registrar.
Although any officer, transfer agent or registrar whose manual or facsimile
signature is affixed to such a certificate ceases to be such officer, transfer
agent or registrar before such certificate has been issued, it may nevertheless
be issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still such at the date of its issue.
The stock ledger and blank share certificates shall be kept by the Secretary
or by a transfer agent or by a registrar or by any other officer or agent
designated by the Board.
SECTION 2. Transfer of Shares. Transfers of shares of stock of each class of
the Corporation shall be made only on the books of the Corporation upon
authorization by the registered holder thereof, or by such holder's attorney
thereunto authorized by a power of attorney duly executed and filed with the
Secretary or a transfer agent for such stock, if any, and if such shares are
represented by a certificate, upon surrender of the certificate or certificates
for such shares properly endorsed or accompanied by a duly executed stock
transfer power (or by proper evidence of succession, assignment or authority to
transfer) and the payment of any taxes thereon; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful restriction
on transfer. The person in whose name shares are registered on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation; provided, however, that whenever any transfer of shares shall be
made for collateral security and not absolutely, and written notice thereof
shall be given to the Secretary or to such transfer agent, such fact shall be
stated in the entry of the transfer. No transfer of shares shall be valid as
against the Corporation, its stockholders and creditors for any purpose, except
to render the transferee liable for the debts of the Corporation to the extent
provided by law, until it shall have been entered in the stock records of the
Corporation by an entry showing from and to whom transferred.
SECTION 3. Registered Stockholders and Addresses of Stockholders. The
Corporation shall be entitled to recognize the exclusive right of a person
registered on its records as the owner of shares of stock to receive dividends
and to vote as such owner, shall be entitled to hold liable for calls and
assessments a person registered on its records as the owner of shares of stock,
and shall not be bound to recognize any equitable or other claim to or interest
in such share or shares of stock on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
Each stockholder shall designate to the Secretary or transfer agent of the
Corporation an address at which notices of meetings and all other corporate
notices may be given to such person, and, if any stockholder shall
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fail to designate such address, corporate notices may be given to such person
by mail directed to such person at such person's post office address, if any,
as the same appears on the stock record books of the Corporation or at such
person's last known post office address.
SECTION 4. Lost, Destroyed and Mutilated Certificates. The holder of any
certificate representing any shares of stock of the Corporation shall
immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate; the Corporation may issue to such holder a new
certificate or certificates for shares, upon the surrender of the mutilated
certificate or, in the case of loss, theft or destruction of the certificate,
upon satisfactory proof of such loss, theft or destruction; the Board, or a
committee designated
thereby, or the transfer agents and registrars for the stock, may, in their
discretion, require the owner of the lost, stolen or destroyed certificate, or
such person's legal representative, to give the Corporation a bond in such sum
and with such surety or sureties as they may direct to indemnify the
Corporation and said transfer agents and registrars against any claim that may
be made on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 5. Regulations. The Board may make such additional rules and
regulations as it may deem expedient concerning the issue, transfer and
registration of certificated or uncertificated shares of stock of each class
and series of the Corporation and may make such rules and take such action as
it may deem expedient concerning the issue of certificates in lieu of
certificates claimed to have been lost, destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of Stockholders of Record. In order
that the Corporation may determine the stockholders entitled to notice of or to
vote at any meeting of the stockholders or any adjournment thereof, or entitled
to receive payment of any dividend or other distribution or allotment or any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board
may fix, in advance, a record date, which shall not be more than 60 days nor
less than 10 days before the date of such meeting, nor more than 60 days prior
to any other action. A determination of stockholders entitled to notice of or
to vote at a meeting of the stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
SECTION 7. Transfer Agents and Registrars. The Board may appoint, or
authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
ARTICLE VIII
Seal
The Board shall provide a suitable corporate seal, which shall be in the
form of a circle and shall bear the full name of the Corporation and shall be
in the charge of the Secretary. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any other manner reproduced.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall end on the 31st day of December in
each year.
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ARTICLE X
Waiver of Notice
Whenever any notice whatsoever is required to be given by these By-laws, by
the Certificate or by law, the person entitled thereto may, either before or
after the meeting or other matter in respect of which such notice is to be
given, waive such notice in writing or as otherwise permitted by law, which
shall be filed with or entered upon the records of the meeting or the records
kept with respect to such other matter, as the case may be, and in such event
such notice need not be given to such person and such waiver shall be deemed
equivalent to such notice.
ARTICLE XI
Amendments
These By-laws may be altered, amended or repealed, in whole or in part, or
new By-laws may be adopted by the stockholders or by the Board at any meeting
thereof; provided, however, that notice of such alteration, amendment, repeal
or adoption of new By-laws is contained in the notice of such meeting of the
stockholders or in the notice of such meeting of the Board and, in the latter
case, such notice is given not less than twenty-four hours prior to the
meeting. Unless a higher percentage is required by the Certificate, all such
amendments must be approved by either the holders of 80% or more of the
combined voting power of the outstanding shares of all classes and series of
capital stock of the Corporation entitled generally to vote in the election of
directors of the Corporation, voting as a single class, or by a majority of the
Board; provided, however, that, notwithstanding the foregoing, until December
31, 2003, the Board may not alter, amend or repeal, or adopt new By-laws in
conflict with, or recommend any such action to stockholders, (i) any provision
of these By-laws which requires a 75% vote of the Whole Board for action to be
taken thereunder or (ii) this Article XI, without the affirmative vote of not
less than 75% of the Whole Board.
ARTICLE XII
Miscellaneous
SECTION 1. Execution of Documents. The Board or any committee thereof shall
designate the officers, employees and agents of the Corporation who shall have
power to execute and deliver deeds, contracts, mortgages, bonds, debentures,
notes, checks, drafts and other orders for the payment of money and other
documents for and in the name of the Corporation and may authorize (including
authority to redelegate) by written instrument to other officers, employees or
agents of the Corporation. Such delegation may be by resolution or otherwise
and the authority granted shall be general or confined to specific matters, all
as the Board or any such committee may determine. In the absence of such
designation referred to in the first sentence of this Section, the officers of
the Corporation shall have such power so referred to, to the extent incident to
the normal performance of their duties.
SECTION 2. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation or
otherwise as the Board or any committee thereof or any officer of the
Corporation to whom power in respect of financial operations shall have been
delegated by the Board or any such committee or in these By-laws shall select.
SECTION 3. Checks. All checks, drafts and other orders for the payment of
money out of the funds of the Corporation, and all notes or other evidences of
indebtedness of the Corporation, shall be signed on behalf of the Corporation
in such manner as shall from time to time be determined by resolution of the
Board or of any committee thereof or by any officer of the Corporation to whom
power in respect of financial operations shall have been delegated by the Board
or any such committee thereof or as set forth in these By-laws.
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SECTION 4. Proxies in Respect of Stock or Other Securities of Other
Corporations. The Board or any committee thereof shall designate the officers
of the Corporation who shall have authority from time to time to appoint an
agent or agents of the Corporation to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities in any other corporation or other entity, and to
vote or consent in respect of such stock or securities; such designated
officers may instruct the person or persons so appointed as to the manner of
exercising such powers and rights; and such designated officers may execute or
cause to be executed in the name and on behalf of the Corporation and under its
corporate seal, or otherwise, such written proxies, powers of attorney or other
instruments as they may deem necessary or proper in order that the Corporation
may exercise its said powers and rights.
SECTION 5. Subject to Law and Certificate of Incorporation. All powers,
duties and responsibilities provided for in these By-laws, whether or not
explicitly so qualified, are qualified by the provisions of the Certificate and
applicable laws.
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ANNEX I
DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ((S)) 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one (1) or more shares, or fractions
thereof, solely of stock of a corporation, which stock is deposited with the
depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ((S)) 251 (other than a merger effected pursuant to ((S))
251(g) of this title), ((S)) 252, ((S)) 254, ((S)) 257, ((S)) 258, ((S)) 263 or
((S)) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of ((S)) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
((S))((S)) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a, b and c of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ((S)) 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
I-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ((S)) 228 or
((S)) 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten 10 days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given
I-2
<PAGE>
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not
entitled to appraisal rights under this section.
I-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
I-4
<PAGE>
Please Vote Today
For this historic merger to happen, we need a majority vote
from our stockholders. If you don't send in your vote, it
has the same effect as voting against the merger.
Time Warner Stockholder Meeting
June 23, 2000, 10:00 a.m.
Time & Life Building
1271 Avenue of the Americas
New York, NY
America Online Stockholder Meeting
June 23, 2000, 10:00 a.m.
Sheraton Premiere at Tysons Corner
8661 Leesburg Pike
Vienna, Virginia
The America Online Stockholder Meeting
will be broadcast live on the Internet at
http://www.corp.aol.com/investors.shtml?
Driving directions to America Online stockholder meeting
at Sheraton Premier at Tysons Corner:
From the Capital Beltway:
Take I-495 (the Capital Beltway) to exit #10, Leesburg Pike (Route 7), headed
west. Follow Leesburg Pike west about 2 miles and turn left on Westwood Center
Drive. Make an immediate right onto the service road, and follow the service
road to the hotel.
From Reagan National Airport:
Exit the airport onto George Washington Memorial Parkway, headed north. Follow
signs for I-66 West. Take I-66 West to exit #66B, the exit for Leesburg Pike
(Route 7). Follow Leesburg Pike west for about 3 miles, and turn left on
Westwood Center Drive. Make an immediate right onto the service road, and
follow the service road to the hotel.
Looney Tunes characters, names, and all related indicia are (TM) &
(C) 2000 Warner Bros., a division of Time Warner Ent. Co.
<PAGE>
Back Cover Of The Joint Proxy Statement-Prospectus
VOTE
NOW
[America Online, Inc. Logo] [Time Warner Inc. Logo]
[graphic: circle [graphic: circle [graphic: circle
with check mark] with check mark] with check mark]
By Mail By Phone By Internet
3860-SPS-00
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall
have the power to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, other
than an action by or in the right of the corporation, because the person is or
was a director or officer of the corporation. Such indemnity may be against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding, if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and if, with respect to any criminal action or
proceeding, the person did not have reasonable cause to believe the person's
conduct was unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the
corporation, against any expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or settlement
of such action or suit if the person acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
be indemnified for such expenses which the Court of Chancery or such other
court shall deem proper.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf
of any person who is or was a director or officer of the corporation against
any liability asserted against the person in any such capacity, or arising out
of the person's status as such, whether or not the corporation would have the
power to indemnify the person against such liability under the provisions of
the law.
Article VII of the Registrant's By-laws requires indemnification to the
fullest extent permitted under Delaware law of any person who is or was a
director or officer of the Registrant who is or was involved or threatened to
be made so involved in any proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was serving as a
director, officer, employee or agent of the Registrant or was serving at the
request of the Registrant as a director, officer, employee or agent of any
other enterprise.
The foregoing statements are subject to the detailed provisions of Section
145 of the Delaware Corporation Law and Article VII of the By-laws of the
Registrant.
Item 21. Exhibits and Financial Statement Schedules.
(a) The following exhibits are filled herewith or incorporated herein by
reference:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*2.1 Second Amended and Restated Agreement and Plan of Merger, dated as
of January 10, 2000, among America Online, Inc., Time Warner
Inc., America Online Merger Sub Inc. and Time Warner Merger Sub
Inc. including the Stock Option Agreements and the Amended and
Restated Voting Agreement (included as Annexes A, B, C and D
respectively, to the joint proxy statement-prospectus forming a
part of this Registration Statement and incorporated herein by
reference).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Form of Restated Certificate of Incorporation of the Registrant
(included as Annex G to the joint proxy statement-prospectus
forming a part of this Registration Statement and incorporated
herein by reference).
3.3 Certificate of Designation of Series LMC Common Stock of the
Registrant.
3.4 Certificate of Designation of Series LMCN-V Common Stock of the
Registrant.
3.5 Certificate of Designation of Series E Preferred Stock of the
Registrant.
3.6 Certificate of Designation of Series F Preferred Stock of the
Registrant.
3.7 Certificate of Designation of Series I Preferred Stock of the
Registrant.
3.8 Certificate of Designation of Series J Preferred Stock of the
Registrant.
*3.9 By-laws of the Registrant.
*3.10 Form of Restated By-laws of the Registrant (included as Annex H to
the joint proxy statement-prospectus forming part of this
Registration Statement and incorporated herein by reference).
4.1 No instrument which defines the rights of holders of long term
debt of the registrant and its consolidated subsidiaries is filed
herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this Regulation, the registrant hereby agrees to
furnish a copy of any such instrument to the Commission upon
request.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality of securities being registered.
8.1 Opinion of Simpson Thacher & Bartlett regarding certain U.S.
income tax aspects of the merger.
8.2 Opinion of Cravath, Swaine & Moore regarding certain U.S. income
tax aspects of the merger.
*23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included as part of its opinion filed as Exhibit 5.1 and
incorporated herein by reference).
23.2 Consents of Ernst & Young LLP.
23.3 Consent of Cravath, Swaine & Moore (included as part of its
opinion filed as Exhibit 8.2 and incorporated herein by
reference).
23.4 Consent of Simpson Thacher & Bartlett (included as part of its
opinion filed as Exhibit 8.1 and incorporated herein by
reference).
*23.5 Consent of Salomon Smith Barney Inc.
*23.6 Consent of Morgan Stanley & Co. Incorporated.
*24.1 Powers of Attorney (included on the signature page of this Form S-
4 and incorporated herein by reference).
*99.1 Opinion of Salomon Smith Barney Inc. (included as Annex E to the
joint proxy statement-prospectus forming a part of this
Registration Statement and incorporated herein by reference).
*99.2 Opinion of Morgan Stanley & Co. Incorporated (included as Annex F
to the joint proxy statement-prospectus forming a part of this
Registration Statement and incorporated herein by reference).
99.3 Form of Proxy of America Online, Inc.
99.4 Form of Common Stock Proxy of Time Warner Inc.
99.5 Form of Preferred Stock Proxy of Time Warner Inc.
99.6 Form of Voting Instructions for participants in benefit plans of
Time Warner Inc. and its subsidiaries.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*99.7 Consent of Stephen M. Case to be named a director (previously
filed as Exhibit 99.5 and incorporated herein by reference).
*99.8 Consent of R.E. Turner to be named a director (previously filed as
Exhibit 99.6 and incorporated herein by reference).
*99.9 Consent of Gerald M. Levin to be named a director (previously
filed as Exhibit 99.7 and incorporated herein by reference).
*99.10 Consent of Robert W. Pittman to be named a director (previously
filed as Exhibit 99.8 and incorporated herein by reference).
*99.11 Consent of Richard D. Parsons to be named a director (previously
filed as Exhibit 99.9 and incorporated herein by reference).
99.12 Consent of Kenneth J. Novack to be named a director.
99.13 Consent of Stephen F. Bollenbach to be named a director.
99.14 Consent of Carla A. Hills to be named a director.
99.15 Consent of Reuben Mark to be named a director.
99.16 Consent of Michael A. Miles to be named a director.
99.17 Consent of Francis T. Vincent, Jr. to be named a director.
</TABLE>
- --------
* Previously filed.
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement, or the most recent
post-effective amendment thereof, which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of any such request, and to send
the incorporated documents by first class mail or other equally prompt
means, including information contained in documents filed after the
effective date of this registration statement through the date of
responding to such request.
(8) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. If a claim of
indemnification against such liabilities, other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a successful defense of any action, suit or
proceeding, is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on May 18, 2000.
AOL Time Warner Inc.
/s/ J. Michael Kelly
By: _________________________________
Name: J. Michael Kelly
Title: Executive Vice President
and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer May 18, 2000
______________________________________ (principal executive
Gerald M. Levin officer)
/s/ J. Michael Kelly Chief Financial Officer, May 18, 2000
______________________________________ Executive Vice President
J. Michael Kelly (principal financial and
accounting officer) and
Director
/s/ Christopher P. Bogart Vice President and May 18, 2000
______________________________________ Director
Christopher P. Bogart
* Director May 18, 2000
______________________________________
Richard J. Bressler
** Vice President and May 18, 2000
______________________________________ Director
Paul T. Cappuccio
</TABLE>
/s/ Christopher P.
Bogart
*By: ____________________________
Christopher P. Bogart
Attorney-in-fact
/s/ J. Michael Kelly
**By: ___________________________
J. Michael Kelly
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*2.1 Second Amended and Restated Agreement and Plan of Merger, dated as
of January 10, 2000, among America Online, Inc., Time Warner
Inc., America Online Merger Sub Inc. and Time Warner Merger Sub
Inc. including the Stock Option Agreements and the Amended and
Restated Voting Agreement (included as Annexes A, B, C and D
respectively, to the joint proxy statement- prospectus forming a
part of this Registration Statement and incorporated herein by
reference).
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Form of Restated Certificate of Incorporation of the Registrant
(included as Annex G to the joint proxy statement-prospectus
forming a part of this Registration Statement and incorporated
herein by reference).
3.3 Certificate of Designation of Series LMC Common Stock of the
Registrant.
3.4 Certificate of Designation of Series LMCN-V Common Stock of the
Registrant.
3.5 Certificate of Designation of Series E Preferred Stock of the
Registrant.
3.6 Certificate of Designation of Series F Preferred Stock of the
Registrant.
3.7 Certificate of Designation of Series I Preferred Stock of the
Registrant.
3.8 Certificate of Designation of Series J Preferred Stock of the
Registrant.
*3.9 By-laws of the Registrant.
*3.10 Form of Restated By-laws of the Registrant (included as Annex H to
the joint proxy statement-prospectus forming a part of this
Registration Statement and incorporated herein by reference).
4.1 No instrument which defines the rights of holders of long term
debt of the registrant and its consolidated subsidiaries is filed
herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A).
Pursuant to this Regulation, the registrant hereby agrees to
furnish a copy of any such instrument to the Commission upon
request.
*5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding legality of securities being registered.
8.1 Opinion of Simpson Thacher & Bartlett regarding certain U.S.
income tax aspects of the merger.
8.2 Opinion of Cravath, Swaine & Moore regarding certain U.S. income
tax aspects of the merger.
*23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included as part of its opinions filed as Exhibit 5.1 and
incorporated herein by reference).
23.2 Consents of Ernst & Young LLP.
23.3 Consent of Cravath, Swaine & Moore (included as part of its
opinion filed as Exhibit 8.2 and incorporated herein by
reference).
23.4 Consent of Simpson Thacher & Bartlett (included as part of its
opinion filed as Exhibit 8.1 and incorporated herein by
reference).
*23.5 Consent of Salomon Smith Barney Inc.
*23.6 Consent of Morgan Stanley & Co. Incorporated.
*24.1 Powers of Attorney (included on the signature page of this Form S-
4 and incorporated herein by reference).
*99.1 Opinion of Salomon Smith Barney Inc. (included as Annex E to the
joint proxy statement-prospectus forming a part of this
Registration Statement and incorporated herein by reference).
*99.2 Opinion of Morgan Stanley & Co. Incorporated (included as Annex F
to the joint proxy statement-prospectus forming a part of this
Registration Statement and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
99.3 Form of Proxy of America Online, Inc.
99.4 Form of Common Stock Proxy of Time Warner Inc.
99.5 Form of Preferred Stock Proxy of Time Warner Inc.
99.6 Form of Voting Instructions for participants in benefit plans of
Time Warner Inc. and its subsidiaries.
*99.7 Consent of Stephen M. Case to be named a director (previously
filed as Exhibit 99.5 and incorporated herein by reference).
*99.8 Consent of R.E. Turner to be named a director (previously filed as
Exhibit 99.6 and incorporated herein by reference).
*99.9 Consent of Gerald M. Levin to be named a director (previously
filed as Exhibit 99.7 and incorporated herein by reference).
*99.10 Consent of Robert W. Pittman to be named a director (previously
filed as Exhibit 99.8 and incorporated herein by reference).
*99.11 Consent of Richard D. Parsons to be named a director (previously
filed as Exhibit 99.9 and incorporated herein by reference).
99.12 Consent of Kenneth J. Novack to be named a director.
99.13 Consent of Stephen F. Bollenbach to be named a director.
99.14 Consent of Carla A. Hills to be named a director.
99.15 Consent of Reuben Mark to be named a director.
99.16 Consent of Michael A. Miles to be named a director.
99.17 Consent of Francis T. Vincent, Jr. to be named a director.
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF SERIES LMC COMMON STOCK
OF
AOL TIME WARNER INC.
-------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-------------------------------
AOL Time Warner Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that the following resolution was duly adopted by action of the
Board of Directors of the Corporation (the "Board of Directors") at a meeting
duly held on [ ], 2000.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 3 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Series Common Stock, par value $0.01 per share ("Series Common Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Series Common Stock, and hereby fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of the
shares of such series as follows:
The series of Series Common Stock hereby established shall consist of
210,000,000 shares designated as Series LMC Common Stock. The number of shares
constituting such series may be increased or decreased (but not below the number
of shares then outstanding) from time to time by a resolution or resolutions of
the Board of Directors of the Corporation.
<PAGE>
2
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.2 "Capital Stock" shall mean any and all shares of corporate stock
of a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, or any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.3 "Certificate" shall mean the Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating, Optional or Other Special
Rights, and Qualifications, Limitations or Restrictions Thereof, of Series LMC
Common Stock filed with the Secretary of State of the State of Delaware pursuant
to Section 151 of the DGCL, as amended from time to time.
1.4 "Closing Price" of the Common Stock shall mean the last reported
sale price of the Common Stock (regular way) as shown on the Composite Tape of
the NYSE, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices on the NYSE, or, if the Common Stock is not listed
or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.5 "Common Stock" shall mean the class of Common Stock, par value
$0.01 per share, of the Corporation, or any other class of stock resulting from
(x) successive changes or reclassifications of such Common Stock consisting of
changes in par value, or from par value to no par value, (y) a subdivision or
combination or (z) any other changes for which an adjustment is made under
Section 2.4(a), together with any rights associated generally with the shares of
Common Stock.
1.6 "Communications Laws" shall mean the Communications Act of 1934
(as amended and supplemented from
<PAGE>
3
time to time and any successor statute or statutes regulating telecommunications
companies) and the rules and regulations (and interpretations thereof and
determinations with respect thereto) promulgated, issued or adopted from time to
time by the Federal Communications Commission (the "FCC"). All references herein
to Communications Laws shall include as of any relevant date in question the
Communications Laws as then in effect (including any Communications Law or part
thereof the effectiveness of which is then stayed or promulgated with a delayed
effective date).
1.7 "Conversion Date" shall have the meaning set forth in
Section 3.5.
1.8 "Corporation" shall mean AOL Time Warner Inc., a Delaware
corporation, and any of its successors by operation of law, including by merger
or consolidation.
1.9 "DGCL" shall mean the General Corporation Law of the State
of Delaware, as amended from time to time.
1.10 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1.
1.11 "Formula Number" shall have the meaning set forth in
Section 2.1.
1.12 "LMC Agreement" shall mean the Second Amended and Restated
LMC Agreement dated as of September 22, 1995, among a Delaware corporation known
on such date as "Time Warner Inc.", TW Inc., Liberty Media Corporation, a
Delaware corporation ("LMC Parent"), and certain subsidiaries of LMC Parent
listed under "Subsidiaries of LMC Parent" on the signature pages thereto, as
amended by Amendment No. 1 dated as of June 24, 1997, Amendment No. 2 dated as
of May 25, 1999, and as further amended from time to time.
1.13 "Merger Agreement" shall mean the Second Amended and
Restated Agreement and Plan of Merger dated as of January 10, 2000, among AOL
Time Warner Inc., America Online, Inc., Time Warner Inc., America Online Merger
Sub Inc. and Time Warner Merger Sub Inc., as such agreement may be amended from
time to time in accordance with its terms.
1.14 "NASDAQ" shall mean The Nasdaq Stock Market.
<PAGE>
4
1.15 "NYSE" shall mean the New York Stock Exchange, Inc.
1.16 "Parity Stock" shall mean shares of Common Stock and shares
of any other class or series of Capital Stock of the Corporation that, by the
terms of the Certificate of Incorporation or of the instrument by which the
Board of Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the shares of this Series in the payment
of dividends in accordance with the sums that would be payable on such shares if
all dividends were declared and paid in full, or shall, in the event that the
amounts payable thereon in liquidation are not paid in full, be entitled to
share ratably with the shares of this Series in any distribution of assets other
than by way of dividends in accordance with the sums that would be payable in
such distribution if all sums payable were discharged in full.
1.17 "Permitted Transferee" shall mean any Liberty Party, as
such term is defined in the LMC Agreement.
1.18 "Person" shall mean an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
1.19 "Preferred Stock" shall mean the class of Preferred Stock,
par value $0.10 per share, of the Corporation.
1.20 "Record Date" shall have the meaning set forth in Section
2.1.
1.21 "Senior Stock" shall mean shares of any class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
shares of this Series in respect of the right to receive dividends or to
participate in any distribution of assets other than by way of dividends.
1.22 "Series Common Stock" shall mean the class of Series Common
Stock, par value $0.01 per share, of the Corporation.
<PAGE>
5
1.23 "Series LMC Common Stock" and "this Series" shall mean the
series of Series Common Stock authorized and designated as Series LMC Common
Stock.
1.24 "Series LMCN-V Common Stock" shall mean the series of
Series Common Stock authorized and designated as Series LMCN-V Common Stock.
1.25 "Trading Day" shall mean, so long as the Common Stock is
listed or admitted to trading on the NYSE, a day on which the NYSE is open for
the transaction of business, or, if the Common Stock is not listed or admitted
to trading on the NYSE, a day on which the principal national securities
exchange on which the Common Stock is listed is open for the transaction of
business, or, if the Common Stock is not so listed or admitted for trading on
any national securities exchange, a day on which the National Market System of
NASDAQ is open for the transaction of business.
2. Dividends.
---------
2.1 The holders of shares of this Series shall be entitled to receive
dividends, out of funds legally available therefor, payable on such dates as may
be set by the Board of Directors for payment of cash dividends on the Common
Stock (each such date being referred to herein as a "Dividend Payment Date"), in
cash, in an amount per share equal to the product of (i) the Formula Number in
effect as of such Dividend Payment Date multiplied by (ii) the amount of the
---------- --
regularly scheduled cash dividend to be paid on one share of Common Stock on
such Dividend Payment Date; provided, however, dividends on the shares of this
-------- -------
Series shall be payable pursuant to this Section 2.1 only to the extent that
regularly scheduled cash dividends are declared and paid on the Common Stock.
As used herein, the "Formula Number" shall initially be 1.0000, which shall be
adjusted from time to time pursuant to Section 2.4. The dividends payable on
any Dividend Payment Date shall be paid to the holders of record of shares of
this Series at the close of business on the record date for the related
regularly scheduled cash dividend on the Common Stock (each such date being
referred to herein as a "Record Date"). The amount of dividends that are paid
to each holder of record on any Dividend Payment Date shall be rounded to the
nearest cent.
2.2 In case the Corporation shall at any time distribute (other than
a distribution in liquidation of the Corporation and other than a distribution
of Common
<PAGE>
6
Stock as a result of which an adjustment to the Formula Number is made pursuant
to Section 2.4 or in connection with which a dividend of shares of this Series
is paid in accordance with Section 2.4(e)) to the holders of its shares of
Common Stock any assets or property, including evidences of indebtedness or
securities of the Corporation or of any other Person (including common stock of
such Person) or cash (but excluding regularly scheduled cash dividends payable
on shares of Common Stock), or in case the Corporation shall at any time
distribute (other than a distribution in liquidation of the Corporation) to such
holders rights, options or warrants to subscribe for or purchase shares of
Common Stock (including shares held in the treasury of the Corporation), or
rights, options or warrants to subscribe for or purchase any other security or
rights, options or warrants to subscribe for or purchase any assets or property
(in each case, whether of the Corporation or otherwise, but other than any
distribution of rights to purchase securities of the Corporation if the holder
of shares of this Series would otherwise be entitled to receive such rights upon
conversion of shares of this Series for Common Stock pursuant to Section 3,
provided, however, that if such rights are subsequently redeemed by the
- -------- -------
Corporation, such redemption shall be treated for purposes of this Section 2.2
as a cash dividend (but not a regularly scheduled cash dividend) on the Common
Stock), the Corporation shall simultaneously distribute such assets, property,
securities, rights, options or warrants to the holders of shares of this Series
on the record date fixed for determining the holders of Common Stock entitled to
participate in such distribution (or, if no such record date shall be
established, the effective time thereof) in an amount per share of this Series
equal to the amount that a holder of one share of this Series would have been
entitled to receive had such share of this Series been converted into Common
Stock immediately prior to such record date (or effective time). In the event of
a distribution to holders of shares of this Series pursuant to this Section 2.2,
such holders shall be entitled to receive fractional shares or interests only to
the extent that holders of Common Stock are entitled to receive the same. The
holders of shares of this Series on the applicable record date (or effective
time) shall be entitled to receive in lieu of such fractional shares or
interests the same consideration as is payable to holders of Common Stock with
respect thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of shares of this Series on the applicable
record date (or effective time) shall receive in lieu of such fractional shares
or interests the fair value thereof as determined by the Board of Directors.
<PAGE>
7
2.3 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.2,
the kind and amount of securities or other property that shall be distributable
to the holders of shares of this Series shall be based on (i) the election, if
any, made by the holder of record (as of the date used for determining the
holders of Common Stock entitled to make such election) of the largest number of
shares of this Series in writing to the Corporation on or prior to the last date
on which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
--------
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of shares of this Series
shall be based on the kind or amount of securities or other property receivable
by a plurality of the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section 2.3, the Corporation shall mail a copy thereof to the holders of
record of shares of this Series as of the date used for determining the holders
of record of Common Stock entitled to such mailing, which document shall be used
by the holders of record of shares of this Series to make such an election.
2.4 The Formula Number shall be adjusted from time to time as follows
for events occurring after the effective time of the transactions contemplated
by the Merger Agreement, whether or not any shares of this Series have been
issued by the Corporation:
(a) In case the Corporation shall (i) pay a dividend in shares
of its Common Stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its outstanding shares of
Common Stock or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.6) its shares of Common Stock,
then the Formula Number in effect immediately before such event shall be
appropriately adjusted so that immediately following such event the holders
of shares of this Series shall be entitled to receive upon conversion
thereof the kind and amount of shares of Capital Stock of the Corporation
that they would have owned or been entitled to receive upon or by reason of
such event if such shares of this Series had been converted
<PAGE>
8
immediately before the record date (or, if no record date, the effective
date) for such event (it being understood that any distribution of cash or
Capital Stock (other than Common Stock) that shall accompany a
reclassification of the Common Stock, shall be subject to Section 2.2
rather than this Section 2.4(a)). An adjustment made pursuant to this
Section 2.4(a) shall become effective retroactively immediately after the
record date in the case of a dividend or distribution and shall become
effective retroactively immediately after the effective date in the case of
a subdivision, combination or reclassification. For the purposes of this
Section 2.4(a), in the event that the holders of Common Stock are entitled
to make any election with respect to the kind or amount of securities
receivable by them in any transaction that is subject to this Section
2.4(a) (including any election that would result in all or a portion of the
transaction becoming subject to Section 2.2), the kind and amount of
securities that shall be distributable to the holders of shares of this
Series shall be based on (i) the election, if any, made by the holder of
record (as of the date used for determining the holders of Common Stock
entitled to make such election) of the largest number of shares of this
Series in writing to the Corporation on or prior to the last date on which
a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise
any such rights (provided that if the kind or amount of securities is not
the same for each nonelecting holder, then the kind and amount of
securities receivable shall be based on the kind or amount of securities
receivable by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to
in this Section 2.4(a), the Corporation shall mail a copy thereof to the
holders of record of shares of this Series as of the date used for
determining the holders of record of Common Stock entitled to such mailing,
which document shall be used by the holders of record of shares of this
Series to make such an election.
(b) The Corporation shall be entitled to make such additional
adjustments in the Formula Number, in addition to those required by Section
2.4(a) as shall be necessary in order that any dividend or distribution in
Common Stock or any subdivision, reclassification or combination of shares
of Common Stock referred to above, shall not be taxable to the
<PAGE>
9
holders of Common Stock for United States Federal income tax purposes, so
long as such additional adjustments pursuant to this Section 2.4(b) do not
decrease the Formula Number.
(c) All calculations under this Section 2 and Section 3 shall be
made to the nearest cent, one-hundredth of a share or, in the case of the
Formula Number, one hundred-thousandth. Notwithstanding any other
provision of this Section 2.4, the Corporation shall not be required to
make any adjustment of the Formula Number unless such adjustment would
require an increase or decrease of at least one percent (1%) of the Formula
Number. Any lesser adjustment shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment that,
together with any adjustment or adjustments so carried forward, shall
amount to an increase or decrease of at least one percent (1%) of the
Formula Number. Any adjustments under this Section 2.4 shall be made
successively whenever an event requiring such an adjustment occurs.
(d) Promptly after an adjustment in the Formula Number is
required, the Corporation shall provide written notice to each of the
holders of shares of this Series, which notice shall state the adjusted
Formula Number.
(e) Notwithstanding anything to the contrary in this Section 2.4
or the Certificate, if the Corporation pays a dividend with respect to its
outstanding Common Stock in the form of additional shares of Common Stock,
and the Corporation pays an equivalent dividend with respect to its
---
outstanding Series LMCN-V Common Stock, if any, in the form of additional
shares of Series LMCN-V Common Stock, then:
(i) the Corporation shall pay a dividend with respect to the
outstanding shares of this Series, if any, in the form of additional
shares of this Series, payable at the same time with the same record
date and in the same ratio as the dividend with respect to the Common
Stock (including treatment of fractional shares); and
(ii) if the Corporation pays a dividend in accordance with
clause (i) above or if there are at the time no shares of this Series
outstanding, there shall not be any adjustment to the Formula
<PAGE>
10
Number by reason of such dividend with respect to the Common Stock.
(f) If a distribution is made in accordance with the provisions
of Section 2.2, anything in this Section 2.4 to the contrary
notwithstanding, no adjustment pursuant to this Section 2.4 shall be
effected by reason of the distribution of such assets, property,
securities, rights, options or warrants or the subsequent modification,
exercise, expiration or termination of such securities, rights, options or
warrants.
3. Conversion at the Option of the Holder.
--------------------------------------
3.1 Each holder of a share of this Series shall have the right at any
time to convert such share of this Series into either: (i) a number of shares of
Common Stock per share of this Series equal to the Formula Number in effect on
the Conversion Date or (ii) one share of Series LMCN-V Common Stock per share of
this Series; provided, however, that such holder may convert shares of this
-------- -------
Series only to the extent that the ownership by such holder or its designee of
the shares of Common Stock or Series LMCN-V Common Stock issuable upon such
conversion would not violate the Communications Laws.
3.2 No adjustments in respect of payments of dividends on shares of
this Series surrendered for conversion or any dividend on the Common Stock or
Series LMCN-V Common Stock issued upon conversion shall be made upon the
conversion of any shares of this Series (it being understood that if the
Conversion Date for shares of this Series occurs after the Record Date and prior
to the Dividend Payment Date of any such dividend, the holders of record of
shares of this Series on such Record Date shall be entitled to receive the
dividend payable with respect to such shares on the related Dividend Payment
Date pursuant to Section 2.1).
3.3 The Corporation may, but shall not be required to, in connection
with any conversion of shares of this Series into shares of Common Stock, issue
a fraction of a share of Common Stock, and if the Corporation shall determine
not to issue any such fraction, the Corporation shall make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the Closing
---------- --
Price of the Common Stock on the last Trading Day prior to the Conversion Date.
The Corporation shall issue a fraction of a share of Series LMCN-V Common Stock
in order to effect a
<PAGE>
11
conversion of a fraction of a share of this Series into Series LMCN-V Common
Stock.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock or Series LMCN-V Common Stock shall surrender the
certificate or certificates for such shares at the principal executive office of
the Corporation (or at such other place as the Corporation may designate by
notice to the holders of shares of this Series) during regular business hours,
duly endorsed to the Corporation or in blank, or accompanied by instruments of
transfer to the Corporation or in blank, or in form satisfactory to the
Corporation, and shall give written notice to the Corporation at such office
that such holder elects to convert such shares of this Series, which notice
shall state whether the shares of this Series delivered for conversion shall be
converted into shares of Common Stock or shares of Series LMCN-V Common Stock.
If any such certificate or certificates shall have been lost, stolen or
destroyed, the holder shall, in lieu of delivering such certificate or
certificates, deliver to the Corporation (or such other place) an
indemnification agreement and bond satisfactory to the Corporation. The
Corporation shall, as soon as practicable (subject to Section 3.8) after such
deposit of certificates for shares of this Series or delivery of the
indemnification agreement and bond, accompanied by the written notice above
prescribed, issue and deliver at such office (or such other place) to the holder
for whose account such shares were surrendered, or a designee of such holder,
certificates representing either (i) the number of shares of Common Stock and
the cash, if any, or (ii) the number of shares of Series LMCN-V Common Stock, as
the case may be, to which such holder is entitled upon such conversion. Each
share of Common Stock delivered to a holder or its designee as a result of
conversion of shares of this Series pursuant to this Section 3 shall be
accompanied by any rights associated generally with each other share of Common
Stock outstanding as of the Conversion Date.
3.5 Conversion shall be deemed to have been made as of the date (the
"Conversion Date") that the certificate or certificates for the shares of this
Series to be converted and the written notice prescribed in Section 3.4 are
received by the Corporation; and the Person entitled to receive the Common Stock
or Series LMCN-V Common Stock issuable upon such conversion shall be treated for
all purposes as the holder of record of such Common Stock or Series LMCN-V
Common Stock, as the case may be, on such date. The Corporation shall not be
required to deliver certificates for shares of Common Stock or Series LMCN-V
<PAGE>
12
Common Stock while the stock transfer books for such stock or for this Series
are duly closed for any purpose, but certificates for shares of Common Stock or
Series LMCN-V Common Stock, as the case may be, shall be delivered as soon as
practicable after the opening of such books.
3.6 In the event that after the effective time of the transactions
contemplated by the Merger Agreement, whether or not any shares of this Series
have been issued by the Corporation, either (a) any consolidation or merger to
which the Corporation is a party, other than a merger or consolidation in which
the Corporation is the surviving or continuing corporation and that does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock
or (b) any sale or conveyance of all or substantially all of the property and
assets of the Corporation, then lawful provision shall be made as part of the
terms of such transaction whereby the holder of each share of this Series shall
have the right thereafter, during the period such share shall be convertible, to
convert such share into the kind and amount of shares of stock or other
securities and property receivable upon such consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock into which such
shares of this Series could have been converted immediately prior to such
consolidation, merger, sale or conveyance, subject to adjustment that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
Section 2.4 and this Section 3 (based on (i) the election, if any, made in
writing to the Corporation by the holder of record (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of this Series on or prior to the last date on which a
holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of securities or other property receivable shall be based upon the kind
and amount of securities or other property receivable by a plurality of the
nonelecting holders of Common Stock)). In the event that any of the
transactions referred to in clause (a) or (b) of the first sentence of this
Section 3.6 involve the distribution of cash or property (other than equity
securities) to a holder of Common Stock, lawful provision shall be made as part
of the terms of the transaction
<PAGE>
13
whereby the holder of each share of this Series on the record date fixed for
determining holders of Common Stock entitled to receive such cash or property
(or if no such record date is established, the effective date of such
transaction) shall be entitled to receive the amount of cash or property that
such holder would have been entitled to receive had such holder converted his
shares of this Series into Common Stock immediately prior to such record date
(or effective date) (based on the election or nonelection made by the holder of
record of the largest number of shares of this Series, as provided above).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election regarding the kind or amount
of securities or other property that will be receivable by such holders in any
transaction described in clause (a) or (b) of the first sentence of this Section
3.6, the Corporation shall mail a copy thereof to the holders of record of the
shares of this Series as of the date used for determining the holders of record
of Common Stock entitled to such mailing, which document shall be used by the
holders of shares of this Series to make such an election. The Corporation shall
not enter into any of the transactions referred to in clause (a) or (b) of the
first sentence of this Section 3.6 unless effective provision shall be made in
the certificate or articles of incorporation or other constituent documents of
the Corporation or the entity surviving the consolidation or merger, if other
than the Corporation, or the entity acquiring the Corporation's assets, as the
case may be, so as to give effect to the provisions set forth in this Section
3.6. The provisions of this Section 3.6 shall apply similarly to successive
consolidations, mergers, sales or conveyances. For purposes of this Section 3.6,
the term "Corporation" shall refer to the Corporation as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section 3.6.
3.7 The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number of
its duly authorized shares of Common Stock and Series LMCN-V Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of this Series into shares of Common Stock or Series LMCN-V
Common Stock at any time (assuming that, at the time of the computation of such
number of shares, all such Common Stock or Series LMCN-V Common Stock would be
held by a single holder); provided, however, that nothing contained herein shall
-------- -------
preclude the Corporation from satisfying its obligations in respect of the
conversion of
<PAGE>
14
the shares by delivery of purchased shares of Common Stock or Series LMCN-V
Common Stock that are held in the treasury of the Corporation. All shares of
Common Stock or Series LMCN-V Common Stock that shall be deliverable upon
conversion of the shares of this Series shall be duly and validly issued, fully
paid and nonassessable. For purposes of this Section 3, any shares of this
Series at any time outstanding shall not include shares held in the treasury of
the Corporation.
3.8 In any case in which Section 2.4 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5) Trading
Days following the occurrence of the event that necessitates the notice referred
to in Section 2.4(d)) issuing to the holder of any shares of this Series
converted after such record date (i) the shares of Common Stock issuable upon
such conversion over and above (ii) the shares of Common Stock issuable upon
such conversion on the basis of the Formula Number prior to adjustment;
provided, however, that the Corporation shall deliver to such holder a due bill
- -------- -------
or other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
3.9 If any shares of Common Stock or Series LMCN-V Common Stock that
would be issuable upon conversion pursuant to this Section 3 require
registration with or approval of any governmental authority before such shares
may be issued upon conversion (other than any such registration or approval
required to avoid a violation of the Communications Laws), the Corporation will
in good faith and as expeditiously as possible cause such shares to be duly
registered or approved, as the case may be. The Corporation will use
commercially reasonable efforts to list the shares of (or depositary shares
representing fractional interests in) Common Stock required to be delivered upon
conversion of shares of this Series prior to such delivery upon the principal
national securities exchange, if any, upon which the outstanding Common Stock is
listed at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock or
Series LMCN-V Common Stock on conversion of shares of this Series pursuant
hereto. The Corporation shall not, however, be required to pay any tax that is
payable in respect of any transfer involved in the issue or delivery of Common
Stock or Series LMCN-V Common Stock in a name other than that in
<PAGE>
15
which the shares of this Series so converted were registered, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Corporation the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation or (ii) any action triggering an
adjustment to the Formula Number pursuant to Section 2.4 (or in connection with
which a dividend of shares of this Series is paid in accordance with Section
2.4(e)) or Section 3.6, then, in each case, the Corporation shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of this Series, at least fifteen (15) days prior to the applicable record
date for any such transaction (or if no record date will be established, the
effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or, if no record
date will be established, the date as of which holders of record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Voting.
------
4.1 The shares of this Series shall have no voting rights except as
expressly provided in this Section 4 or as required by law.
4.2 Except as otherwise required by law, each share of this Series
shall be entitled to vote together as one class with the holders of shares of
Common Stock upon all matters upon which the holders of shares of Common Stock
are entitled to vote. In any such vote, the holders of shares of this Series
shall be entitled to a number of votes per share of this Series equal to the
product of (i) the Formula Number then in effect multiplied by (ii) the maximum
number of votes per share of Common Stock that any holder of shares of Common
Stock generally then has with respect to such matter.
4.3 So long as any shares of this Series remain outstanding, unless a
greater percentage shall then be required by law, the Corporation shall not,
without the affirmative vote or written consent of the holders of shares
<PAGE>
16
of this Series representing at least 66-2/3% of the aggregate voting power of
shares of this Series then outstanding, amend, alter or repeal any of the
provisions of the Certificate or the Certificate of Incorporation so as, in any
such case, as applicable, to (i) amend, alter or repeal any of the powers,
preferences or rights of the Series Common Stock or (ii) adversely affect the
voting powers, designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the shares of this Series or the Series LMCN-V Common Stock;
provided, however, that no affirmative vote or written approval of any holder of
- -------- -------
shares of this Series shall be required to amend, alter or repeal any of the
powers, preferences or rights of any series of Series Common Stock other than
this Series and the Series LMCN-V Common Stock.
4.4 So long as any shares of this Series remain outstanding, the
Corporation shall not, without the affirmative vote or written consent of the
holders of shares of this Series representing 100% of the aggregate voting power
of shares of this Series then outstanding, amend, alter or repeal the provisions
of Section 7.7 or this Section 4.4.
4.5 No consent of holders of shares of this Series shall be required
for (i) the creation of any indebtedness of any kind of the Corporation, (ii)
the authorization or issuance of any class or series of Parity Stock or Senior
Stock, (iii) the approval of any amendment to the Certificate of Incorporation
that would increase or decrease the aggregate number of authorized shares of
Series Common Stock or Common Stock or (iv) the authorization of any increase or
decrease in the number of shares constituting this Series; provided, however,
-------- -------
that the number of shares constituting this Series shall not be decreased below
the number of such shares then outstanding.
5. Liquidation Rights.
------------------
5.1 Upon the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of this
Series shall be entitled to receive, contemporaneously with any distribution to
holders of shares of Common Stock upon such liquidation, dissolution or winding
up, an aggregate amount per share equal to the product of the Formula Number
then in effect multiplied by the aggregate amount to be distributed per share to
---------- --
holders of Common Stock.
<PAGE>
17
5.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this Section 5.
6. Transfer Restrictions.
---------------------
6.1 Without the prior written consent of the Corporation, no holder
of shares of this Series shall offer, sell, transfer, pledge, encumber or
otherwise dispose of, or agree to offer, sell, transfer, pledge, encumber or
otherwise dispose of, any shares of this Series or interests in any shares of
this Series except to a Permitted Transferee that shall agree that, prior to
such Permitted Transferee ceasing to be a Permitted Transferee, such Permitted
Transferee must transfer ownership of any shares of this Series, and all
interests therein, held by such Permitted Transferee to any Permitted
Transferee. For the avoidance of doubt, the preceding sentence is not intended
to prohibit a holder of shares of this Series from entering into, or offering to
enter into, (a) any arrangement under which such holder agrees to promptly
convert shares of this Series and sell, transfer or otherwise dispose of the
Common Stock issuable upon such conversion or (b) any pledge or encumbrance of
shares of this Series; provided, however, that the terms of any such pledge or
-------- -------
encumbrance must require that, in the event of any sale or foreclosure with
respect to shares of this Series, such shares must be delivered immediately to
the Corporation for conversion into Common Stock. The provisions of this
Section 6.1 shall continue to be in effect with respect to any shares of this
Series received by any holder by virtue of merger, consolidation, operation of
law or otherwise.
6.2 Certificates for shares of this Series shall bear such legends as
the Corporation shall from time to time deem appropriate.
7. Other Provisions.
----------------
7.1 All notices from the Corporation to the holders of shares of this
Series shall be given by one of the methods specified in Section 7.2. With
respect to any notice to a holder of shares of this Series required to be
<PAGE>
18
provided hereunder, neither failure to give such notice, nor any defect therein
or in the transmission thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings referred to in such
notice with respect to the other holders or affect the legality or validity of
any distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any such action. Any notice that was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives the notice.
7.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the shares of this Series and
(y) the Corporation at the following address (or at such other address as the
Corporation shall specify in a notice pursuant to this Section 7.2): AOL Time
Warner Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: General
Counsel.
7.3 Any shares of this Series that have been converted or otherwise
acquired by the Corporation shall, after such conversion or acquisition, as the
case may be, be retired and promptly canceled and shall become authorized but
unissued shares of this Series, unless the Board of Directors determines
otherwise.
7.4 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such holder of record shall be deemed the holder of such shares for
all purposes.
7.5 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
7.6 Any registered holder of shares of this Series may proceed to
protect and enforce its rights by any available remedy by proceeding at law or
in equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in the Certificate or
<PAGE>
19
in aid of the exercise of any power granted herein, or to enforce any other
proper remedy.
7.7 The shares of this Series shall not be subject to redemption at
the option of the Corporation, including pursuant to Section 5 of Article IV of
the Certificate of Incorporation (or any equivalent provision in any further
amendment to or restatement of the Certificate of Incorporation).
IN WITNESS WHEREOF, AOL Time Warner Inc. has caused this certificate
to be signed this [ ]th day of [ ], 2000.
AOL TIME WARNER INC.,
by
-------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF THE VOTING POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS AND QUALIFICATIONS, LIMITATIONS
OR RESTRICTIONS THEREOF, OF
SERIES LMCN-V COMMON STOCK
OF
AOL TIME WARNER INC.
____________________
Pursuant to Section 151 of the General
Corporation Law of the State of Delaware
____________________
AOL Time Warner Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that the following resolution was duly adopted by action of the
Board of Directors of the Corporation (the "Board of Directors") at a meeting
duly held on [ ], 2000.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 3 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Series Common Stock, par value $0.01 per share ("Series Common Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Series Common Stock, and hereby fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of the
shares of such series as follows:
The series of Series Common Stock hereby established shall consist of
210,000,000 shares designated as Series LMCN-V Common Stock. The number of
shares constituting such series may be increased or decreased (but not below the
number of shares then outstanding) from time to time by a resolution or
resolutions of the Board of Directors of the Corporation.
<PAGE>
2
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.2 "Capital Stock" shall mean any and all shares of corporate stock
of a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, or any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.3 "Certificate" shall mean the Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating, Optional or Other Special
Rights, and Qualifications, Limitations or Restrictions Thereof, of Series LMCN-
V Common Stock filed with the Secretary of State of the State of Delaware
pursuant to Section 151 of the DGCL, as amended from time to time.
1.4 "Closing Price" of the Common Stock shall mean the last reported
sale price of the Common Stock (regular way) as shown on the Composite Tape of
the NYSE, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices on the NYSE, or, if the Common Stock is not listed
or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.5 "Common Stock" shall mean the class of Common Stock, par value
$0.01 per share, of the Corporation, or any other class of stock resulting from
(x) successive changes or reclassifications of such Common Stock consisting of
changes in par value, or from par value to no par value, (y) a subdivision or
combination or (z) any other changes for which an adjustment is made under
Section 2.4(a), together with any rights associated generally with the shares of
Common Stock.
1.6 "Communications Laws" shall mean the Communications Act of 1934
(as amended and supplemented from
<PAGE>
3
time to time and any successor statute or statutes regulating telecommunications
companies) and the rules and regulations (and interpretations thereof and
determinations with respect thereto) promulgated, issued or adopted from time to
time by the Federal Communications Commission (the "FCC"). All references herein
to Communications Laws shall include as of any relevant date in question the
Communications Laws as then in effect (including any Communications Law or part
thereof the effectiveness of which is then stayed or promulgated with a delayed
effective date).
1.7 "Conversion Date" shall have the meaning set forth in
Section 3.5.
1.8 "Corporation" shall mean AOL Time Warner Inc., a Delaware
corporation, and any of its successors by operation of law, including by merger
or consolidation.
1.9 "DGCL" shall mean the General Corporation Law of the State
of Delaware, as amended from time to time.
1.10 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1.
1.11 "Formula Number" shall have the meaning set forth in
Section 2.1.
1.12 "LMC Agreement" shall mean the Second Amended and Restated
LMC Agreement dated as of September 22, 1995, among a Delaware corporation known
on such date as "Time Warner Inc.", TW Inc., Liberty Media Corporation, a
Delaware corporation ("LMC Parent"), and certain subsidiaries of LMC Parent
listed under "Subsidiaries of LMC Parent" on the signature pages thereto, as
amended by Amendment No. 1 dated as of June 24, 1997, Amendment No. 2 dated as
of May 25, 1999, and as further amended from time to time.
1.13 "Merger Agreement" shall mean the Second Amended and
Restated Agreement and Plan of Merger dated as of January 10, 2000, among AOL
Time Warner Inc., America Online, Inc., Time Warner Inc., America Online Merger
Sub Inc. and Time Warner Merger Sub Inc., as such agreement may be amended from
time to time in accordance with its terms.
1.14 "NASDAQ" shall mean The Nasdaq Stock Market.
<PAGE>
4
1.15 "NYSE" shall mean the New York Stock Exchange, Inc.
1.16 "Parity Stock" shall mean shares of Common Stock and shares
of any other class or series of Capital Stock of the Corporation that, by the
terms of the Certificate of Incorporation or of the instrument by which the
Board of Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall, in the event that the stated dividends thereon are not paid in
full, be entitled to share ratably with the shares of this Series in the payment
of dividends in accordance with the sums that would be payable on such shares if
all dividends were declared and paid in full, or shall, in the event that the
amounts payable thereon in liquidation are not paid in full, be entitled to
share ratably with the shares of this Series in any distribution of assets other
than by way of dividends in accordance with the sums that would be payable in
such distribution if all sums payable were discharged in full.
1.17 "Permitted Transferee" shall mean any Liberty Party, as
such term is defined in the LMC Agreement.
1.18 "Person" shall mean an individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity.
1.19 "Preferred Stock" shall mean the class of Preferred Stock,
par value $0.10 per share, of the Corporation.
1.20 "Record Date" shall have the meaning set forth in Section
2.1.
1.21 "Senior Stock" shall mean shares of any class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
shares of this Series in respect of the right to receive dividends or to
participate in any distribution of assets other than by way of dividends.
1.22 "Series Common Stock" shall mean the class of Series Common
Stock, par value $0.01 per share, of the Corporation.
<PAGE>
5
1.23 "Series LMC Common Stock" shall mean the series of Series
Common Stock authorized and designated as Series LMC Common Stock.
1.24 "Series LMCN-V Common Stock" and "this Series" shall mean
the series of Series Common Stock authorized and designated as Series LMCN-V
Common Stock.
1.25 "Trading Day" shall mean, so long as the Common Stock is
listed or admitted to trading on the NYSE, a day on which the NYSE is open for
the transaction of business, or, if the Common Stock is not listed or admitted
to trading on the NYSE, a day on which the principal national securities
exchange on which the Common Stock is listed is open for the transaction of
business, or, if the Common Stock is not so listed or admitted for trading on
any national securities exchange, a day on which the National Market System of
NASDAQ is open for the transaction of business.
2. Dividends.
---------
2.1 The holders of shares of this Series shall be entitled to receive
dividends, out of funds legally available therefor, payable on such dates as may
be set by the Board of Directors for payment of cash dividends on the Common
Stock (each such date being referred to herein as a "Dividend Payment Date"), in
cash, in an amount per share equal to the product of (i) the Formula Number in
effect as of such Dividend Payment Date multiplied by (ii) the amount of the
---------- --
regularly scheduled cash dividend to be paid on one share of Common Stock on
such Dividend Payment Date; provided, however, dividends on the shares of this
-------- -------
Series shall be payable pursuant to this Section 2.1 only to the extent that
regularly scheduled cash dividends are declared and paid on the Common Stock.
As used herein, the "Formula Number" shall initially be 1.0000, which shall be
adjusted from time to time pursuant to Section 2.4. The dividends payable on
any Dividend Payment Date shall be paid to the holders of record of shares of
this Series at the close of business on the record date for the related
regularly scheduled cash dividend on the Common Stock (each such date being
referred to herein as a "Record Date"). The amount of dividends that are paid
to each holder of record on any Dividend Payment Date shall be rounded to the
nearest cent.
2.2 In case the Corporation shall at any time distribute (other than
a distribution in liquidation of the Corporation and other than a distribution
of Common
<PAGE>
6
Stock as a result of which an adjustment to the Formula Number is made pursuant
to Section 2.4 or in connection with which a dividend of shares of this Series
is paid in accordance with Section 2.4(e)) to the holders of its shares of
Common Stock any assets or property, including evidences of indebtedness or
securities of the Corporation or of any other Person (including common stock of
such Person) or cash (but excluding regularly scheduled cash dividends payable
on shares of Common Stock), or in case the Corporation shall at any time
distribute (other than a distribution in liquidation of the Corporation) to such
holders rights, options or warrants to subscribe for or purchase shares of
Common Stock (including shares held in the treasury of the Corporation), or
rights, options or warrants to subscribe for or purchase any other security or
rights, options or warrants to subscribe for or purchase any assets or property
(in each case, whether of the Corporation or otherwise, but other than any
distribution of rights to purchase securities of the Corporation if the holder
of shares of this Series would otherwise be entitled to receive such rights upon
conversion of shares of this Series for Common Stock pursuant to Section 3,
provided, however, that if such rights are subsequently redeemed by the
- -------- -------
Corporation, such redemption shall be treated for purposes of this Section 2.2
as a cash dividend (but not a regularly scheduled cash dividend) on the Common
Stock), the Corporation shall simultaneously distribute such assets, property,
securities, rights, options or warrants to the holders of shares of this Series
on the record date fixed for determining the holders of Common Stock entitled to
participate in such distribution (or, if no such record date shall be
established, the effective time thereof) in an amount per share of this Series
equal to the amount that a holder of one share of this Series would have been
entitled to receive had such share of this Series been converted into Common
Stock immediately prior to such record date (or effective time). In the event of
a distribution to holders of shares of this Series pursuant to this Section 2.2,
such holders shall be entitled to receive fractional shares or interests only to
the extent that holders of Common Stock are entitled to receive the same. The
holders of shares of this Series on the applicable record date (or effective
time) shall be entitled to receive in lieu of such fractional shares or
interests the same consideration as is payable to holders of Common Stock with
respect thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of shares of this Series on the applicable
record date (or effective time) shall receive in lieu of such fractional shares
or interests the fair value thereof as determined by the Board of Directors.
<PAGE>
7
2.3 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.2,
the kind and amount of securities or other property that shall be distributable
to the holders of shares of this Series shall be based on (i) the election, if
any, made by the holder of record (as of the date used for determining the
holders of Common Stock entitled to make such election) of the largest number of
shares of this Series in writing to the Corporation on or prior to the last date
on which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
--------
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of shares of this Series
shall be based on the kind or amount of securities or other property receivable
by a plurality of the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section 2.3, the Corporation shall mail a copy thereof to the holders of
record of shares of this Series as of the date used for determining the holders
of record of Common Stock entitled to such mailing, which document shall be used
by the holders of record of shares of this Series to make such an election.
2.4 The Formula Number shall be adjusted from time to time as follows
for events occurring after the effective time of the transactions contemplated
by the Merger Agreement, whether or not any shares of this Series have been
issued by the Corporation:
(a) In case the Corporation shall (i) pay a dividend in shares
of its Common Stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its outstanding shares of
Common Stock or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.6) its shares of Common Stock,
then the Formula Number in effect immediately before such event shall be
appropriately adjusted so that immediately following such event the holders
of shares of this Series shall be entitled to receive upon conversion
thereof the kind and amount of shares of Capital Stock of the Corporation
that they would have owned or been entitled to receive upon or by reason of
such event if such shares of this Series had been converted
<PAGE>
8
immediately before the record date (or, if no record date, the effective
date) for such event (it being understood that any distribution of cash or
Capital Stock (other than Common Stock) that shall accompany a
reclassification of the Common Stock, shall be subject to Section 2.2
rather than this Section 2.4(a)). An adjustment made pursuant to this
Section 2.4(a) shall become effective retroactively immediately after the
record date in the case of a dividend or distribution and shall become
effective retroactively immediately after the effective date in the case of
a subdivision, combination or reclassification. For the purposes of this
Section 2.4(a), in the event that the holders of Common Stock are entitled
to make any election with respect to the kind or amount of securities
receivable by them in any transaction that is subject to this Section
2.4(a) (including any election that would result in all or a portion of the
transaction becoming subject to Section 2.2), the kind and amount of
securities that shall be distributable to the holders of shares of this
Series shall be based on (i) the election, if any, made by the holder of
record (as of the date used for determining the holders of Common Stock
entitled to make such election) of the largest number of shares of this
Series in writing to the Corporation on or prior to the last date on which
a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise
any such rights (provided that if the kind or amount of securities is not
the same for each nonelecting holder, then the kind and amount of
securities receivable shall be based on the kind or amount of securities
receivable by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to
in this Section 2.4(a), the Corporation shall mail a copy thereof to the
holders of record of shares of this Series as of the date used for
determining the holders of record of Common Stock entitled to such mailing,
which document shall be used by the holders of record of shares of this
Series to make such an election.
(b) The Corporation shall be entitled to make such additional
adjustments in the Formula Number, in addition to those required by Section
2.4(a) as shall be necessary in order that any dividend or distribution in
Common Stock or any subdivision, reclassification or combination of shares
of Common Stock referred to above, shall not be taxable to the
<PAGE>
9
holders of Common Stock for United States Federal income tax purposes, so
long as such additional adjustments pursuant to this Section 2.4(b) do not
decrease the Formula Number.
(c) All calculations under this Section 2 and Section 3 shall be
made to the nearest cent, one-hundredth of a share or, in the case of the
Formula Number, one hundred-thousandth. Notwithstanding any other
provision of this Section 2.4, the Corporation shall not be required to
make any adjustment of the Formula Number unless such adjustment would
require an increase or decrease of at least one percent (1%) of the Formula
Number. Any lesser adjustment shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment that,
together with any adjustment or adjustments so carried forward, shall
amount to an increase or decrease of at least one percent (1%) of the
Formula Number. Any adjustments under this Section 2.4 shall be made
successively whenever an event requiring such an adjustment occurs.
(d) Promptly after an adjustment in the Formula Number is
required, the Corporation shall provide written notice to each of the
holders of shares of this Series, which notice shall state the adjusted
Formula Number.
(e) Notwithstanding anything to the contrary in this Section 2.4
or the Certificate, if the Corporation pays a dividend with respect to its
outstanding Common Stock in the form of additional shares of Common Stock,
then:
(i) the Corporation may pay a dividend with respect to the
outstanding shares of this Series in the form of additional shares of
this Series, payable at the same time with the same record date and in
the same ratio as the dividend with respect to the Common Stock
(including treatment of fractional shares);
(ii) if the Corporation elects to pay the dividend in accordance
with clause (i) above, the Corporation shall pay a dividend with
respect to the outstanding shares, if any, of Series LMC Common Stock
in the form of additional shares of Series LMC Common Stock, payable
at the same time with the same record date and in the same ratio as
<PAGE>
10
the dividend with respect to the Common Stock (including treatment of
fractional shares); and
(iii) if the Corporation pays the dividend in accordance with
clauses (i) and (ii) above, there shall not be any adjustment to the
Formula Number by reason of such dividend with respect to the Common
Stock.
(f) If a distribution is made in accordance with the provisions
of Section 2.2, anything in this Section 2.4 to the contrary
notwithstanding, no adjustment pursuant to this Section 2.4 shall be
effected by reason of the distribution of such assets, property,
securities, rights, options or warrants or the subsequent modification,
exercise, expiration or termination of such securities, rights, options or
warrants.
3. Conversion at the Option of the Holder.
---------------------------------------
3.1 Each holder of a share of this Series shall have the right at any
time to convert such share of this Series into either: (i) a number of shares of
Common Stock per share of this Series equal to the Formula Number in effect on
the Conversion Date or (ii) one share of Series LMC Common Stock per share of
this Series; provided, however, that such holder may convert shares of this
-------- -------
Series only to the extent that the ownership by such holder or its designee of
the shares of Common Stock or Series LMC Common Stock issuable upon such
conversion would not violate the Communications Laws.
3.2 No adjustments in respect of payments of dividends on shares of
this Series surrendered for conversion or any dividend on the Common Stock or
Series LMC Common Stock issued upon conversion shall be made upon the conversion
of any shares of this Series (it being understood that if the Conversion Date
for shares of this Series occurs after the Record Date and prior to the Dividend
Payment Date of any such dividend, the holders of record of shares of this
Series on such Record Date shall be entitled to receive the dividend payable
with respect to such shares on the related Dividend Payment Date pursuant to
Section 2.1).
3.3 The Corporation may, but shall not be required to, in connection
with any conversion of shares of this Series into shares of Common Stock, issue
a fraction of a share of Common Stock, and if the Corporation shall determine
not to issue any such fraction, the Corporation
<PAGE>
11
shall make a cash payment (rounded to the nearest cent) equal to such fraction
multiplied by the Closing Price of the Common Stock on the last Trading Day
- ---------- --
prior to the Conversion Date. The Corporation shall issue a fraction of a share
of Series LMC Common Stock in order to effect a conversion of a fraction of a
share of this Series into Series LMC Common Stock.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock or Series LMC Common Stock shall surrender the
certificate or certificates for such shares at the principal executive office of
the Corporation (or at such other place as the Corporation may designate by
notice to the holders of shares of this Series) during regular business hours,
duly endorsed to the Corporation or in blank, or accompanied by instruments of
transfer to the Corporation or in blank, or in form satisfactory to the
Corporation, and shall give written notice to the Corporation at such office
that such holder elects to convert such shares of this Series, which notice
shall state whether the shares of this Series delivered for conversion shall be
converted into shares of Common Stock or shares of Series LMC Common Stock. If
any such certificate or certificates shall have been lost, stolen or destroyed,
the holder shall, in lieu of delivering such certificate or certificates,
deliver to the Corporation (or such other place) an indemnification agreement
and bond satisfactory to the Corporation. The Corporation shall, as soon as
practicable (subject to Section 3.8) after such deposit of certificates for
shares of this Series or delivery of the indemnification agreement and bond,
accompanied by the written notice above prescribed, issue and deliver at such
office (or such other place) to the holder for whose account such shares were
surrendered, or a designee of such holder, certificates representing either (i)
the number of shares of Common Stock and the cash, if any, or (ii) the number of
shares of Series LMC Common Stock, as the case may be, to which such holder is
entitled upon such conversion. Each share of Common Stock delivered to a holder
or its designee as a result of conversion of shares of this Series pursuant to
this Section 3 shall be accompanied by any rights associated generally with each
other share of Common Stock outstanding as of the Conversion Date.
3.5 Conversion shall be deemed to have been made as of the date (the
"Conversion Date") that the certificate or certificates for the shares of this
Series to be converted and the written notice prescribed in Section 3.4 are
received by the Corporation; and the Person entitled to receive the Common Stock
or Series LMC Common
<PAGE>
12
Stock issuable upon such conversion shall be treated for all purposes as the
holder of record of such Common Stock or Series LMC Common Stock, as the case
may be, on such date. The Corporation shall not be required to deliver
certificates for shares of Common Stock or Series LMC Common Stock while the
stock transfer books for such stock or for this Series are duly closed for any
purpose, but certificates for shares of Common Stock or Series LMC Common Stock,
as the case may be, shall be delivered as soon as practicable after the opening
of such books.
3.6 In the event that after the effective time of the transactions
contemplated by the Merger Agreement, whether or not any shares of this Series
have been issued by the Corporation, in the event that either (a) any
consolidation or merger to which the Corporation is a party, other than a merger
or consolidation in which the Corporation is the surviving or continuing
corporation and that does not result in any reclassification of, or change
(other than a change in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of this Series shall have the right thereafter, during the
period such share shall be convertible, to convert such share into the kind and
amount of shares of stock or other securities and property receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock into which such shares of this Series could have been converted
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 2.4 and this Section 3 (based on (i) the
election, if any, made in writing to the Corporation by the holder of record (as
of the date used for determining holders of Common Stock entitled to make such
election) of the largest number of shares of this Series on or prior to the last
date on which a holder of Common Stock may make an election regarding the kind
or amount of securities or other property receivable by such holder in such
transaction or (ii) if no such election is timely made, an assumption that such
holder failed to exercise any such rights (provided that if the kind or amount
of securities or other property is not the same for each nonelecting holder,
then the kind and amount of securities or other property receivable shall be
based upon the kind and amount of securities or other property receivable by a
plurality of the nonelecting holders of
<PAGE>
13
Common Stock)). In the event that any of the transactions referred to in clause
(a) or (b) of the first sentence of this Section 3.6 involve the distribution of
cash or property (other than equity securities) to a holder of Common Stock,
lawful provision shall be made as part of the terms of the transaction whereby
the holder of each share of this Series on the record date fixed for determining
holders of Common Stock entitled to receive such cash or property (or if no such
record date is established, the effective date of such transaction) shall be
entitled to receive the amount of cash or property that such holder would have
been entitled to receive had such holder converted his shares of this Series
into Common Stock immediately prior to such record date (or effective date)
(based on the election or nonelection made by the holder of record of the
largest number of shares of this Series, as provided above). Concurrently with
the mailing to holders of Common Stock of any document pursuant to which such
holders may make an election regarding the kind or amount of securities or other
property that will be receivable by such holders in any transaction described in
clause (a) or (b) of the first sentence of this Section 3.6, the Corporation
shall mail a copy thereof to the holders of record of the shares of this Series
as of the date used for determining the holders of record of Common Stock
entitled to such mailing, which document shall be used by the holders of shares
of this Series to make such an election. The Corporation shall not enter into
any of the transactions referred to in clause (a) or (b) of the first sentence
of this Section 3.6 unless effective provision shall be made in the certificate
or articles of incorporation or other constituent documents of the Corporation
or the entity surviving the consolidation or merger, if other than the
Corporation, or the entity acquiring the Corporation's assets, as the case may
be, so as to give effect to the provisions set forth in this Section 3.6. The
provisions of this Section 3.6 shall apply similarly to successive
consolidations, mergers, sales or conveyances. For purposes of this Section 3.6,
the term "Corporation" shall refer to the Corporation as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section 3.6.
3.7 The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number of
its duly authorized shares of Common Stock and Series LMC Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of this Series into shares of Common Stock or Series LMC Common Stock at
any time (assuming that, at the
<PAGE>
14
time of the computation of such number of shares, all such Common Stock or
Series LMC Common Stock would be held by a single holder); provided, however,
-------- -------
that nothing contained herein shall preclude the Corporation from satisfying its
obligations in respect of the conversion of the shares by delivery of purchased
shares of Common Stock or Series LMC Common Stock that are held in the treasury
of the Corporation. All shares of Common Stock or Series LMC Common Stock that
shall be deliverable upon conversion of the shares of this Series shall be duly
and validly issued, fully paid and nonassessable. For purposes of this Section
3, any shares of this Series at any time outstanding shall not include shares
held in the treasury of the Corporation.
3.8 In any case in which Section 2.4 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5) Trading
Days following the occurrence of the event that necessitates the notice referred
to in Section 2.4(d)) issuing to the holder of any shares of this Series
converted after such record date (i) the shares of Common Stock issuable upon
such conversion over and above (ii) the shares of Common Stock issuable upon
such conversion on the basis of the Formula Number prior to adjustment;
provided, however, that the Corporation shall deliver to such holder a due bill
- -------- -------
or other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
3.9 If any shares of Common Stock or Series LMC Common Stock that
would be issuable upon conversion pursuant to this Section 3 require
registration with or approval of any governmental authority before such shares
may be issued upon conversion (other than any such registration or approval
required to avoid a violation of the Communications Laws), the Corporation will
in good faith and as expeditiously as possible cause such shares to be duly
registered or approved, as the case may be. The Corporation will use
commercially reasonable efforts to list the shares of (or depositary shares
representing fractional interests in) Common Stock required to be delivered upon
conversion of shares of this Series prior to such delivery upon the principal
national securities exchange, if any, upon which the outstanding Common Stock is
listed at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock or
Series LMC
<PAGE>
15
Common Stock on conversion of shares of this Series pursuant hereto. The
Corporation shall not, however, be required to pay any tax that is payable in
respect of any transfer involved in the issue or delivery of Common Stock or
Series LMC Common Stock in a name other than that in which the shares of this
Series so converted were registered, and no such issue or delivery shall be made
unless and until the Person requesting such issue has paid to the Corporation
the amount of such tax, or has established, to the satisfaction of the
Corporation, that such tax has been paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation or (ii) any action triggering an
adjustment to the Formula Number pursuant to Section 2.4 (or in connection with
which a dividend of shares of this Series is paid in accordance with Section
2.4(e)) or Section 3.6, then, in each case, the Corporation shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of this Series, at least fifteen (15) days prior to the applicable record
date for any such transaction (or if no record date will be established, the
effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or, if no record
date will be established, the date as of which holders of record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Voting.
-------
4.1 The shares of this Series shall have no voting rights except as
expressly provided in this Section 4 or as required by law.
4.2 Each share of this Series shall be entitled to vote together as
one class with the holders of shares of Common Stock upon the election of the
directors of the Corporation. In any such vote, the holders of shares of this
Series shall be entitled to a number of votes per share of this Series equal to
the product of (i) the Formula Number then in effect multiplied by (ii) the
maximum number of votes per share of Common Stock that any holder of shares of
Common Stock generally then has with respect to such matter divided by (iii)
100.
<PAGE>
16
4.3 So long as any shares of this Series remain outstanding, unless a
greater percentage shall then be required by law, the Corporation shall not,
without the affirmative vote or written consent of the holders of shares of this
Series representing at least 66-2/3% of the aggregate voting power of shares of
this Series then outstanding, amend, alter or repeal any of the provisions of
the Certificate or the Certificate of Incorporation so as, in any such case, as
applicable, to (i) amend, alter or repeal any of the powers, preferences or
rights of the Series Common Stock or (ii) adversely affect the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of this Series or the Series LMC Common Stock; provided, however, that no
-------- -------
affirmative vote or written approval of any holder of shares of this Series
shall be required to amend, alter or repeal any of the powers, preferences or
rights of any series of Series Common Stock other than this Series and the
Series LMC Common Stock.
4.4 So long as any shares of this Series remain outstanding, the
Corporation shall not, without the affirmative vote or written consent of the
holders of shares of this Series representing 100% of the aggregate voting power
of shares of this Series then outstanding, amend, alter or repeal the provisions
of Section 7.7 or this Section 4.4.
4.5 No consent of holders of shares of this Series shall be required
for (i) the creation of any indebtedness of any kind of the Corporation, (ii)
the authorization or issuance of any class or series of Parity Stock or Senior
Stock, (iii) the approval of any amendment to the Certificate of Incorporation
that would increase or decrease the aggregate number of authorized shares of
Series Common Stock or Common Stock or (iv) the authorization of any increase or
decrease in the number of shares constituting this Series; provided, however,
-------- -------
that the number of shares constituting this Series shall not be decreased below
the number of such shares then outstanding.
5. Liquidation Rights.
-------------------
5.1 Upon the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares of this
Series shall be entitled to receive, contemporaneously with any distribution to
holders of shares of Common Stock upon such liquidation, dissolution or winding
up, an aggregate amount per share
<PAGE>
17
equal to the product of the Formula Number then in effect multiplied by the
---------- --
aggregate amount to be distributed per share to holders of Common Stock.
5.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this Section 5.
6. Transfer Restrictions.
----------------------
6.1 Without the prior written consent of the Corporation, no holder
of shares of this Series shall offer, sell, transfer, pledge, encumber or
otherwise dispose of, or agree to offer, sell, transfer, pledge, encumber or
otherwise dispose of, any shares of this Series or interests in any shares of
this Series except to a Permitted Transferee that shall agree that, prior to
such Permitted Transferee ceasing to be a Permitted Transferee, such Permitted
Transferee must transfer ownership of any shares of this Series, and all
interests therein, held by such Permitted Transferee to any Permitted
Transferee. For the avoidance of doubt, the preceding sentence is not intended
to prohibit a holder of shares of this Series from entering into, or offering to
enter into, (a) any arrangement under which such holder agrees to promptly
convert shares of this Series and sell, transfer or otherwise dispose of the
Common Stock issuable upon such conversion or (b) any pledge or encumbrance of
shares of this Series; provided, however, that the terms of any such pledge or
-------- -------
encumbrance must require that, in the event of any sale or foreclosure with
respect to shares of this Series, such shares must be delivered immediately to
the Corporation for conversion into Common Stock. The provisions of this
Section 6.1 shall continue to be in effect with respect to any shares of this
Series received by any holder by virtue of merger, consolidation, operation of
law or otherwise.
6.2 Certificates for shares of this Series shall bear such legends as
the Corporation shall from time to time deem appropriate.
<PAGE>
18
7. Other Provisions.
-----------------
7.1 All notices from the Corporation to the holders of shares of this
Series shall be given by one of the methods specified in Section 7.2. With
respect to any notice to a holder of shares of this Series required to be
provided hereunder, neither failure to give such notice, nor any defect therein
or in the transmission thereof, to any particular holder shall affect the
sufficiency of the notice or the validity of the proceedings referred to in such
notice with respect to the other holders or affect the legality or validity of
any distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any such action. Any notice that was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives the notice.
7.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the shares of this Series and
(y) the Corporation at the following address (or at such other address as the
Corporation shall specify in a notice pursuant to this Section 7.2): AOL Time
Warner Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: General
Counsel.
7.3 Any shares of this Series that have been converted or otherwise
acquired by the Corporation shall, after such conversion or acquisition, as the
case may be, be retired and promptly canceled and shall become authorized but
unissued shares of this Series, unless the Board of Directors determines
otherwise.
7.4 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such holder of record shall be deemed the holder of such shares for
all purposes.
7.5 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
<PAGE>
19
7.6 Any registered holder of shares of this Series may proceed to
protect and enforce its rights by any available remedy by proceeding at law or
in equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in the Certificate or in aid of the exercise of any
power granted herein, or to enforce any other proper remedy.
7.7 The shares of this Series shall not be subject to redemption at
the option of the Corporation, including pursuant to Section 5 of Article IV of
the Certificate of Incorporation (or any equivalent provision in any further
amendment to or restatement of the Certificate of Incorporation).
IN WITNESS WHEREOF, AOL Time Warner Inc. has caused this certificate
to be signed this [ ]th day of [ ], 2000.
AOL TIME WARNER INC.,
by
-------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES E CONVERTIBLE
PREFERRED STOCK
OF
AOL TIME WARNER INC.
___________________________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
___________________________
AOL Time Warner Inc. (the "Corporation"), a corporation organized and
existing by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify that the following resolution was duly adopted by
action of the Board of Directors of the Corporation (the "Board of Directors")
at a meeting duly held on [ ], 2000.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock; par value $0.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
3,250,000 shares designated as Series E Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall have the meaning set forth
in Section 3.1 hereof.
<PAGE>
2
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate stock
of a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of Series E
Convertible Preferred Stock filed with respect to this resolution with the
Secretary of State of the State of Delaware pursuant to Section 151 of the DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have the
following meanings: "Change of Control" shall mean the occurrence of one or
both of the following events: (a) individuals who would constitute a majority of
the members of the Board of Directors elected at any meeting of stockholders or
by written consent (without regard to any members of the Board of Directors
elected pursuant to the terms of any series of Preferred Stock) shall be elected
to the Board of Directors and the election or the nomination for election by the
stockholders of such directors was not approved by a vote of at least a majority
of the directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b) a Person
or group of Persons acting in concert as a partnership, limited partnership,
syndicate or other group within the meaning of Rule 13d-3 under the Exchange Act
(the "Acquiring Person") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, share repurchases, redemptions
or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 40% or more of the outstanding shares of Common Stock
(in which event "Change of Control Date" shall mean the date of the event
resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last reported
sale price of the Common Stock (regular way) as shown on the Composite Tape of
the NYSE, or, in case no such sale takes place on such day, the
<PAGE>
3
average of the closing bid and asked prices on the NYSE, or, if the Common Stock
is not listed or admitted to trading on the NYSE, on the principal national
securities exchange on which such stock is listed or admitted to trading, or, if
it is not listed or admitted to trading on any national securities exchange, the
last reported sale price of the Common Stock, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, in either
case as reported by NASDAQ.
1.7 "Common Stock" shall mean the class of Common Stock, par
value $0.01 per share, of the Corporation authorized at the date of the
Certificate, or any other class of stock resulting from (x) successive changes
or reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.8 "Conversion Date" shall have the meaning set forth in
Section 3.5 hereof.
1.9 "Conversion Price" shall have the meaning set forth in
Section 3.1 hereof.
1.10 "Conversion Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.11 "Converting Holder" shall have the meaning set forth in
Section 3.5 hereof.
1.12 "Corporation" shall mean AOL Time Warner Inc., a Delaware
corporation, and any of its successors by operation of law, including by merger,
consolidation or sale or conveyance of all or substantially all of its property
and assets.
1.13 "Current Market Price" of the Common Stock on any date
shall mean the average of the daily Closing Prices per share of the Common Stock
for the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
<PAGE>
4
1.14 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
1.15 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.16 "Exchange Price" shall have the meaning set forth in
Section 4.1 hereof.
1.17 "Junior Stock" shall mean the Common Stock, the Series LMC
Stock, the Series LMCN-V Stock and the shares of any other class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be junior to the
Series E Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.18 "Liquidation Value" shall have the meaning set forth in
Section 6.1 hereof.
1.19 "Merger Agreement" shall mean the Second Amended and
Restated Agreement and Plan of Merger dated as of January 10, 2000, among AOL
Time Warner Inc., America Online, Inc., Time Warner Inc., America Online Merger
Sub Inc. and Time Warner Merger Sub Inc., as such agreement may be amended from
time to time in accordance with its terms.
1.20 "NASDAQ" shall mean the Nasdaq Stock Market.
1.21 "NYSE" shall mean the New York Stock Exchange, Inc.
1.22 "Parity Stock" shall mean the Series F Stock, the Series I
Stock, the Series J Stock and the shares of any other class or series of Capital
Stock of the Corporation that, by the terms of the Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall, in the event that the stated
dividends thereon are not paid in full, be entitled to share ratably with the
Series E Stock in the payment of dividends, including accumulations, if any, in
accordance with the sums that would be payable on such shares if all dividends
were declared and paid in full, or
<PAGE>
5
shall, in the event that the amounts payable thereon on liquidation are not paid
in full, be entitled to share ratably with the Series E Stock in any
distribution of assets other than by way of dividends in accordance with the
sums that would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall be
-------- -------
deemed to refer (i) in Section 2.2 hereof, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 6 hereof, to any stock that is
Parity Stock in respect of the distribution of assets; and (iii) in Sections 5.2
and 5.3 hereof, to any stock that is Parity Stock in respect of either dividend
rights or the distribution of assets and that, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation, shall so designate, is
entitled to vote with the holders of Series E Stock.
1.23 "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
1.24 "Preferred Stock" shall mean the class of Preferred Stock, par
value $0.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.25 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, whether for cash
or other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but excluding any purchase made in open market
transactions that satisfies the conditions of clause (b) of Rule 10b-18 under
the Exchange Act or has been designed (as reasonably determined by the Board of
Directors) to prevent such purchase from having a material effect on the trading
market of the Common Stock. The "Effective Date" of a Pro Rata Repurchase shall
mean the applicable expiration date (including all extensions thereof) of any
tender or exchange offer that is a Pro Rata Repurchase or the date of purchase
with respect to any Pro Rata Repurchase that is not a tender or exchange offer.
1.26 "Record Date" shall have the meaning set forth in Section 2.1
hereof.
1.27 "Redemption Price" shall have the meaning set forth in Section
4.1 hereof.
<PAGE>
6
1.28 "Redemption Rescission Event" shall mean the occurrence of (a)
any general suspension of trading in, or limitation on prices for, securities on
the principal national securities exchange on which shares of Common Stock are
registered and listed for trading (or, if shares of Common Stock are not
registered and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6-1/2) consecutive trading hours, (b)
any decline in either the Dow Jones Industrial Average or the Standard & Poor's
Index of 400 Industrial Companies (or any successor index published by Dow Jones
& Company, Inc. or Standard & Poor's Corporation) by either (i) an amount in
excess of 10%, measured from the close of business on any Trading Day to the
close of business on the next succeeding Trading Day during the period
commencing on the Trading Day preceding the day notice of any redemption of
shares of this Series is given (or, if such notice is given after the close of
business on a Trading Day, commencing on such Trading Day) and ending at the
earlier of (x) the time and date fixed for redemption in such notice and (y) the
time and date at which the Corporation shall have irrevocably deposited funds
with a designated bank or trust company pursuant to Section 4.4 or (ii) an
amount in excess of 15% (or, if the time and date fixed for redemption is more
than 15 days following the date on which notice of redemption is given, 20%),
measured from the close of business on the Trading Day preceding the day notice
of such redemption is given (or, if such notice is given after the close of
business on a Trading Day, from such Trading Day) to the close of business on
any Trading Day on or prior to the earlier of the dates specified in clauses (x)
and (y) above, (c) a declaration of a banking moratorium or any suspension of
payments in respect of banks by Federal or state authorities in the United
States or (d) the commencement of a war or armed hostilities or other national
or international calamity directly or indirectly involving the United States
that in the reasonable judgment of the Corporation could have a material adverse
effect on the market for the Common Stock.
1.29 "Rescission Date" shall have the meaning set forth in Section 4.5
hereof.
1.30 "Senior Stock" shall mean the shares of any class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series E Stock in respect of the right to receive dividends or to
<PAGE>
7
participate in any distribution of assets other than by way of dividends.
1.31 "Series E Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series E Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.32 "Series F Stock" shall mean the series of Preferred Stock
authorized and designated as Series F Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.33 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as Series I Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.34 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.35 "Series LMC Stock" shall mean the series of Series Common Stock
authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.36 "Series LMCN-V Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.37 "Surrendered Shares" shall have the meaning set forth in Section
3.5 hereof.
1.38 "Trading Day" shall mean, so long as the Common Stock is listed
or admitted to trading on the NYSE, a day on which the NYSE is open for the
transaction of business, or, if the Common Stock is not listed or admitted to
trading on the NYSE, a day on which the principal national securities exchange
on which the Common Stock is listed is open for the transaction of business, or,
if the Common Stock is not so listed or admitted for trading on any
<PAGE>
8
national securities exchange, a day on which NASDAQ is open for the transaction
of business.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series E Stock shall be entitled
to receive quarter-annual dividends, as and when declared by the Board of
Directors out of funds legally available therefor. Each quarter-annual dividend
shall be an amount per share equal to (i) in the case of each Dividend Payment
Date (as defined below) occurring on or prior to January 4, 2001, the greater of
(A) $.9375 per $100 of Liquidation Value of Series E Stock (which is equivalent
to $3.75 per annum), and (B) an amount per $100 of Liquidation Value of Series E
Stock equal to the product of (1) the Conversion Rate and (2) the aggregate per
share amount of regularly scheduled dividends paid in cash on the Common Stock
during the period from but excluding the immediately preceding Dividend Payment
Date to and including such Dividend Payment Date (the "Preferred Dividend
Amount"), and (ii) in the case of each Dividend Payment Date occurring
thereafter, an amount per share of Series E Stock equal to the product of (1)
the Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period from but
excluding the immediately preceding Dividend Payment Date to and including such
Dividend Payment Date. All dividends shall be payable in cash on or about the
first day of March, June, September and December in each year, as fixed by the
Board of Directors, or such other dates as are fixed by the Board of Directors
(provided that January 4, 2001, shall be a Dividend Payment Date) (each a
"Dividend Payment Date"), to the holders of record of Series E Stock at the
close of business on or about the Trading Day next preceding such first day of
March, June, September and December (or January 4, 2001) as the case may be, as
fixed by the Board of Directors, or such other dates as are fixed by the Board
of Directors (each a "Record Date"). Subject to the next sentence, in the case
of dividends payable in respect of periods prior to January 4, 2001, (i) such
dividends shall accrue on each share on a daily basis, whether or not there are
unrestricted funds legally available for the payment of such dividends and
whether or not declared and (ii) any such dividends that become payable for any
partial dividend period shall be computed on the basis of the actual days
elapsed in such period. Notwithstanding the preceding sentence, the amount
accruing and payable in respect of the first dividend on the Series E Stock
payable after the date of the Certificate shall equal the Preferred Dividend
Amount. From and after January 4, 2001, dividends on the Series E Stock
(determined as to amount as provided herein)
<PAGE>
9
shall accrue to the extent, but only to the extent, that regularly scheduled
cash dividends are declared by the Board of Directors on the Common Stock with a
payment date after January 4, 2001 (or, in the case of Series E Stock originally
issued after January 4, 2001, after the Dividend Payment Date next preceding
such date of original issuance). All dividends that accrue in accordance with
the foregoing provisions shall be cumulative from and after the day immediately
succeeding the date of issuance. The amount payable to each holder of record on
any Dividend Payment Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless all
dividends on the outstanding shares of Series E Stock and any Parity Stock that
shall have accrued and become payable as of any date shall have been paid, or
declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series E Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series E Stock, Junior Stock or Parity Stock. When dividends are not paid in
full upon the shares of this Series and any Parity Stock, all dividends declared
upon shares of this Series and all Parity Stock shall be declared pro rata so
that the amount of dividends declared per share on this Series and all such
Parity Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and all such Parity Stock bear
to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on this Series that may
be in arrears.
2.3 In case the Corporation shall at any time distribute (other than
a distribution in liquidation of the Corporation) to the holders of its shares
of Common Stock any assets or property, including evidences of indebtedness or
securities of the Corporation (other than Common Stock subject to a distribution
or reclassification covered by Section 3.6(a)) or of any other Person (including
common stock of such Person) or cash (but excluding regularly scheduled cash
dividends payable on shares of Common Stock) or in case the Corporation shall at
any time distribute (other than a distribution in liquidation of the
Corporation) to such holders rights, options or warrants to subscribe for or
purchase shares of Common Stock (including
<PAGE>
10
shares held in the treasury of the Corporation), or rights, options or warrants
to subscribe for or purchase any other security or rights, options or warrants
to subscribe for or purchase any assets or property (in each case, whether of
the Corporation or otherwise, but other than any distribution of rights to
purchase securities of the Corporation if the holder of shares of this Series
would otherwise be entitled to receive such rights upon conversion of shares of
this Series for Common Stock; provided, however, that if such rights are
-------- -------
subsequently redeemed by the Corporation, such redemption shall be treated for
purposes of this Section 2.3 as a cash dividend (but not a regularly scheduled
cash dividend) on the Common Stock), the Corporation shall simultaneously
distribute such assets, property, securities, rights, options or warrants pro
rata to the holders of Series E Stock on the record date fixed for determining
holders of Common Stock entitled to participate in such distribution (or, if no
such record date shall be established, the effective time thereof) in an amount
equal to the amount that such holders of Series E Stock would have been entitled
to receive had their shares of Series E Stock been converted into Common Stock
immediately prior to such record date (or effective time). In the event of a
distribution to holders of Series E Stock pursuant to this Section 2.3, such
holders shall be entitled to receive fractional shares or interests only to the
extent that holders of Common Stock are entitled to receive the same. The
holders of Series E Stock on the applicable record date (or effective time)
shall be entitled to receive in lieu of such fractional shares or interests the
same consideration as is payable to holders of Common Stock with respect
thereto. If there are no fractional shares or interests payable to holders of
Common Stock, the holders of Series E Stock on the applicable record date (or
effective time) shall receive in lieu of such fractional shares or interests the
fair value thereof as determined by the Board of Directors.
2.4 If a distribution is made in accordance with the provisions of
Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the
<PAGE>
11
kind and amount of securities or other property that shall be distributable to
the holders of the Series E Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series E Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of the Series E Stock shall
be based on the kind or amount of securities or other property receivable by a
plurality of the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section, the Corporation shall mail a copy thereof to the record holders on
the date of mailing of the largest number of shares of the Series E Stock as of
the date used for determining the holders of record of Common Stock entitled to
such mailing.
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right at any
time or as to any share of this Series called for redemption or exchange, at any
time prior to the close of business on the date fixed for redemption or exchange
(unless the Corporation defaults in the payment of the Redemption Price or fails
to exchange the shares of this Series for the applicable number of shares of
Common Stock and any cash portion of the Exchange Price or exercises its right
to rescind such redemption pursuant to Section 4.5, in which case such right
shall not terminate at the close of business on such date), to convert such
share into (i) a number of shares of Common Stock equal to 6.24792 shares of
Common Stock for each share of this Series, subject to appropriate adjustment in
the event of a split or combination of shares of this Series and subject to
further adjustment as provided in this Section 3 (such rate, as so adjusted from
time to time, is herein called the "Conversion Rate"; and the "Conversion Price"
at any time shall mean the Liquidation Value per share divided by the Conversion
Rate in effect at such time (rounded to the nearest one hundredth of a cent))
plus (ii) in the event there shall be any dividends on shares of this Series
that shall be accrued and
<PAGE>
12
unpaid as of the immediately preceding Dividend Payment Date, a number of shares
of Common Stock equal to:
(A) the aggregate amount of accrued and unpaid dividends on such
share of Series E Stock to and including the most recent scheduled
Dividend Payment Date (whether or not such dividends were declared and
whether or not there are unrestricted funds legally available for the
payment thereof) (the "Accrued Dividend Amount") divided by
------- --
(B) the Closing Price of the Common Stock on the last Trading Day
prior to the Conversion Date;
provided, however, that the Corporation shall have the right to deliver cash
- -------- -------
equal to the Accrued Dividend Amount or any portion thereof, in which case its
obligation to deliver shares of Common Stock pursuant to this clause (ii) shall
be reduced by a number of shares equal to (x) the aggregate amount of cash so
delivered divided by (y) the Closing Price of the Common Stock on the last
------- --
Trading Day prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Accrued Dividend Amount, in which case its entire
obligation under this clause (ii) shall be discharged. The obligations of the
Corporation to issue the Common Stock (or its option to make cash payments)
provided by this Section 3.1 shall be absolute whether or not any accrued
dividend by which such issuance (or payment) is measured has been declared by
the Board of Directors and whether or not the Corporation would have adequate
surplus or net profits to pay such dividend if declared or is otherwise
restricted from paying such dividend.
3.2 Except as provided in this Section 3, no adjustments in respect
of payments of dividends on shares surrendered for conversion or any dividend on
the Common Stock issued upon conversion shall be made upon the conversion of any
shares of this Series (it being understood that if the Conversion Date for
shares of Series E Stock occurs after a Record Date and on or prior to a
Dividend Payment Date, the holder of record on such Record Date shall be
entitled to receive the dividend payable with respect to such shares on the
related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in connection
with any conversion of shares of this Series, issue a fraction of a share of
Common Stock, and if the Corporation shall determine not to issue any such
fraction, the Corporation shall, subject to Section 3.6(d),
<PAGE>
13
make a cash payment (rounded to the nearest cent) equal to such fraction
multiplied by the Closing Price of the Common Stock on the last Trading Day
prior to the Conversion Date.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. If any such certificate or certificates shall have been lost,
stolen or destroyed, the holder shall, in lieu of delivering such certificate or
certificates, deliver to the transfer agent or agents therefor (or such other
place) an indemnification agreement and bond satisfactory to the Corporation.
The Corporation shall, as soon as practicable (subject to Section 3.6(e)) after
such deposit of certificates for shares of this Series or delivery of the
indemnification agreement and bond, accompanied by the written notice above
prescribed, issue and deliver at such office to the holder for whose account
such shares were surrendered, or to his nominee, certificates representing the
number of shares of Common Stock and the cash, if any, to which such holder is
entitled upon such conversion.
3.5 Conversion shall be deemed to have been made as of the date (the
"Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything to
the contrary contained herein, in the event the Corporation shall have rescinded
a redemption of shares of this Series pursuant to Section 4.5, any holder of
shares of this Series that shall have surrendered shares of this Series for
conversion following the day on which notice of the subsequently rescinded
redemption shall have been given but prior to the close of business on the later
of (a) the Trading Day next succeeding the date on which public announcement of
the rescission of such redemption shall have been made and (b) the Trading Day
on which the notice of rescission required by Section 4.5 is deemed given
pursuant to Section 7.2 (a "Converting Holder")
<PAGE>
14
may rescind the conversion of such shares surrendered for conversion by (i)
properly completing a form prescribed by the Corporation and mailed to holders
of shares of this Series (including Converting Holders) with the Corporation's
notice of rescission, which form shall provide for the certification by any
Converting Holder rescinding a conversion on behalf of any beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of shares of this
Series that the beneficial ownership (within the meaning of such Rule) of such
shares shall not have changed from the date on which such shares were
surrendered for conversion to the date of such certification and (ii) delivering
such form to the Corporation no later than the close of business on that date
which is ten (10) Trading Days following the date on which the Corporation's
notice of rescission is deemed given pursuant to Section 7.2. The delivery of
such form by a Converting Holder shall be accompanied by (x) any certificates
representing shares of Common Stock issued to such Converting Holder upon a
conversion of shares of this Series that shall be rescinded by the proper
delivery of such form (the "Surrendered Shares"), (y) any securities, evidences
of indebtedness or assets (other than cash) distributed by the Corporation to
such Converting Holder by reason of such Converting Holder's being a record
holder of Surrendered Shares and (z) payment in New York Clearing House funds or
other funds acceptable to the Corporation of an amount equal to the sum of (I)
any cash such Converting Holder may have received in lieu of the issuance of
fractional shares upon conversion and (II) any cash paid or payable by the
Corporation to such Converting Holder by reason of such Converting Holder being
a record holder of Surrendered Shares. Upon receipt by the Corporation of any
such form properly completed by a Converting Holder and any certificates,
securities, evidences of indebtedness, assets or cash payments required to be
returned or made by such Converting Holder to the Corporation as set forth
above, the Corporation shall instruct the transfer agent or agents for shares of
Common Stock and shares of this Series to cancel any certificates representing
Surrendered Shares (which Surrendered Shares shall be deposited in the treasury
of the Corporation) and reissue certificates representing shares of this Series
to such Converting Holder (which shares of this Series shall be deemed to have
been outstanding at all times during the period following their surrender for
conversion). The Corporation shall, as promptly as practicable, and in no event
more than five (5) Trading Days, following the receipt of any such properly
completed form and any such certificates, securities, evidences of indebtedness,
assets or cash payments required to be so returned or made, pay to the
Converting Holder or as otherwise directed by such
<PAGE>
15
Converting Holder any dividend or other payment made on such shares during the
period from the time such shares shall have been surrendered for conversion to
the rescission of such conversion. All questions as to the validity, form,
eligibility (including time or receipt) and acceptance of any form submitted to
the Corporation to rescind the conversion of shares of this Series, including
questions as to the proper completion or execution of any such form or any
certification contained therein, shall be resolved by the Corporation, whose
determination shall be final and binding. The Corporation shall not be required
to deliver certificates for shares of Common Stock while the stock transfer
books for such stock or for this Series are duly closed for any purpose or
during any period commencing at a Redemption Rescission Event and ending at
either (i) the time and date at which the Corporation's right of rescission
shall expire pursuant to Section 4.5 if the Corporation shall not have exercised
such right or (ii) the close of business on that day which is ten (10) Trading
Days following the date on which the Corporation's notice of rescission pursuant
to Section 4.4 is deemed given pursuant to Section 7.2 if the Corporation shall
have exercised such right of rescission, but certificates for shares of Common
Stock shall be delivered as soon as practicable after the opening of such books
or the expiration of such period.
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring after the effective time of the transactions
contemplated by the Merger Agreement:
(a) In case the Corporation shall (i) pay a dividend in shares
of its Common Stock, (ii) combine its outstanding shares of Common
Stock into a smaller number of shares, (iii) subdivide its outstanding
shares of Common Stock or (iv) reclassify (other than by way of a
merger or consolidation that is subject to Section 3.7) its shares of
Common Stock, then the Conversion Rate in effect immediately before
such action shall be adjusted so that immediately following such event
the holders of the Series E Stock shall be entitled to receive upon
conversion or exchange thereof the kind and amount of shares of
Capital Stock of the Corporation that they would have owned or been
entitled to receive upon or by reason of such event if such shares of
Series E Stock had been converted immediately before the record date
(or, if no record date, the effective date) for such event (it being
understood that any distribution of cash or
<PAGE>
16
Capital Stock (other than Common Stock), including any distribution of
Capital Stock (other than Common Stock) that shall accompany a
reclassification of the Common Stock, shall be subject to Section 2.3
rather than this Section 3.6(a)). An adjustment made pursuant to this
Section 3.6(a) shall become effective retroactively immediately after
the record date in the case of a dividend or distribution and shall
become effective retroactively immediately after the effective date in
the case of a subdivision, combination or reclassification. For the
purposes of this Section 3.6(a), in the event that the holders of
Common Stock are entitled to make any election with respect to the
kind or amount of securities receivable by them in any transaction
that is subject to this Section 3.6(a) (including any election that
would result in all or a portion of the transaction becoming subject
to Section 2.3), the kind and amount of securities that shall be
distributable to the holders of the Series E Stock shall be based on
(i) the election, if any, made by the record holder (as of the date
used for determining the holders of Common Stock entitled to make such
election) of the largest number of shares of Series E Stock in writing
to the Corporation on or prior to the last date on which a holder of
Common Stock may make such an election or (ii) if no such election is
timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities is not
the same for each nonelecting holder, then the kind and amount of
securities receivable shall be based on the kind or amount of
securities receivable by a plurality of nonelecting holders of Common
Stock). Concurrently with the mailing to holders of Common Stock of
any document pursuant to which such holders may make an election of
the type referred to in this Section, the Corporation shall mail a
copy thereof to the record holders of the Series E Stock as of the
date used for determining the holders of record of Common Stock
entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion Rate
in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction
as follows: (i) in the case of a Change of Control specified in
Section 1.5(a), a fraction
<PAGE>
17
in which the numerator is the Conversion Price prior to adjustment
pursuant hereto and the denominator is the Current Market Price of the
Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control specified in Section 1.5(b), the greater of the
following fractions: (x) a fraction the numerator of which is the
highest price per share of Common Stock paid by the Acquiring Person
in connection with the transaction giving rise to the Change of
Control or any transaction within six months prior to or after the
Change of Control Date (the "Highest Price"), and the denominator of
which is the Current Market Price of the Common Stock as of the date
(but not earlier than six months prior to the Change of Control Date)
on which the first public announcement is made by the Acquiring Person
that it intends to acquire or that it has acquired 40% or more of the
outstanding shares of Common Stock (the "Announcement Date") or (y) a
fraction the numerator of which is the Conversion Price prior to
adjustment pursuant hereto and the denominator of which is the Current
Market Price of the Common Stock on the Announcement Date and (iii) in
the case where there coexists a Change of Control specified in both
Section 1.5(a) and Section 1.5(b), the greatest of the fractions
determined pursuant to clauses (i) and (ii). Such adjustment shall
become effective immediately after the Change of Control Date and
shall be made, in the case of clauses (ii) and (iii) above,
successively for six months thereafter in the event and at the time of
any increase in the Highest Price after the Change of Control Date;
provided, however, that no such successive adjustment shall be made
-------- -------
with respect to the Conversion Rate of the shares of this Series in
respect of any event occurring after the Conversion Date.
(c) In case the Corporation or any subsidiary thereof shall make
a Pro Rata Repurchase, the Conversion Rate in effect immediately prior
to such action shall be adjusted (but shall not be decreased) by
multiplying such Conversion Rate by a fraction, the numerator of which
shall be the product of (i) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase minus the
number of shares of Common Stock repurchased by the Corporation or any
subsidiary thereof in such Pro
<PAGE>
18
Rata Repurchase and (ii) the Current Market Price of the Common Stock
as of the day immediately preceding the first public announcement by
the Corporation of the intent to effect such Pro Rata Repurchase, and
the denominator of which shall be (i) the product of (x) the number of
shares of Common Stock outstanding immediately before such Pro Rata
Repurchase and (y) the Current Market Price of the Common Stock as of
the day immediately preceding the first public announcement by the
Corporation of the intent to effect such Pro Rata Repurchase minus
(ii) the aggregate purchase price of the Pro Rata Repurchase (provided
that such denominator shall never be less than 1). Such adjustment
shall become effective immediately after the Effective Date of such
Pro Rata Repurchase.
(d) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a), 3.6(b) and 3.6(c) as shall be necessary in order
that any dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes, so long as such additional
adjustments pursuant to this Section 3.6(d) do not decrease the
Conversion Rate.
(e) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately
following a record date, the Corporation may elect to defer (but only
for five (5) Trading Days following the occurrence of the event that
necessitates the filing of the statement referred to in Section
3.6(g)) issuing to the holder of any shares of this Series converted
after such record date (i) the shares of Common Stock and other
Capital Stock of the Corporation issuable upon such conversion over
and above (ii) the shares of Common Stock and other Capital Stock of
the Corporation issuable upon such conversion on the basis of the
Conversion Rate prior to adjustment; provided, however, that the
-------- -------
Corporation shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such
adjustment.
<PAGE>
19
(f) All calculations under this Section 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the
Conversion Rate, one hundred-thousandth. Notwithstanding any other
provision of this Section 3, the Corporation shall not be required to
make any adjustment of the Conversion Rate unless such adjustment
would require an increase or decrease of at least 1.00000% of such
Conversion Rate. Any lesser adjustment shall be carried forward and
shall be made at the time of and together with the next subsequent
adjustment that, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least
1.00000% in such rate. Any adjustments under this Section 3 shall be
made successively whenever an event requiring such an adjustment
occurs.
(g) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent
or agents for this Series a statement signed by a duly authorized
officer of the Corporation, stating the adjusted Conversion Rate
determined as provided herein. Such statements shall set forth in
reasonable detail such facts as shall be necessary to show the reason
for and the manner of computing such adjustment. Promptly after the
adjustment of the Conversion Rate, the Corporation shall mail a notice
thereof to each holder of shares of this Series.
(h) In the event that on or at any time as a result of an
adjustment made pursuant to this Section 3, the holder of any share of
this Series thereafter surrendered for conversion shall become
entitled to receive any shares of Capital Stock of the Corporation
other than shares of Common Stock, the conversion rate of such other
shares so receivable upon conversion of any such share of this Series
shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in subparagraphs (a) through (g) and
(i) of this Section 3.6, and the provisions of Sections 3.1 through
3.5 and 3.7 through 3.10 shall apply on like or similar terms to any
such other shares and the determination of the Board of Directors as
to any such adjustment shall be conclusive.
<PAGE>
20
(i) No adjustment shall be made pursuant to this Section 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below
the par value of the Common Stock or (ii) subject to Section 3.6(d)
hereof, with respect to any share of Series E Stock that is converted,
prior to the time such adjustment otherwise would be made.
3.7 In the event that after the effective time of the transactions
contemplated by the Merger Agreement, either (a) any consolidation or merger to
which the Corporation is a party, other than a merger or consolidation in which
the Corporation is the surviving or continuing corporation and that does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock
or (b) any sale or conveyance of all or substantially all of the property and
assets of the Corporation, then lawful provision shall be made as part of the
terms of such transaction whereby the holder of each share of Series E Stock
shall have the right thereafter, during the period such share shall be
convertible or exchangeable, to convert such share into or have such shares
exchanged for the kind and amount of shares of stock or other securities and
property receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such shares of this
Series could have been converted or exchanged immediately prior to such
consolidation, merger, sale or conveyance, subject to adjustment that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 3 (based on (i) the election, if any, made in writing to the
Corporation by the record holder (as of the date used for determining holders of
Common Stock entitled to make such election) of the largest number of shares of
Series E Stock on or prior to the last date on which a holder of Common Stock
may make an election regarding the kind or amount of securities or other
property receivable by such holder in such transaction or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable shall be based upon the kind and amount
of securities or other property receivable by a plurality of the nonelecting
holders of Common Stock)). In the event that any of the transactions referred to
in clause (a) or (b) involve the distribution of cash or property (other than
equity securities) to a holder
<PAGE>
21
of Common Stock, lawful provision shall be made as part of the terms of the
transaction whereby the holder of each share of Series E Stock on the record
date fixed for determining holders of Common Stock entitled to receive such cash
or property (or if no such record date is established, the effective date of
such transaction) shall be entitled to receive the amount of cash or property
that such holder would have been entitled to receive had such holder converted
his shares of Series E Stock into Common Stock immediately prior to such record
date (or effective date) (based on the election or nonelection made by the
record holder of the largest number of shares of Series E Stock, as provided
above). Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election regarding the kind or amount
of securities or other property that will be receivable by such holder in any
transaction described in clause (a) or (b) of the first sentence of this Section
3.7, the Corporation shall mail a copy thereof to the record holders of the
Series E Stock as of the date used for determining the holders of record of
Common Stock entitled to such mailing. The Corporation shall not enter into any
of the transactions referred to in clause (a) or (b) of the preceding sentence
unless effective provision shall be made in the certificate or articles of
incorporation or other constituent documents of the Corporation or the entity
surviving the consolidation or merger, if other than the Corporation, or the
entity acquiring the Corporation's assets, as the case may be, so as to give
effect to the provisions set forth in this Section 3.7. The provisions of this
Section 3.7 shall apply similarly to successive consolidations, mergers, sales
or conveyances. For purposes of this Section 3.7, the term "Corporation" shall
refer to the Corporation (as defined in Section 1.12) as constituted immediately
prior to the merger, consolidation or other transaction referred to in this
Section.
3.8 The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number of
its duly authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be sufficient to
effect the conversion of all outstanding shares of this Series into such Common
Stock (or such other shares of Capital Stock) at any time (assuming that, at the
time of the computation of such number of shares, all such Common Stock (or such
other shares of Capital Stock) would be held by a single holder); provided,
--------
however, that nothing contained herein shall preclude the Corporation from
- -------
<PAGE>
22
satisfying its obligations in respect of the conversion of the shares by
delivery of purchased shares of Common Stock (or such other shares of Capital
Stock) that are held in the treasury of the Corporation. All shares of Common
Stock (or such other shares of Capital Stock of the Corporation) that shall be
deliverable upon conversion of the shares of this Series shall be duly and
validly issued, fully paid and nonassessable. For purposes of this Section 3,
any shares of Common Stock at any time outstanding shall not include shares held
in the treasury of the Corporation.
3.9 If any shares of Common Stock that would be issuable upon
conversion (or pursuant to redemption or exchange) of shares of this Series
hereunder require registration with or approval of any governmental authority
before such shares may be issued upon conversion, the Corporation will in good
faith and as expeditiously as possible cause such shares to be duly registered
or approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares representing
fractional interests in) Common Stock or other shares of Capital Stock required
to be delivered upon conversion of shares of this Series prior to such delivery
upon the principal national securities exchange upon which the outstanding
Common Stock (or other shares of Capital Stock) is listed at the time of such
delivery.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion (or pursuant to redemption or exchange) of shares of this Series
pursuant hereto. The Corporation shall not, however, be required to pay any tax
that is payable in respect of any transfer involved in the issue or delivery of
Common Stock or such other shares of Capital Stock in a name other than that in
which the shares of this Series so converted were registered, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Corporation the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, (ii) any Pro Rata Repurchase or
(iii) any action triggering an adjustment to the Conversion Rate pursuant to
this Section 3, then, in each case, the Corporation shall cause to be filed with
the transfer agent or agents for the Series E Stock, and shall cause to be
mailed, first-class postage prepaid, to the holders of
<PAGE>
23
record of the outstanding shares of Series E Stock, at least fifteen (15) days
prior to the applicable record date for any such transaction (or if no record
date will be established, the effective date thereof), a notice stating (x) the
date, if any, on which a record is to be taken for the purpose of any such
transaction (or, if no record date will be established, the date as of which
holders of record of Common Stock entitled to participate in such transaction
are determined), and (y) the expected effective date thereof. Failure to give
such notice or any defect therein shall not affect the legality or validity of
the proceedings described in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to Section
2.2 hereof, from time to time on and after January 4, 2001, redeem, out of funds
legally available therefor, or, as provided below, exchange shares of Common
Stock for, all (or in the case of Section 4.1(b)(i), any part) of the
outstanding shares of this Series. The redemption price for each share of this
Series called for redemption pursuant to clause (i) of Section 4.1(b) shall be
the Liquidation Value together with an amount equal to the accrued and unpaid
dividends to the date fixed for redemption (hereinafter collectively referred to
as the "Redemption Price"). The exchange price for each share of this Series
called for exchange pursuant to clause (ii) of Section 4.1(b) shall be a number
of shares of Common Stock equal to the Conversion Rate, together with, at the
option of the Corporation, either (x) cash or (y) a number of shares of Common
Stock, valued at the Closing Price on the Trading Day immediately preceding the
date fixed for exchange, equal, in either case, to the aggregate amount of
accrued and unpaid dividends on the Series E Stock to the date fixed for
exchange (hereinafter collectively referred to as the "Exchange Price").
(b) On the date fixed for redemption or exchange the Corporation
shall, at its option, effect either
(i) a redemption of the shares of this Series to be redeemed
by way of payment, out of funds legally available therefor, of
cash equal to the aggregate Redemption Price for the shares of
this Series then being redeemed;
(ii) an exchange of the shares of this Series for the
Exchange Price in shares of Common Stock (provided that the
--------
Corporation
<PAGE>
24
shall be entitled to deliver cash (A) in lieu of any fractional
share of Common Stock (determined in a manner consistent with
Section 3.3) and (B) equal to accrued and unpaid dividends to the
date fixed for exchange in lieu of shares of Common Stock); or
(iii) any combination thereof with respect to each share of
this Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series E Stock
for Common Stock (or other shares of Capital Stock) only to the extent Common
Stock (or other shares of Capital Stock) shall be available for issuance
(including delivery of previously issued shares of Common Stock held in the
Corporation's treasury on the date fixed for exchange), which shares shall be
duly and validly issued, fully paid and non-assessable. Certificates for shares
of Common Stock issued in exchange for surrendered shares of this Series
pursuant to this Section 4.1 shall be made available by the Corporation not
later than the fifth Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of this
Series are to be redeemed pursuant to Section 4.1(b)(i), the number of shares to
be redeemed from each holder of shares of this Series shall be determined by the
Corporation by lot or pro rata or by any other method as may be determined by
the Board of Directors in its sole discretion to be equitable, and the
certificate of the Corporation's Secretary or an Assistant Secretary filed with
the transfer agent or transfer agents for this Series in respect of such
determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares of
this Series pursuant to Section 4.1, notice of such redemption or exchange shall
be given by first class mail, postage prepaid, mailed not less than fifteen (15)
nor more than sixty (60) days prior to the date fixed for redemption or
exchange, as the case may be, to each record holder of the shares to be redeemed
or exchanged, at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) whether the shares of this
Series are to be redeemed or exchanged; (ii) the time and date as of which the
redemption or exchange shall occur; (iii) the total number of shares of
<PAGE>
25
this Series to be redeemed or exchanged and, if fewer than all the shares held
by such holder are to be redeemed, the number of such shares to be redeemed from
such holder; (iv) the Redemption Price or the Exchange Price, as the case may
be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price, in the case of redemption, or for delivery of certificates representing
the shares of Common Stock and the payment of any cash portion of the Exchange
Price, in the case of exchange; and (viii) that, subject to Section 4.4 of this
Certificate, dividends on the shares of this Series to be redeemed or exchanged
will cease to accrue on such redemption or exchange date.
4.4 If notice of redemption or exchange shall have been given by the
Corporation as provided in Section 4.3, dividends on the shares of this Series
so called for redemption or exchange shall cease to accrue, such shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof as
stockholders with respect to shares so called for redemption or exchange (except
(i) in the case of redemption, the right to receive from the Corporation the
Redemption Price without interest and in the case of exchange, the right to
receive from the Corporation the Exchange Price without interest and (ii) the
right to convert such shares in accordance with Section 3) shall cease
(including any right to receive dividends otherwise payable on any Dividend
Payment Date that would have occurred after the time and date of redemption or
exchange) either (i) in the case of a redemption or exchange pursuant to Section
4.1, from and after the time and date fixed in the notice of redemption or
exchange as the time and date of redemption or exchange (unless the Corporation
shall (x) in the case of a redemption, default in the payment of the Redemption
Price, (y) in the case of an exchange, fail to exchange the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or (z)
exercise its right to rescind such redemption pursuant to Section 4.5, in which
case such rights shall not terminate at such time and date) or (ii) if the
Corporation
<PAGE>
26
shall so elect and state in the notice of redemption or exchange, from and after
the time and date (which date shall be the date fixed for redemption or exchange
or an earlier date not less than fifteen (15) days after the date of mailing of
the redemption or exchange notice) on which the Corporation shall irrevocably
deposit with a designated bank or trust company doing business in the Borough of
Manhattan, City and State of New York, as paying agent, money sufficient to pay
at the office of such paying agent, on the redemption date, the Redemption
Price, in the case of redemption, or certificates representing the shares of
Common Stock to be so exchanged and any cash portion of the Exchange Price, in
the case of an exchange. Any money or certificates so deposited with any such
paying agent that shall not be required for such redemption or exchange because
of the exercise of any right of conversion or otherwise shall be returned to the
Corporation forthwith. Upon surrender (in accordance with the notice of
redemption or exchange) of the certificate or certificates for any shares of
this Series to be so redeemed or exchanged (properly endorsed or assigned for
transfer, if the Corporation shall so require and the notice of redemption or
exchange shall so state), such shares shall be redeemed or exchanged by the
Corporation at the Redemption Price or the Exchange Price, as applicable, as set
forth in Section 4.1 (unless the Corporation shall have exercised its right to
rescind such redemption pursuant to Section 4.5). In case fewer than all the
shares represented by any such certificate are to be redeemed, a new certificate
shall be issued representing the unredeemed shares (or fractions thereof as
provided in Section 7.4), without cost to the holder thereof, together with the
amount of cash, if any, in lieu of fractional shares other than those issuable
in accordance with Section 7.4. Subject to applicable escheat laws, any moneys
so set aside by the Corporation in the case of redemption and unclaimed at the
end of one year from the redemption date shall revert to the general funds of
the Corporation, after which reversion the holders of such shares so called for
redemption or exchange shall look only to the general funds of the Corporation
for the payment of the Redemption Price or the Exchange Price, as applicable,
without interest. Any interest accrued on funds so deposited shall be paid to
the Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the
<PAGE>
27
Corporation shall have irrevocably deposited funds or certificates with a
designated bank or trust company pursuant to Section 4.4, the Corporation may,
at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption under Section 4.1(b)(i) to which such notice of
redemption shall have related by making a public announcement of such rescission
(the date on which such public announcement shall have been made being
hereinafter referred to as the "Rescission Date"). The Corporation shall be
deemed to have made such announcement if it shall issue a release to the Dow
Jones News Service, Reuters Information Services or any successor news wire
service. From and after the making of such announcement, the Corporation shall
have no obligation to redeem shares of this Series called for redemption
pursuant to such notice of redemption or to pay the redemption price therefor
and all rights of holders of shares of this Series shall be restored as if such
notice of redemption had not been given. The Corporation shall give notice of
any such rescission by one of the means specified in Section 7.2 as promptly as
practicable, but in no event later than the close of business on that date which
is five (5) Trading Days following the Rescission Date to each record holder of
shares of this Series at the close of business on the Rescission Date and to any
other Person or entity that was a record holder of shares of this Series and
that shall have surrendered shares of this Series for conversion following the
giving of notice of the subsequently rescinded redemption. Each notice of
rescission shall (w) state that the redemption described in the notice of
redemption has been rescinded, (x) state that any Converting Holder shall be
entitled to rescind the conversion of shares of this Series surrendered for
conversion following the day on which notice of redemption was given but prior
to the close of business on the later of (1) the Trading Day next succeeding the
date on which public announcement of the rescission of such redemption shall
have been made and (2) the Trading Day on which the Corporation's notice of
rescission is deemed given pursuant to Section 7.2, (y) be accompanied by a form
prescribed by the Corporation to be used by any Converting Holder rescinding the
conversion of shares so surrendered for conversion (and instructions for the
completion and delivery of such form, including instructions with respect to
payments that may be required to accompany such delivery shall be in accordance
with Section 3.5) and (z) state that such form must be
<PAGE>
28
properly completed and received by the Corporation no later than the close of
business on a date that shall be ten (10) Trading Days following the date such
notice of rescission is deemed given pursuant to Section 7.2.
4.6 The shares of this Series shall not be subject to the provisions
of Section 5 of Article IV of the Certificate of Incorporation.
5. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
5.1 Each share of this Series shall be entitled to vote together with
holders of the shares of Common Stock (and any other class or series that may
similarly be entitled to vote with the shares of Common Stock) as a single class
upon all matters upon which holders of Common Stock are entitled to vote. In
any such vote, the holders of this Series shall be entitled to six (6) votes per
$100 of Liquidation Value of Series E Stock, subject to adjustment at the same
time and in the same manner as each adjustment of the Conversion Rate pursuant
to Section 3, so that the holders of this Series shall be entitled following
such adjustment to the number of votes equal to the number of votes such holders
were entitled to under this Section 5.1 immediately prior to such adjustment
multiplied by a fraction (x) the numerator of which is the Conversion Rate as
adjusted pursuant to Section 3 and (y) the denominator of which is the
Conversion Rate immediately prior to such adjustment.
5.2 (a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than Capital Stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation
or (iii) amend, alter or repeal any of the provisions of the Certificate or the
Certificate of Incorporation, so as in any such case to adversely affect the
voting powers, designations, preferences and relative, participating, optional
or other
<PAGE>
29
special rights, and qualifications, limitations or restrictions of the shares of
this Series.
(b) No consent of holders of shares of this Series shall be required
for (i) the creation of any indebtedness of any kind of the Corporation, (ii)
the authorization or issuance of any class of Junior Stock or Parity Stock,
(iii) the authorization, designation or issuance of additional shares of Series
E Stock (to the extent provided in the Agreement and Plan of Merger dated as of
February 6, 1995, among Cablevision Industries Corporation, Alan Gerry, a
Delaware corporation known on such date as "Time Warner Inc." and TW CVI
Acquisition Corp.) or (iv) subject to Section 5.2(a), the authorization or
issuance of any other shares of Preferred Stock.
5.3 (a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately as a class with such
other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by written
consent or at a special meeting of the holders of the Preferred Stock having
such voting right, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at each
such annual meeting until such time as all dividends in arrears on the shares of
this Series shall have been paid in full and all dividends payable on the shares
of this Series on four subsequent consecutive Dividend Payment Dates shall have
been paid in full on such dates or funds shall have been set aside for the
payment thereof, at which time such voting right and the term of the directors
elected pursuant to Section 5.3(a) shall terminate.
(c) At any time when such voting right shall have vested in holders
of shares of such series of Preferred Stock described in Section 5.3(a), and if
such right shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written
<PAGE>
30
request, addressed to the Secretary of the Corporation, of the record holders of
shares representing twenty-five percent (25%) of the voting power of the shares
then outstanding of such Preferred Stock having such voting right, shall call, a
special meeting of the holders of such Preferred Stock having such voting right.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding annual
meetings of stockholders, or, if none, at a place designated by the Board of
Directors. Notwithstanding the provisions of this Section 5.3(c), no such
special meeting shall be called during a period within 60 days immediately
preceding the date fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of such Preferred Stock shall have the right to elect
directors as provided herein, the presence in Person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of Preferred Stock pursuant to
the voting right created under this Section 5.3 shall hold office until the next
annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 5.3(b)) and any vacancy in respect of any such director
shall be filled only by vote of the remaining director so elected, or if there
be no such remaining director, by the holders of such Preferred Stock entitled
to elect such director or directors by written consent or at a special meeting
called in accordance with the procedures set forth in Section 5.3(c), or, if no
special meeting is called or written consent executed, at the next annual
meeting of stockholders. Upon any termination of such voting right, subject to
applicable law, the term of office of all directors elected by holders of such
Preferred Stock voting separately as a class pursuant to this Section 5.3 shall
terminate.
(f) In exercising the voting rights set forth in this Section 5.3,
each share of this Series shall have a number of votes equal to its Liquidation
Value.
6. Liquidation Rights.
------------------
6.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or
<PAGE>
31
involuntary, the holders of the shares of this Series shall be entitled to
receive out of the assets of the Corporation available for distribution to
stockholders, in preference to the holders of, and before any payment or
distribution shall be made on, Junior Stock, the amount of $100 per share (the
"Liquidation Value") plus an amount equal to all accrued and unpaid dividends to
the date of final distribution. The Liquidation Value shall be subject to
adjustment from time to time to appropriately give effect to any split or
combination of the shares of this Series.
6.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this Section 6.
6.3 After the payment to the holders of the shares of this Series of
full preferential amounts provided for in this Section 6, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
6.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 6.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
7. Other Provisions.
----------------
7.1 All notices from the Corporation to the holders shall be given by
one of the methods specified in Section 7.2. With respect to any notice to a
holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect
<PAGE>
32
to the other holders or affect the legality or validity of any distribution,
right, warrant, reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any such action. Any
notice that was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
7.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series E Stock and (y) the
Corporation at the following address (or at such other address as the
Corporation shall specify in a notice pursuant to this Section 7.2): AOL Time
Warner Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: General
Counsel.
7.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and promptly
canceled and the Corporation shall take all appropriate action to cause such
shares to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate with respect to the Series E Stock shall be eliminated from the
Certificate of Incorporation and the shares of Preferred Stock designated hereby
as Series E Stock shall have the status of authorized and unissued shares of
Preferred Stock and may be reissued as part of any new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors.
7.4 The shares of this Series shall be issuable in whole shares or,
if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
<PAGE>
33
7.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
7.6 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
7.7 Any registered holder of Series E Stock may proceed to protect
and enforce its rights by any available remedy by proceeding at law or in equity
to protect and enforce any such rights, whether for the specific enforcement of
any provision in this Certificate or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
IN WITNESS WHEREOF, AOL Time Warner Inc. has caused this
certificate to be signed this [ ]th day of [ ], 2000.
AOL TIME WARNER INC.,
by
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.6
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS
OR RESTRICTIONS THEREOF, OF SERIES F CONVERTIBLE PREFERRED STOCK
OF
AOL TIME WARNER INC.
----------------
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
----------------
AOL Time Warner Inc. (the "Corporation"), a corporation organized and
existing by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify that the following resolution was duly adopted by
action of the Board of Directors of the Corporation (the "Board of Directors")
at a meeting duly held on [ ], 2000.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $0.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
20,000 shares designated as Series F Convertible Preferred Stock. The rights,
preferences and limitations of such series shall be as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall have the meaning set forth in
Section 3.1 hereof.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to
<PAGE>
2
any action to be taken by the Board of Directors, any committee of the Board of
Directors duly authorized to take such action.
1.3 "Capital Stock" shall mean any and all shares of corporate stock
of a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of Series F
Convertible Preferred Stock filed with respect to this resolution with the
Secretary of State of the State of Delaware pursuant to Section 151 of the DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have the
following meanings: "Change of Control" shall mean the occurrence of one or
both of the following events: (a) individuals who would constitute a majority
of the members of the Board of Directors elected at any meeting of stockholders
or by written consent (without regard to any members of the Board of Directors
elected pursuant to the terms of any series of Preferred Stock) shall be elected
to the Board of Directors and the election or the nomination for election by the
stockholders of such directors was not approved by a vote of at least a majority
of the directors in office immediately prior to such election (in which event
"Change of Control Date" shall mean the date of such election) or (b) a Person
or group of Persons acting in concert as a partnership, limited partnership,
syndicate or other group within the meaning of Rule 13d-3 under the Exchange Act
(the "Acquiring Person") shall, as a result of a tender or exchange offer, open
market purchases, privately negotiated purchases, share repurchases, redemptions
or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 40% or more of the outstanding shares of Common Stock
(in which event "Change of Control Date" shall mean the date of the event
resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last reported
sale price of the Common Stock (regular way) as shown on the Composite Tape of
the NYSE, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices on the NYSE, or, if the Common Stock is not listed
or admitted to trading on
<PAGE>
3
the NYSE, on the principal national securities exchange on which such stock is
listed or admitted to trading, or, if it is not listed or admitted to trading on
any national securities exchange, the last reported sale price of the Common
Stock, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, in either case as reported by NASDAQ.
1.7 "Common Stock" shall mean the class of Common Stock, par
value $0.01 per share, of the Corporation authorized at the date of the
Certificate, or any other class of stock resulting from (x) successive changes
or reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.8 "Conversion Date" shall have the meaning set forth in
Section 3.5 hereof.
1.9 "Conversion Price" shall have the meaning set forth in
Section 3.1 hereof.
1.10 "Conversion Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.11 "Converting Holder" shall have the meaning set forth in
Section 3.5 hereof.
1.12 "Corporation" shall mean AOL Time Warner Inc., a Delaware
corporation, and any of its successors by operation of law, including by merger,
consolidation or sale or conveyance of all or substantially all of its property
and assets.
1.13 "Current Market Price" of the Common Stock on any date
shall mean the average of the daily Closing Prices per share of the Common Stock
for the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.14 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
<PAGE>
4
1.15 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.16 "Exchange Price" shall have the meaning set forth in
Section 4.1 hereof.
1.17 "Junior Stock" shall mean the Common Stock, the Series LMC
Stock, the Series LMCN-V Stock and the shares of any other class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be junior to the
Series F Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.18 "Liquidation Value" shall have the meaning set forth in
Section 7.1 hereof.
1.19 "Merger Agreement" shall mean the Second Amended and
Restated Agreement and Plan of Merger dated as of January 10, 2000, among AOL
Time Warner Inc., America Online, Inc., Time Warner Inc., America Online Merger
Sub Inc. and Time Warner Merger Sub Inc., as such agreement may be amended from
time to time in accordance with its terms.
1.20 "NASDAQ" shall mean the Nasdaq Stock Market.
1.21 "NYSE" shall mean the New York Stock Exchange, Inc.
1.22 "Parity Stock" shall mean the Series E Stock, the Series I
Stock, the Series J Stock and the shares of any other class or series of Capital
Stock of the Corporation that, by the terms of the Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall, in the event that the stated
dividends thereon are not paid in full, be entitled to share ratably with the
Series F Stock in the payment of dividends, including accumulations, if any, in
accordance with the sums that would be payable on such shares if all dividends
were declared and paid in full, or shall, in the event that the amounts payable
thereon on liquidation are not paid in full, be entitled to share ratably with
the Series F Stock in any distribution of
<PAGE>
5
assets other than by way of dividends in accordance with the sums that would be
payable in such distribution if all sums payable were discharged in full;
provided, however, that the term "Parity Stock" shall be deemed to refer (i) in
- -------- -------
Section 2.2 hereof, to any stock that is Parity Stock in respect of dividend
rights; (ii) in Section 6 hereof, to any stock that is Parity Stock in respect
of the distribution of assets; and (iii) in Sections 5.2 and 5.3 hereof, to any
stock that is Parity Stock in respect of either dividend rights or the
distribution of assets and that, pursuant to the Certificate of Incorporation or
any instrument in which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall so designate, is entitled to
vote with the holders of Series F Stock.
1.23 "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
1.24 "Preferred Stock" shall mean the class of Preferred Stock, par
value $0.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.25 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, whether for cash
or other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but excluding any purchase made in open market
transactions that satisfies the conditions of clause (b) of Rule 10b-18 under
the Exchange Act or has been designed (as reasonably determined by the Board of
Directors) to prevent such purchase from having a material effect on the trading
market of the Common Stock. The "Effective Date" of a Pro Rata Repurchase shall
mean the applicable expiration date (including all extensions thereof) of any
tender or exchange offer that is a Pro Rata Repurchase or the date of purchase
with respect to any Pro Rata Repurchase that is not a tender or exchange offer.
1.26 "Record Date" shall have the meaning set forth in Section 2.1
hereof.
1.27 "Redemption Price" shall have the meaning set forth in Section
4.1 hereof.
1.28 "Redemption Rescission Event" shall mean the occurrence of (a)
any general suspension of trading
<PAGE>
6
in, or limitation on prices for, securities on the principal national securities
exchange on which shares of Common Stock are registered and listed for trading
(or, if shares of Common Stock are not registered and listed for trading on any
such exchange, in the over-the-counter market) for more than six-and-one-half
(6-1/2) consecutive trading hours, (b) any decline in either the Dow Jones
Industrial Average or the Standard & Poor's Index of 400 Industrial Companies
(or any successor index published by Dow Jones & Company, Inc. or Standard &
Poor's Corporation) by either (i) an amount in excess of 10%, measured from the
close of business on any Trading Day to the close of business on the next
succeeding Trading Day during the period commencing on the Trading Day preceding
the day notice of any redemption of shares of this Series is given (or, if such
notice is given after the close of business on a Trading Day, commencing on such
Trading Day) and ending at the earlier of (x) the time and date fixed for
redemption in such notice and (y) the time and date at which the Corporation
shall have irrevocably deposited funds with a designated bank or trust company
pursuant to Section 4.4 or (ii) an amount in excess of 15% (or, if the time and
date fixed for redemption is more than 15 days following the date on which
notice of redemption is given, 20%), measured from the close of business on the
Trading Day preceding the day notice of such redemption is given (or, if such
notice is given after the close of business on a Trading Day, from such Trading
Day) to the close of business on any Trading Day on or prior to the earlier of
the dates specified in clauses (x) and (y) above, (c) a declaration of a banking
moratorium or any suspension of payments in respect of banks by Federal or state
authorities in the United States or (d) the commencement of a war or armed
hostilities or other national or international calamity directly or indirectly
involving the United States that in the reasonable judgment of the Corporation
could have a material adverse effect on the market for the Common Stock.
1.29 "Rescission Date" shall have the meaning set forth in Section
4.5 hereof.
1.30 "Senior Stock" shall mean the shares of any class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series F Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
<PAGE>
7
1.31 "Series E Stock" shall mean the series of Preferred Stock
authorized and designated as Series E Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.32 "Series F Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series F Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.33 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as Series I Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.34 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.35 "Series LMC Stock" shall mean the series of Series Common Stock
authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.36 "Series LMCN-V Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.37 "Surrendered Shares" shall have the meaning set forth in
Section 3.5 hereof.
1.38 "Trading Day" shall mean, so long as the Common Stock is listed
or admitted to trading on the NYSE, a day on which the NYSE is open for the
transaction of business, or, if the Common Stock is not listed or admitted to
trading on the NYSE, a day on which the principal national securities exchange
on which the Common Stock is listed is open for the transaction of business, or,
if the Common Stock is not so listed or admitted for trading on any national
securities exchange, a day on which NASDAQ is open for the transaction of
business.
<PAGE>
8
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series F Stock shall be entitled
to receive quarter-annual dividends, as and when declared by the Board of
Directors out of funds legally available therefor. Each quarter-annual dividend
shall be an amount per share equal to, in the case of each Dividend Payment Date
(as defined below), an amount per share of Series F Stock equal to the product
of (1) the Conversion Rate and (2) the aggregate per share amount of regularly
scheduled dividends paid in cash on the Common Stock during the period from but
excluding the immediately preceding Dividend Payment Date to and including such
Dividend Payment Date. All dividends shall be payable in cash on or about the
first day of March, June, September and December in each year, as fixed by the
Board of Directors, or such other dates as are fixed by the Board of Directors
(each a "Dividend Payment Date"), to the holders of record of Series F Stock at
the close of business on or about the Trading Day next preceding such first day
of March, June, September and December as the case may be, as fixed by the Board
of Directors, or such other dates as are fixed by the Board of Directors (each a
"Record Date"). Dividends on the Series F Stock (determined as to amount as
provided herein) shall accrue to the extent, but only to the extent, that
regularly scheduled cash dividends are declared by the Board of Directors on the
Common Stock with a payment date after the Dividend Payment Date next preceding
the date of original issuance of such Series F Stock. All dividends that accrue
in accordance with the foregoing provisions shall be cumulative from and after
the day immediately succeeding the date of issuance. The amount payable to each
holder of record on any Dividend Payment Date shall be rounded to the nearest
cent.
2.2 Except as hereinafter provided in this Section 2.2, unless all
dividends on the outstanding shares of Series F Stock and any Parity Stock that
shall have accrued and become payable as of any date shall have been paid, or
declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of Junior Stock or Parity Stock, and no shares of Series F Stock, Parity
Stock or Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series F Stock, Junior Stock or Parity Stock. When dividends are not paid in
full upon the shares of this Series and any Parity Stock, all
<PAGE>
9
dividends declared upon shares of this Series and all Parity Stock shall be
declared pro rata so that the amount of dividends declared per share on this
Series and all such Parity Stock shall in all cases bear to each other the same
ratio that accrued dividends per share on the shares of this Series and all such
Parity Stock bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
this Series that may be in arrears.
2.3 In case the Corporation shall at any time distribute (other than
a distribution in liquidation of the Corporation) to the holders of its shares
of Common Stock any assets or property, including evidences of indebtedness or
securities of the Corporation (other than Common Stock subject to a distribution
or reclassification covered by Section 3.6(a)) or of any other Person (including
common stock of such Person) or cash (but excluding regularly scheduled cash
dividends payable on shares of Common Stock) or in case the Corporation shall at
any time distribute (other than a distribution in liquidation of the
Corporation) to such holders rights, options or warrants to subscribe for or
purchase shares of Common Stock (including shares held in the treasury of the
Corporation), or rights, options or warrants to subscribe for or purchase any
other security or rights, options or warrants to subscribe for or purchase any
assets or property (in each case, whether of the Corporation or otherwise, but
other than any distribution of rights to purchase securities of the Corporation
if the holder of shares of this Series would otherwise be entitled to receive
such rights upon conversion of shares of this Series for Common Stock; provided,
--------
however, that if such rights are subsequently redeemed by the Corporation, such
- -------
redemption shall be treated for purposes of this Section 2.3 as a cash dividend
(but not a regularly scheduled cash dividend) on the Common Stock), the
Corporation shall simultaneously distribute such assets, property, securities,
rights, options or warrants pro rata to the holders of Series F Stock on the
record date fixed for determining holders of Common Stock entitled to
participate in such distribution (or, if no such record date shall be
established, the effective time thereof) in an amount equal to the amount that
such holders of Series F Stock would have been entitled to receive had their
shares of Series F Stock been converted into Common Stock immediately prior to
such record date (or effective time). In the event of a distribution to holders
of Series F Stock pursuant to this Section 2.3, such holders shall be entitled
to receive fractional shares or interests only to the extent that holders of
Common Stock are entitled to receive the same. The holders of Series F Stock on
the applicable
<PAGE>
10
record date (or effective time) shall be entitled to receive in lieu of such
fractional shares or interests the same consideration as is payable to holders
of Common Stock with respect thereto. If there are no fractional shares or
interests payable to holders of Common Stock, the holders of Series F Stock on
the applicable record date (or effective time) shall receive in lieu of such
fractional shares or interests the fair value thereof as determined by the Board
of Directors.
2.4 If a distribution is made in accordance with the provisions of
Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the kind and amount of securities or other property that shall be distributable
to the holders of the Series F Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series F Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of the Series F Stock shall
be based on the kind or amount of securities or other property receivable by a
plurality of the shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section, the Corporation shall mail a copy thereof to the record holders on
the date of mailing of the largest number of shares of the Series F Stock as of
the date used for determining the holders of record of Common Stock entitled to
such mailing.
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right at any
time or as to any share of this
<PAGE>
11
Series called for redemption or exchange, at any time prior to the close of
business on the date fixed for redemption or exchange (unless the Corporation
defaults in the payment of the Redemption Price or fails to exchange the shares
of this Series for the applicable number of shares of Common Stock and any cash
portion of the Exchange Price or exercises its right to rescind such redemption
pursuant to Section 4.5, in which case such right shall not terminate at the
close of business on such date), to convert such share into (i) a number of
shares of Common Stock equal to 6.24792 shares of Common Stock for each share of
this Series, subject to appropriate adjustment in the event of a split or
combination of shares of this Series and subject to further adjustment as
provided in this Section 3 (such rate, as so adjusted from time to time, is
herein called the "Conversion Rate"; and the "Conversion Price" at any time
shall mean the Liquidation Value per share divided by the Conversion Rate in
effect at such time (rounded to the nearest one hundredth of a cent)) plus (ii)
in the event there shall be any dividends on shares of this Series that shall be
accrued and unpaid as of the immediately preceding Dividend Payment Date, a
number of shares of Common Stock equal to:
(A) the aggregate amount of accrued and unpaid dividends on such share
of Series F Stock to and including the most recent scheduled Dividend
Payment Date (whether or not such dividends were declared and whether or
not there are unrestricted funds legally available for the payment thereof)
(the "Accrued Dividend Amount") divided by
------- --
(B) the Closing Price of the Common Stock on the last Trading Day
prior to the Conversion Date;
provided, however, that the Corporation shall have the right to deliver cash
- -------- -------
equal to the Accrued Dividend Amount or any portion thereof, in which case its
obligation to deliver shares of Common Stock pursuant to this clause (ii) shall
be reduced by a number of shares equal to (x) the aggregate amount of cash so
delivered divided by (y) the Closing Price of the Common Stock on the last
------- --
Trading Day prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Accrued Dividend Amount, in which case its entire
obligation under this clause (ii) shall be discharged. The obligations of the
Corporation to issue the Common Stock (or its option to make cash payments)
provided by this Section 3.1 shall be absolute whether or not any accrued
dividend by which such issuance (or payment) is measured has been declared by
the Board of Directors and whether or not the Corporation would have adequate
surplus
<PAGE>
12
or net profits to pay such dividend if declared or is otherwise restricted from
paying such dividend.
3.2 Except as provided in this Section 3, no adjustments in respect
of payments of dividends on shares surrendered for conversion or any dividend on
the Common Stock issued upon conversion shall be made upon the conversion of any
shares of this Series (it being understood that if the Conversion Date for
shares of Series F Stock occurs after a Record Date and on or prior to a
Dividend Payment Date, the holder of record on such Record Date shall be
entitled to receive the dividend payable with respect to such shares on the
related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in connection
with any conversion of shares of this Series, issue a fraction of a share of
Common Stock, and if the Corporation shall determine not to issue any such
fraction, the Corporation shall, subject to Section 3.6(d), make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the Closing
Price of the Common Stock on the last Trading Day prior to the Conversion Date.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. If any such certificate or certificates shall have been lost,
stolen or destroyed, the holder shall, in lieu of delivering such certificate or
certificates, deliver to the transfer agent or agents therefor (or such other
place) an indemnification agreement and bond satisfactory to the Corporation.
The Corporation shall, as soon as practicable (subject to Section 3.6(e)) after
such deposit of certificates for shares of this Series or delivery of the
indemnification agreement and bond, accompanied by the written notice above
prescribed, issue and deliver at such office to the holder for whose account
such shares were surrendered, or to his nominee, certificates representing the
number of shares of Common Stock and the cash, if any, to which such holder is
entitled upon such conversion.
<PAGE>
13
3.5 Conversion shall be deemed to have been made as of the date (the
"Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything to
the contrary contained herein, in the event the Corporation shall have rescinded
a redemption of shares of this Series pursuant to Section 4.5, any holder of
shares of this Series that shall have surrendered shares of this Series for
conversion following the day on which notice of the subsequently rescinded
redemption shall have been given but prior to the close of business on the later
of (a) the Trading Day next succeeding the date on which public announcement of
the rescission of such redemption shall have been made and (b) the Trading Day
on which the notice of rescission required by Section 4.5 is deemed given
pursuant to Section 7.2 (a "Converting Holder") may rescind the conversion of
such shares surrendered for conversion by (i) properly completing a form
prescribed by the Corporation and mailed to holders of shares of this Series
(including Converting Holders) with the Corporation's notice of rescission,
which form shall provide for the certification by any Converting Holder
rescinding a conversion on behalf of any beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of shares of this Series that the beneficial
ownership (within the meaning of such Rule) of such shares shall not have
changed from the date on which such shares were surrendered for conversion to
the date of such certification and (ii) delivering such form to the Corporation
no later than the close of business on that date which is ten (10) Trading Days
following the date on which the Corporation's notice of rescission is deemed
given pursuant to Section 7.2. The delivery of such form by a Converting Holder
shall be accompanied by (x) any certificates representing shares of Common Stock
issued to such Converting Holder upon a conversion of shares of this Series that
shall be rescinded by the proper delivery of such form (the "Surrendered
Shares"), (y) any securities, evidences of indebtedness or assets (other than
cash) distributed by the Corporation to such Converting Holder by reason of such
Converting Holder's being a record holder of Surrendered Shares and (z) payment
in New York Clearing House funds or other funds acceptable to the Corporation of
an amount equal to the sum of (I) any cash such Converting Holder may have
received in lieu of the issuance of fractional shares upon conversion and (II)
any cash paid or payable by the Corporation to such Converting Holder by reason
of such Converting Holder being a record
<PAGE>
14
holder of Surrendered Shares. Upon receipt by the Corporation of any such form
properly completed by a Converting Holder and any certificates, securities,
evidences of indebtedness, assets or cash payments required to be returned or
made by such Converting Holder to the Corporation as set forth above, the
Corporation shall instruct the transfer agent or agents for shares of Common
Stock and shares of this Series to cancel any certificates representing
Surrendered Shares (which Surrendered Shares shall be deposited in the treasury
of the Corporation) and reissue certificates representing shares of this Series
to such Converting Holder (which shares of this Series shall be deemed to have
been outstanding at all times during the period following their surrender for
conversion). The Corporation shall, as promptly as practicable, and in no event
more than five (5) Trading Days, following the receipt of any such properly
completed form and any such certificates, securities, evidences of indebtedness,
assets or cash payments required to be so returned or made, pay to the
Converting Holder or as otherwise directed by such Converting Holder any
dividend or other payment made on such shares during the period from the time
such shares shall have been surrendered for conversion to the rescission of such
conversion. All questions as to the validity, form, eligibility (including time
or receipt) and acceptance of any form submitted to the Corporation to rescind
the conversion of shares of this Series, including questions as to the proper
completion or execution of any such form or any certification contained therein,
shall be resolved by the Corporation, whose determination shall be final and
binding. The Corporation shall not be required to deliver certificates for
shares of Common Stock while the stock transfer books for such stock or for this
Series are duly closed for any purpose or during any period commencing at a
Redemption Rescission Event and ending at either (i) the time and date at which
the Corporation's right of rescission shall expire pursuant to Section 4.5 if
the Corporation shall not have exercised such right or (ii) the close of
business on that day which is ten (10) Trading Days following the date on which
the Corporation's notice of rescission pursuant to Section 4.4 is deemed given
pursuant to Section 7.2 if the Corporation shall have exercised such right of
rescission, but certificates for shares of Common Stock shall be delivered as
soon as practicable after the opening of such books or the expiration of such
period.
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring after the
<PAGE>
15
effective time of the transactions contemplated by the Merger Agreement:
(a) In case the Corporation shall (i) pay a dividend in shares
of its Common Stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its outstanding shares of
Common Stock or (iv) reclassify (other than by way of a merger or
consolidation that is subject to Section 3.7) its shares of Common Stock,
then the Conversion Rate in effect immediately before such action shall be
adjusted so that immediately following such event the holders of the Series
F Stock shall be entitled to receive upon conversion or exchange thereof
the kind and amount of shares of Capital Stock of the Corporation that they
would have owned or been entitled to receive upon or by reason of such
event if such shares of Series F Stock had been converted immediately
before the record date (or, if no record date, the effective date) for such
event (it being understood that any distribution of cash or Capital Stock
(other than Common Stock), including any distribution of Capital Stock
(other than Common Stock) that shall accompany a reclassification of the
Common Stock, shall be subject to Section 2.3 rather than this Section
3.6(a)). An adjustment made pursuant to this Section 3.6(a) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution and shall become effective retroactively
immediately after the effective date in the case of a subdivision,
combination or reclassification. For the purposes of this Section 3.6(a),
in the event that the holders of Common Stock are entitled to make any
election with respect to the kind or amount of securities receivable by
them in any transaction that is subject to this Section 3.6(a) (including
any election that would result in all or a portion of the transaction
becoming subject to Section 2.3), the kind and amount of securities that
shall be distributable to the holders of the Series F Stock shall be based
on (i) the election, if any, made by the record holder (as of the date used
for determining the holders of Common Stock entitled to make such election)
of the largest number of shares of Series F Stock in writing to the
Corporation on or prior to the last date on which a holder of Common Stock
may make such an election or (ii) if no such election is timely made, an
assumption that such holder failed to exercise any such rights (provided
that if the kind or amount of securities is not the same for each
nonelecting holder, then the kind and amount of
<PAGE>
16
securities receivable shall be based on the kind or amount of securities
receivable by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to
in this Section, the Corporation shall mail a copy thereof to the record
holders of the Series F Stock as of the date used for determining the
holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion Rate
in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction as
follows: (i) in the case of a Change of Control specified in Section
1.5(a), a fraction in which the numerator is the Conversion Price prior to
adjustment pursuant hereto and the denominator is the Current Market Price
of the Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the highest price per
share of Common Stock paid by the Acquiring Person in connection with the
transaction giving rise to the Change of Control or in any transaction
within six months prior to or after the Change of Control Date (the
"Highest Price"), and the denominator of which is the Current Market Price
of the Common Stock as of the date (but not earlier than six months prior
to the Change of Control Date) on which the first public announcement is
made by the Acquiring Person that it intends to acquire or that it has
acquired 40% or more of the outstanding shares of Common Stock (the
"Announcement Date") or (y) a fraction the numerator of which is the
Conversion Price prior to adjustment pursuant hereto and the denominator of
which is the Current Market Price of the Common Stock on the Announcement
Date and (iii) in the case where there coexists a Change of Control
specified in both Section 1.5(a) and Section 1.5(b), the greatest of the
fractions determined pursuant to clauses (i) and (ii). Such adjustment
shall become effective immediately after the Change of Control Date and
shall be made, in the case of clauses (ii) and (iii) above, successively
for six months thereafter in the event and at the time of any increase in
the Highest Price after the Change of Control Date; provided, however, that
-------- -------
no such successive adjustment shall be made with respect to the Conversion
Rate of the shares of this Series in
<PAGE>
17
respect of any event occurring after the Conversion Date.
(c) In case the Corporation or any subsidiary thereof shall make
a Pro Rata Repurchase, the Conversion Rate in effect immediately prior to
such action shall be adjusted (but shall not be decreased) by multiplying
such Conversion Rate by a fraction, the numerator of which shall be the
product of (i) the number of shares of Common Stock outstanding immediately
before such Pro Rata Repurchase minus the number of shares of Common Stock
repurchased by the Corporation or any subsidiary thereof in such Pro Rata
Repurchase and (ii) the Current Market Price of the Common Stock as of the
day immediately preceding the first public announcement by the Corporation
of the intent to effect such Pro Rata Repurchase, and the denominator of
which shall be (i) the product of (x) the number of shares of Common Stock
outstanding immediately before such Pro Rata Repurchase and (y) the Current
Market Price of the Common Stock as of the day immediately preceding the
first public announcement by the Corporation of the intent to effect such
Pro Rata Repurchase minus (ii) the aggregate purchase price of the Pro Rata
Repurchase (provided that such denominator shall never be less than 1).
Such adjustment shall become effective immediately after the Effective Date
of such Pro Rata Repurchase.
(d) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a), 3.6(b) and 3.6(c) as shall be necessary in order that
any dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes, so long as such additional adjustments
pursuant to this Section 3.6(d) do not decrease the Conversion Rate.
(e) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the occurrence of the event that necessitates the
filing of the statement referred to in Section 3.6(g)) issuing to the
holder of any shares of this Series converted after such record date (i)
the shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion
<PAGE>
18
over and above (ii) the shares of Common Stock and other Capital Stock of
the Corporation issuable upon such conversion on the basis of the
Conversion Rate prior to adjustment; provided, however, that the
Corporation shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.
(f) All calculations under this Section 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one hundred-thousandth. Notwithstanding any other provision of this
Section 3, the Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.00000% of such Conversion Rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under this
Section 3 shall be made successively whenever an event requiring such an
adjustment occurs.
(g) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
(h) In the event that on or at any time as a result of an
adjustment made pursuant to this Section 3, the holder of any share of this
Series thereafter surrendered for conversion shall become entitled to
receive any shares of Capital Stock of the Corporation other than shares of
Common Stock, the conversion rate of such other shares so receivable upon
conversion of any such share of this Series shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in
subparagraphs (a) through (g) and (i) of this
<PAGE>
19
Section 3.6, and the provisions of Sections 3.1 through 3.5 and 3.7 through
3.10 shall apply on like or similar terms to any such other shares and the
determination of the Board of Directors as to any such adjustment shall be
conclusive.
(i) No adjustment shall be made pursuant to this Section 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below the par
value of the Common Stock or (ii) subject to Section 3.6(d) hereof, with
respect to any share of Series F Stock that is converted, prior to the time
such adjustment otherwise would be made.
3.7 In the event that after the effective time of the
transactions contemplated by the Merger Agreement, either (a) any consolidation
or merger to which the Corporation is a party, other than a merger or
consolidation in which the Corporation is the surviving or continuing
corporation and that does not result in any reclassification of, or change
(other than a change in par value or from par value to no par value or from no
par value to par value, or as a result of a subdivision or combination) in,
outstanding shares of Common Stock or (b) any sale or conveyance of all or
substantially all of the property and assets of the Corporation, then lawful
provision shall be made as part of the terms of such transaction whereby the
holder of each share of Series F Stock shall have the right thereafter, during
the period such share shall be convertible or exchangeable, to convert such
share into or have such shares exchanged for the kind and amount of shares of
stock or other securities and property receivable upon such consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
into which such shares of this Series could have been converted or exchanged
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (based on (i) the election, if any,
made in writing to the Corporation by the record holder (as of the date used for
determining holders of Common Stock entitled to make such election) of the
largest number of shares of Series F Stock on or prior to the last date on which
a holder of Common Stock may make an election regarding the kind or amount of
securities or other property receivable by such holder in such transaction or
(ii) if no such election is timely made, an assumption that such holder failed
to exercise any such rights (provided that if the kind or amount of securities
or other property is not the same for each nonelecting holder, then the kind and
amount of
<PAGE>
20
securities or other property receivable shall be based upon the kind and amount
of securities or other property receivable by a plurality of the nonelecting
holders of Common Stock)). In the event that any of the transactions referred
to in clauses (a) or (b) involve the distribution of cash or property (other
than equity securities) to a holder of Common Stock, lawful provision shall be
made as part of the terms of the transaction whereby the holder of each share of
Series F Stock on the record date fixed for determining holders of Common Stock
entitled to receive such cash or property (or if no such record date is
established, the effective date of such transaction) shall be entitled to
receive the amount of cash or property that such holder would have been entitled
to receive had such holder converted his shares of Series F Stock into Common
Stock immediately prior to such record date (or effective date) (based on the
election or nonelection made by the record holder of the largest number of
shares of Series F Stock, as provided above). Concurrently with the mailing to
holders of Common Stock of any document pursuant to which such holders may make
an election regarding the kind or amount of securities or other property that
will be receivable by such holder in any transaction described in clause (a) or
(b) of the first sentence of this Section 3.7, the Corporation shall mail a copy
thereof to the record holders of the Series F Stock as of the date used for
determining the holders of record of Common Stock entitled to such mailing. The
Corporation shall not enter into any of the transactions referred to in clauses
(a) or (b) of the preceding sentence unless effective provision shall be made in
the certificate or articles of incorporation or other constituent documents of
the Corporation or the entity surviving the consolidation or merger, if other
than the Corporation, or the entity acquiring the Corporation's assets, as the
case may be, so as to give effect to the provisions set forth in this Section
3.7. The provisions of this Section 3.7 shall apply similarly to successive
consolidations, mergers, sales or conveyances. For purposes of this Section
3.7, the term "Corporation" shall refer to the Corporation (as defined in
Section 1.12) as constituted immediately prior to the merger, consolidation or
other transaction referred to in this Section.
3.8 The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number of
its duly authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be sufficient to
effect the conversion of all outstanding shares of this
<PAGE>
21
Series into such Common Stock (or such other shares of Capital Stock) at any
time (assuming that, at the time of the computation of such number of shares,
all such Common Stock (or such other shares of Capital Stock) would be held by a
single holder); provided, however, that nothing contained herein shall preclude
-------- -------
the Corporation from satisfying its obligations in respect of the conversion of
the shares by delivery of purchased shares of Common Stock (or such other shares
of Capital Stock) that are held in the treasury of the Corporation. All shares
of Common Stock (or such other shares of Capital Stock of the Corporation) that
shall be deliverable upon conversion of the shares of this Series shall be duly
and validly issued, fully paid and nonassessable. For purposes of this Section
3, any shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Corporation.
3.9 If any shares of Common Stock that would be issuable upon
conversion (or pursuant to redemption or exchange) of shares of this Series
hereunder require registration with or approval of any governmental authority
before such shares may be issued upon conversion, the Corporation will in good
faith and as expeditiously as possible cause such shares to be duly registered
or approved, as the case may be. The Corporation will use commercially
reasonable efforts to list the shares of (or depositary shares representing
fractional interests in) Common Stock or other shares of Capital Stock required
to be delivered upon conversion of shares of this Series prior to such delivery
upon the principal national securities exchange upon which the outstanding
Common Stock (or other shares of Capital Stock) is listed at the time of such
delivery.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion (or pursuant to redemption or exchange) of shares of this Series
pursuant hereto. The Corporation shall not, however, be required to pay any tax
that is payable in respect of any transfer involved in the issue or delivery of
Common Stock or such other shares of Capital Stock in a name other than that in
which the shares of this Series so converted were registered, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Corporation the amount of such tax, or has established, to the
satisfaction of the Corporation, that such tax has been paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the
<PAGE>
22
Corporation, (ii) any Pro Rata Repurchase or (iii) any action triggering an
adjustment to the Conversion Rate pursuant to this Section 3, then, in each
case, the Corporation shall cause to be filed with the transfer agent or agents
for the Series F Stock, and shall cause to be mailed, first-class postage
prepaid, to the holders of record of the outstanding shares of Series F Stock,
at least fifteen (15) days prior to the applicable record date for any such
transaction (or if no record date will be established, the effective date
thereof), a notice stating (x) the date, if any, on which a record is to be
taken for the purpose of any such transaction (or, if no record date will be
established, the date as of which holders of record of Common Stock entitled to
participate in such transaction are determined), and (y) the expected effective
date thereof. Failure to give such notice or any defect therein shall not affect
the legality or validity of the proceedings described in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to Section
2.2 hereof, from time to time on and after January 4, 2001, in the case of
clause (i) or (iii) of Section 4.1(b), and at any time, in the case of clause
(ii) of Section 4.1(b), redeem, out of funds legally available therefor, or, as
provided below, exchange shares of Common Stock for, all (or in the case of
Section 4.1(b)(i), any part) of the outstanding shares of this Series. The
redemption price for each share of this Series called for redemption pursuant to
clause (i) of Section 4.1(b) shall be the Liquidation Value together with an
amount equal to the accrued and unpaid dividends to the date fixed for
redemption (hereinafter collectively referred to as the "Redemption Price").
The exchange price for each share of this Series called for exchange pursuant to
clause (ii) of Section 4.1(b) shall be a number of shares of Common Stock equal
to the Conversion Rate, together with, at the option of the Corporation, either
(x) cash or (y) a number of shares of Common Stock, valued at the Closing Price
on the Trading Day immediately preceding the date fixed for exchange, equal, in
either case, to the aggregate amount of accrued and unpaid dividends on the
Series F Stock to the date fixed for exchange (hereinafter collectively referred
to as the "Exchange Price").
(b) On the date fixed for redemption or exchange the Corporation
shall, at its option, effect either
(i) a redemption of the shares of this Series to be redeemed by
way of payment, out of funds legally
<PAGE>
23
available therefor, of cash equal to the aggregate Redemption Price for the
shares of this Series then being redeemed;
(ii) an exchange of the shares of this Series for the Exchange
Price in shares of Common Stock (provided that the Corporation shall be
--------
entitled to deliver cash (A) in lieu of any fractional share of Common
Stock (determined in a manner consistent with Section 3.3) and (B) equal to
accrued and unpaid dividends to the date fixed for exchange in lieu of
shares of Common Stock); or
(iii) any combination thereof with respect to each share of this
Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series F Stock
for Common Stock (or other shares of Capital Stock) only to the extent Common
Stock (or other shares of Capital Stock) shall be available for issuance
(including delivery of previously issued shares of Common Stock held in the
Corporation's treasury on the date fixed for exchange), which shares shall be
duly and validly issued, fully paid and non-assessable. Certificates for shares
of Common Stock issued in exchange for surrendered shares of this Series
pursuant to this Section 4.1 shall be made available by the Corporation not
later than the fifth Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of this
Series are to be redeemed pursuant to Section 4.1(b)(i), the number of shares to
be redeemed from each holder of shares of this Series shall be determined by the
Corporation by lot or pro rata or by any other method as may be determined by
the Board of Directors in its sole discretion to be equitable, and the
certificate of the Corporation's Secretary or an Assistant Secretary filed with
the transfer agent or transfer agents for this Series in respect of such
determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares of
this Series pursuant to Section 4.1, notice of such redemption or exchange shall
be given by first class mail, postage prepaid, mailed not less than fifteen (15)
nor more than sixty (60) days prior to the date fixed for redemption or
exchange, as the case may be, to each record holder of the shares to be redeemed
or
<PAGE>
24
exchanged, at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) whether the shares of this
Series are to be redeemed or exchanged; (ii) the time and date as of which the
redemption or exchange shall occur; (iii) the total number of shares of this
Series to be redeemed or exchanged and, if fewer than all the shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder; (iv) the Redemption Price or the Exchange Price, as the case may
be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price, in the case of redemption, or for delivery of certificates representing
the shares of Common Stock and the payment of any cash portion of the Exchange
Price, in the case of exchange; and (viii) that, subject to Section 4.4 of this
Certificate, dividends on the shares of this Series to be redeemed or exchanged
will cease to accrue on such redemption or exchange date.
4.4 If notice of redemption or exchange shall have been given by the
Corporation as provided in Section 4.3, dividends on the shares of this Series
so called for redemption or exchange shall cease to accrue, such shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof as
stockholders with respect to shares so called for redemption or exchange (except
(i) in the case of redemption, the right to receive from the Corporation the
Redemption Price without interest and in the case of exchange, the right to
receive from the Corporation the Exchange Price without interest and (ii) the
right to convert such shares in accordance with Section 3) shall cease
(including any right to receive dividends otherwise payable on any Dividend
Payment Date that would have occurred after the time and date of redemption or
exchange) either (i) in the case of a redemption or exchange pursuant to Section
4.1, from and after the time and date fixed in the notice of redemption or
exchange as the time and date of redemption or exchange (unless the Corporation
shall (x) in the case of a redemption, default in the payment of the Redemption
Price, (y) in the case of an
<PAGE>
25
exchange, fail to exchange the applicable number of shares of Common Stock and
any cash portion of the Exchange Price or (z) exercise its right to rescind such
redemption pursuant to Section 4.5, in which case such rights shall not
terminate at such time and date) or (ii) if the Corporation shall so elect and
state in the notice of redemption or exchange, from and after the time and date
(which date shall be the date fixed for redemption or exchange or an earlier
date not less than fifteen (15) days after the date of mailing of the redemption
or exchange notice) on which the Corporation shall irrevocably deposit with a
designated bank or trust company doing business in the Borough of Manhattan,
City and State of New York, as paying agent, money sufficient to pay at the
office of such paying agent, on the redemption date, the Redemption Price, in
the case of redemption, or certificates representing the shares of Common Stock
to be so exchanged and any cash portion of the Exchange Price, in the case of an
exchange. Any money or certificates so deposited with any such paying agent that
shall not be required for such redemption or exchange because of the exercise of
any right of conversion or otherwise shall be returned to the Corporation
forthwith. Upon surrender (in accordance with the notice of redemption or
exchange) of the certificate or certificates for any shares of this Series to be
so redeemed or exchanged (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice of redemption or exchange shall so
state), such shares shall be redeemed or exchanged by the Corporation at the
Redemption Price or the Exchange Price, as applicable, as set forth in Section
4.1 (unless the Corporation shall have exercised its right to rescind such
redemption pursuant to Section 4.5). In case fewer than all the shares
represented by any such certificate are to be redeemed, a new certificate shall
be issued representing the unredeemed shares (or fractions thereof as provided
in Section 7.4), without cost to the holder thereof, together with the amount of
cash, if any, in lieu of fractional shares other than those issuable in
accordance with Section 7.4. Subject to applicable escheat laws, any moneys so
set aside by the Corporation in the case of redemption and unclaimed at the end
of one year from the redemption date shall revert to the general funds of the
Corporation, after which reversion the holders of such shares so called for
redemption or exchange shall look only to the general funds of the Corporation
for the payment of the Redemption Price or the Exchange Price, as applicable,
without interest. Any interest accrued on funds so deposited shall be paid to
the Corporation from time to time.
<PAGE>
26
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption under Section 4.1(b)(i) to which such notice of
redemption shall have related by making a public announcement of such rescission
(the date on which such public announcement shall have been made being
hereinafter referred to as the "Rescission Date"). The Corporation shall be
deemed to have made such announcement if it shall issue a release to the Dow
Jones News Service, Reuters Information Services or any successor news wire
service. From and after the making of such announcement, the Corporation shall
have no obligation to redeem shares of this Series called for redemption
pursuant to such notice of redemption or to pay the redemption price therefor
and all rights of holders of shares of this Series shall be restored as if such
notice of redemption had not been given. The Corporation shall give notice of
any such rescission by one of the means specified in Section 7.2 as promptly as
practicable, but in no event later than the close of business on that date which
is five (5) Trading Days following the Rescission Date to each record holder of
shares of this Series at the close of business on the Rescission Date and to any
other Person or entity that was a record holder of shares of this Series and
that shall have surrendered shares of this Series for conversion following the
giving of notice of the subsequently rescinded redemption. Each notice of
rescission shall (w) state that the redemption described in the notice of
redemption has been rescinded, (x) state that any Converting Holder shall be
entitled to rescind the conversion of shares of this Series surrendered for
conversion following the day on which notice of redemption was given but prior
to the close of business on the later of (1) the Trading Day next succeeding the
date on which public announcement of the rescission of such redemption shall
have been made and (2) the Trading Day on which the Corporation's notice of
rescission is deemed given pursuant to Section 7.2, (y) be accompanied by a form
prescribed by the
<PAGE>
27
Corporation to be used by any Converting Holder rescinding the conversion of
shares so surrendered for conversion (and instructions for the completion and
delivery of such form, including instructions with respect to payments that may
be required to accompany such delivery shall be in accordance with Section 3.5)
and (z) state that such form must be properly completed and received by the
Corporation no later than the close of business on a date that shall be ten (10)
Trading Days following the date such notice of rescission is deemed given
pursuant to Section 7.2.
4.6 The shares of this Series shall not be subject to the provisions
of Section 5 of Article IV of the Certificate of Incorporation.
5. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
5.1 Each share of this Series shall be entitled to vote together with
holders of the shares of Common Stock (and any other class or series that may
similarly be entitled to vote with the shares of Common Stock) as a single class
upon all matters upon which holders of Common Stock are entitled to vote. In
any such vote, the holders of this Series shall be entitled to six (6) votes per
$100 of Liquidation Value of Series F Stock, subject to adjustment at the same
time and in the same manner as each adjustment of the Conversion Rate pursuant
to Section 3, so that the holders of this Series shall be entitled following
such adjustment to the number of votes equal to the number of votes such holders
were entitled to under this Section 5.1 immediately prior to such adjustment
multiplied by a fraction (x) the numerator of which is the Conversion Rate as
adjusted pursuant to Section 3 and (y) the denominator of which is the
Conversion Rate immediately prior to such adjustment.
5.2 (a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than Capital Stock corresponding to
shares of Senior Stock existing immediately
<PAGE>
28
before such merger or consolidation or (iii) amend, alter or repeal any of the
provisions of the Certificate or the Certificate of Incorporation, so as in any
such case to adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of the shares of this Series.
(b) No consent of holders of shares of this Series shall be required
for (i) the creation of any indebtedness of any kind of the Corporation, (ii)
the authorization or issuance of any class of Junior Stock or Parity Stock,
(iii) the authorization, designation or issuance of additional shares of Series
F Stock (to the extent provided in the Agreement and Plan of Merger dated as of
February 6, 1995, among Cablevision Industries Corporation, Alan Gerry, a
Delaware corporation known on such date as "Time Warner Inc." and TW CVI
Acquisition Corp.) or (iv) subject to Section 5.2(a), the authorization or
issuance of any other shares of Preferred Stock.
5.3 (a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately as a class with such
other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by written
consent or at a special meeting of the holders of the Preferred Stock having
such voting right, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at each
such annual meeting until such time as all dividends in arrears on the shares of
this Series shall have been paid in full and all dividends payable on the shares
of this Series on four subsequent consecutive Dividend Payment Dates shall have
been paid in full on such dates or funds shall have been set aside for the
payment thereof, at which time such voting right and the term of the directors
elected pursuant to Section 5.3(a) shall terminate.
<PAGE>
29
(c) At any time when such voting right shall have vested in holders
of shares of such series of Preferred Stock described in Section 5.3(a), and if
such right shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request, addressed to
the Secretary of the Corporation, of the record holders of shares representing
twenty-five percent (25%) of the voting power of the shares then outstanding of
such Preferred Stock having such voting right, shall call, a special meeting of
the holders of such Preferred Stock having such voting right. Such meeting
shall be held at the earliest practicable date upon the notice required for
annual meetings of stockholders at the place for holding annual meetings of
stockholders, or, if none, at a place designated by the Board of Directors.
Notwithstanding the provisions of this Section 5.3(c), no such special meeting
shall be called during a period within 60 days immediately preceding the date
fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at
which the holders of such Preferred Stock shall have the right to elect
directors as provided herein, the presence in person or by proxy of the holders
of shares representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of Preferred Stock pursuant to
the voting right created under this Section 5.3 shall hold office until the next
annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 5.3(b)) and any vacancy in respect of any such director
shall be filled only by vote of the remaining director so elected, or if there
be no such remaining director, by the holders of such Preferred Stock entitled
to elect such director or directors by written consent or at a special meeting
called in accordance with the procedures set forth in Section 5.3(c), or, if no
special meeting is called or written consent executed, at the next annual
meeting of stockholders. Upon any termination of such voting right, subject to
applicable law, the term of office of all directors elected by holders of such
Preferred Stock voting separately as a class pursuant to this Section 5.3 shall
terminate.
(f) In exercising the voting rights set forth in this Section 5.3,
each share of this Series shall have a number of votes equal to its Liquidation
Value.
<PAGE>
30
6. Liquidation Rights.
------------------
6.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the "Liquidation Value") plus an amount equal to all accrued and
unpaid dividends to the date of final distribution. The Liquidation Value shall
be subject to adjustment from time to time to appropriately give effect to any
split or combination of the shares of this Series.
6.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation, or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be a
dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this Section 6.
6.3 After the payment to the holders of the shares of this Series of
full preferential amounts provided for in this Section 6, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
6.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 6.1, no such distribution shall be made on account
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
7. Other Provisions.
----------------
7.1 All notices from the Corporation to the holders shall be given by
one of the methods specified in Section 7.2. With respect to any notice to a
holder of shares of this Series required to be provided hereunder,
<PAGE>
31
neither failure to give such notice, nor any defect therein or in the
transmission thereof, to any particular holder shall affect the sufficiency of
the notice or the validity of the proceedings referred to in such notice with
respect to the other holders or affect the legality or validity of any
distribution, right, warrant, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up, or the vote upon
any such action. Any notice that was mailed in the manner herein provided shall
be conclusively presumed to have been duly given whether or not the holder
receives the notice.
7.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series F Stock and (y) the
Corporation at the following address (or at such other address as the
Corporation shall specify in a notice pursuant to this Section 7.2): AOL Time
Warner Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: General
Counsel.
7.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and promptly
cancelled and the Corporation shall take all appropriate action to cause such
shares to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate setting forth a resolution adopted by the
Board of Directors that none of the authorized shares of this Series are
outstanding to be filed with the Secretary of State of the State of Delaware.
When such certificate becomes effective, all matters set forth in the
Certificate with respect to the Series F Stock shall be eliminated from the
Certificate of Incorporation and the shares of Preferred Stock designated hereby
as Series F Stock shall have the status of authorized and unissued shares of
Preferred Stock and may be reissued as part of any new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors.
7.4 The shares of this Series shall be issuable in whole shares or,
if authorized by the Board of
<PAGE>
32
Directors, in any fraction of a whole share so authorized or any integral
multiple of such fraction.
7.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
7.6 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
7.7 Any registered holder of Series F Stock may proceed to protect
and enforce its rights by any available remedy by proceeding at law or in equity
to protect and enforce any such rights, whether for the specific enforcement of
any provision in this Certificate or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
IN WITNESS WHEREOF, AOL Time Warner Inc. has caused this
certificate to be signed this [ ]th day of [ ], 2000.
AOL TIME WARNER INC.,
by
--------------------------------------
Name:
Title:
<PAGE>
Exhibit 3.7
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES I
CONVERTIBLE PREFERRED STOCK
OF
AOL TIME WARNER INC.
_______________
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
_______________
AOL Time Warner Inc. (the "Corporation"), a corporation organized and
existing by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify that the following resolution was duly adopted by
action of the Board of Directors of the Corporation (the "Board of Directors")
at a meeting duly held on [ ], 2000.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $0.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
The series of Preferred Stock hereby established shall consist of
700,000 shares designated as Series I Convertible Preferred Stock. The rights,
preferences and limitations of such series shall be as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
indicated meanings:
1.1 "Accrued Dividend Amount" shall mean the aggregate amount of
accrued and unpaid dividends on a share of Series I Stock to and including the
Conversion Date,
<PAGE>
2
except that if the Conversion Date shall occur after a Record Date and prior to
a related Dividend Payment Date, the Accrued Dividend Amount shall not include
any accrued and unpaid dividends for the period from and after the most recent
Dividend Payment Date.
1.2 "Board of Directors" shall mean the Board of Directors of the
Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.3 "Capital Stock" shall mean any and all shares of corporate stock
of a Person (however designated and whether representing rights to vote, rights
to participate in dividends or distributions upon liquidation or otherwise with
respect to such Person, or any division or subsidiary thereof, or any joint
venture, partnership, corporation or other entity).
1.4 "Certificate" shall mean the certificate of the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of Series I
Convertible Preferred Stock filed with respect to this resolution with the
Secretary of State of the State of Delaware pursuant to Section 151 of the DGCL.
1.5 "Change of Control" and "Change of Control Date" shall have the
following meanings: "Change of Control" shall mean the occurrence of one or
both of the following events: (a) individuals who would constitute a majority
of the members of the Board of Directors elected at any meeting of stockholders
or by written consent (without regard to any members of the Board of Directors
elected pursuant to the terms of any series of Preferred Stock) shall be elected
to the Board of Directors and the election or the nomination for election by the
Corporation's stockholders of such directors was not approved by a vote of at
least a majority of the directors in office immediately prior to such election
(in which event "Change of Control Date" shall mean the date of such election)
or (b) a Person or group of Persons acting in concert as a partnership, limited
partnership, syndicate or other group within the meaning of Rule 13d-3 under the
Exchange Act (the "Acquiring Person") shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, share repurchases
or redemptions or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the outstanding
shares of
<PAGE>
3
Common Stock (in which event "Change of Control Date" shall mean the date of the
event resulting in such 40% ownership).
1.6 "Closing Price" of the Common Stock shall mean the last reported
sale price of the Common Stock (regular way) as shown on the Composite Tape of
the NYSE, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices on the NYSE, or, if the Common Stock is not listed
or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.7 "Common Dividend Deficiency" shall be applicable in the event
that a Conversion Date shall fall after a record date and prior to the related
payment date for a regularly scheduled cash dividend on the Common Stock (the
"Common Dividend Payment Date"), and in such event shall mean the product of (i)
the Conversion Rate, (ii) the amount per share of Common Stock of the regularly
scheduled cash dividend for which the record date has been set but a payment
date has not yet occurred and (iii) a fraction (A) the numerator of which is the
number of calendar days from and excluding the Conversion Date (or in the event
the Conversion Date falls after a Record Date and on or prior to a related
Dividend Payment Date, from and excluding the Dividend Payment Date) to and
including the Common Dividend Payment Date and (B) the denominator of which is
91 (provided that such fraction shall not be greater than one (1)).
1.8 "Common Dividend Excess" shall be applicable in all circumstances
where a Common Dividend Deficiency is not applicable, and in such event shall
mean the product of (i) the Conversion Rate, (ii) the regular quarterly cash
dividend per share, if any, paid by the Corporation on the Common Stock (the
"Historical Dividend") on the most recent dividend payment date for the Common
Stock (the "Prior Dividend Payment Date") occurring during the four months
immediately preceding the Conversion Date and (iii) a fraction (A) the numerator
of which is the number of calendar days from and excluding (1) the Prior
Dividend Payment Date to and including (2) the Conversion Date (or in the event
the Conversion Date falls after a Record Date and on or prior to a related
Dividend Payment Date, to and including the Dividend Payment Date) and
<PAGE>
4
(B) the denominator of which is 91 days (provided that in no event shall the
fraction be greater than one (1)).
1.9 "Common Stock" shall mean the class of Common Stock, par value
$0.01 per share, of the Corporation authorized at the date of the Certificate,
or any other class of stock resulting from (x) successive changes or
reclassifications of such Common Stock consisting of changes in par value, or
from par value to no par value, (y) a subdivision or combination or (z) any
other changes for which an adjustment is made under Section 3.6(a), and in any
such case including any shares thereof authorized after the date of the
Certificate, together with any associated rights to purchase other securities of
the Corporation that are at the time represented by the certificates
representing such shares of Common Stock.
1.10 "Conversion Date" shall have the meaning set forth in
Section 3.5 hereof.
1.11 "Conversion Price" at any time shall mean the Liquidation Value
per share divided by the Conversion Rate in effect at such time (rounded to the
nearest one hundredth of a cent).
1.12 "Conversion Rate" shall have the meaning set forth in
Section 3.1 hereof.
1.13 "Converting Holder" shall have the meaning set forth in
Section 3.5 hereof.
1.14 "Corporation" shall mean AOL Time Warner Inc., a Delaware
corporation, and any of its successors by operation of law, including by merger,
consolidation or sale or conveyance of all or substantially all of its property
and assets.
1.15 "Current Market Price" of the Common Stock on any date shall mean
the average of the daily Closing Prices per share of the Common Stock for the
five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable record date, conversion date, redemption date or
exchange date referred to in Section 3 or Section 4.
1.16 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1 hereof.
1.17 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
<PAGE>
5
1.18 "Exchange Act" shall mean Securities Exchange Act of 1934,
as amended.
1.19 "Exchange Price" shall have the meaning set forth in Section
4.1 hereof.
1.20 "Junior Stock" shall mean the Common Stock, the Series LMC Stock,
the Series LMCN-V Stock and the shares of any other class or series of Capital
Stock of the Corporation that, by the terms of the Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall be junior to the Series I
Stock in respect of the right to receive dividends or to participate in any
distribution of assets other than by way of dividends.
1.21 "Liquidation Value" shall have the meaning set forth in
Section 7.1 hereof.
1.22 "Merger Agreement" shall mean the Second Amended and Restated
Agreement and Plan of Merger dated as of January 10, 2000, among AOL Time Warner
Inc., America Online, Inc., Time Warner Inc., America Online Merger Sub Inc. and
Time Warner Merger Sub Inc., as such agreement may be amended from time to time
in accordance with its terms.
1.23 "NASDAQ" shall mean the Nasdaq Stock Market.
1.24 "Net Dividend Amount" shall have the meaning set forth in
Section 3.1 hereof.
1.25 "NYSE" shall mean the New York Stock Exchange, Inc.
1.26 "Parity Stock" shall mean the Series E Stock, the Series F Stock,
the Series J Stock and the shares of any other class or series of Capital Stock
of the Corporation that, by the terms of the Certificate of Incorporation or of
the instrument by which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall fix the relative rights,
preferences and limitations thereof, shall, in the event that the stated
dividends thereon are not paid in full, be entitled to share ratably with the
Series I Stock in the payment of dividends, including accumulations, if any, in
accordance with the sums that would be payable on such shares if all dividends
were declared and paid in full, or
<PAGE>
6
shall, in the event that the amounts payable thereon on liquidation are not paid
in full, be entitled to share ratably with the Series I Stock in any
distribution of assets other than by way of dividends in accordance with the
sums that would be payable in such distribution if all sums payable were
discharged in full; provided, however, that the term "Parity Stock" shall be
-------- -------
deemed to refer (i) in Section 2.2 hereof, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 7 hereof, to any stock that is
Parity Stock in respect of the distribution of assets; and (iii) in Sections 6.2
and 6.3 hereof, to any stock that is Parity Stock in respect of either dividend
rights or the distribution of assets and that, pursuant to the Certificate of
Incorporation or any instrument in which the Board of Directors, acting pursuant
to authority granted in the Certificate of Incorporation, shall so designate, is
entitled to vote with the holders of Series I Stock.
1.27 "Person" shall mean an individual, corporation, partnership,
joint venture, association, trust, unincorporated organization or other entity.
1.28 "Preferred Stock" shall mean the class of Preferred Stock, par
value $0.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.29 "Pro Rata Portion" shall have the meaning set forth in
Section 5.6 hereof.
1.30 "Pro Rata Repurchase" shall mean the purchase of shares of Common
Stock by the Corporation or by any of its subsidiaries, whether for cash or
other property or securities of the Corporation, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock, but excluding any purchase made in open market
transactions that satisfies the conditions of clause (b) of Rule 10b-18 under
the Exchange Act or has been designed (as reasonably determined by the Board of
Directors) to prevent such purchase from having a material effect on the trading
market of the Common Stock. The "Effective Date" of a Pro Rata Repurchase shall
mean the applicable expiration date (including all extensions thereof) of any
tender or exchange offer that is a Pro Rata Repurchase or the date of purchase
with respect to any Pro Rata Repurchase that is not a tender or exchange offer.
1.31 "Record Date" shall have the meaning set forth in Section
2.1 hereof.
<PAGE>
7
1.32 "Redemption Price" shall have the meaning set forth in
Section 4.1 hereof.
1.33 "Redemption Rescission Event" shall mean the occurrence of (a)
any general suspension of trading in, or limitation on prices for, securities on
the principal national securities exchange on which shares of Common Stock are
registered and listed for trading (or, if shares of Common Stock are not
registered and listed for trading on any such exchange, in the over-the-counter
market) for more than six-and-one-half (6-1/2) consecutive trading hours, (b)
any decline in either the Dow Jones Industrial Average or the Standard & Poor's
Index of 400 Industrial Companies (or any successor index published by Dow Jones
& Company, Inc. or Standard & Poor's Corporation) by either (i) an amount in
excess of 10%, measured from the close of business on any Trading Day to the
close of business on the next succeeding Trading Day during the period
commencing on the Trading Day preceding the day notice of any redemption of
shares of this Series is given (or, if such notice is given after the close of
business on a Trading Day, commencing on such Trading Day) and ending at the
earlier of (x) the time and date fixed for redemption in such notice and (y) the
time and date at which the Corporation shall have irrevocably deposited funds
with a designated bank or trust company pursuant to Section 4.4 or (ii) an
amount in excess of 15% (or, if the time and date fixed for redemption is more
than 15 days following the date on which notice of redemption is given, 20%),
measured from the close of business on the Trading Day preceding the day notice
of such redemption is given (or, if such notice is given after the close of
business on a Trading Day, from such Trading Day) to the close of business on
any Trading Day on or prior to the earlier of the dates specified in clauses (x)
and (y) above, (c) a declaration of a banking moratorium or any suspension of
payments in respect of banks by Federal or state authorities in the United
States or (d) the commencement of a war or armed hostilities or other national
or international calamity directly or indirectly involving the United States
that in the reasonable judgment of the Corporation could have a material adverse
effect on the market for the Common Stock.
1.34 "Rescission Date" shall have the meaning set forth in
Section 4.5 hereof.
1.35 "Senior Stock" shall mean the shares of any class or series of
Capital Stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
<PAGE>
8
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series I Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.36 "Series E Stock" shall mean the series of Preferred Stock
authorized and designated as Series E Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.37 "Series F Stock" shall mean the series of Preferred Stock
authorized and designated as Series F Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.38 "Series I Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series I Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.39 "Series J Stock" shall mean the series of Preferred Stock
authorized and designated as Series J Convertible Preferred Stock at the date of
the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.40 "Series LMC Stock" shall mean the, series of Series Common Stock
authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.41 "Series LMCN-V Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMCN-V Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.42 "Surrendered Shares" shall have the meaning set forth in
Section 3.5 hereof.
1.43 "Trading Day" shall mean, so long as the Common Stock is listed
or admitted to trading on the NYSE, a day on which the NYSE is open for the
transaction of business, or, if the Common Stock is not listed or admitted to
trading on the NYSE, a day on which the principal
<PAGE>
9
national securities exchange on which the Common Stock is listed is open for the
transaction of business, or, if the Common Stock is not so listed or admitted
for trading on any national securities exchange, a day on which NASDAQ is open
for the transaction of business.
2. Cash Dividends.
--------------
2.1 The holders of the outstanding Series I Stock shall be entitled
to receive quarter-annual dividends, as and when declared by the Board of
Directors out of funds legally available therefor. Each quarter-annual dividend
shall be an amount per share equal to, in the case of each Dividend Payment Date
(as defined below), an amount per $100 of Liquidation Value of Series I Stock
equal to the product of (1) the Conversion Rate and (2) the aggregate per share
amount of regularly scheduled dividends paid in cash on the Common Stock during
the period from but excluding the immediately preceding Dividend Payment Date to
and including such Dividend Payment Date. All dividends shall be payable in
cash on or about the first day of March, June, September and December in each
year, beginning on the first such date that is more than 15 days after the date
of issuance of the relevant shares of Series I Stock, as fixed by the Board of
Directors, or such other dates as are fixed by the Board of Directors (each a
"Dividend Payment Date"), to the holders of record of Series I Stock at the
close of business on or about the Trading Day next preceding such first day of
March, June, September and December as the case may be, as fixed by the Board of
Directors, or such other dates as are fixed by the Board of Directors (each a
"Record Date"). Dividends on the Series I Stock (determined as to amount as
provided herein) shall accrue to the extent, but only to the extent, that
regularly scheduled cash dividends are declared by the Board of Directors on the
Common Stock with a payment date after the Dividend Payment Date next preceding
the date of original issuance of such Series I Stock. All dividends that accrue
in accordance with the foregoing provisions shall be cumulative from and after
the day immediately succeeding the date of issuance of the relevant shares of
Series I Stock. The amount payable to each holder of record on any Dividend
Payment Date shall be rounded to the nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless all
dividends on the outstanding shares of Series I Stock and any Parity Stock that
shall have accrued and become payable as of any date shall have been paid, or
declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in shares of Junior Stock) shall be paid to the
holders of
<PAGE>
10
Junior Stock or Parity Stock, and no shares of Series I Stock, Parity Stock or
Junior Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or any of its subsidiaries (except by conversion into or exchange
for Junior Stock), nor shall any monies be paid or made available for a
purchase, redemption or sinking fund for the purchase or redemption of any
Series I Stock, Junior Stock or Parity Stock. When dividends are not paid in
full upon the shares of this Series and any Parity Stock, all dividends declared
upon shares of this Series and all Parity Stock shall be declared pro rata so
that the amount of dividends declared per share on this Series and all such
Parity Stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of this Series and all such Parity Stock bear
to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on this Series that may
be in arrears.
2.3 In case the Corporation shall at any time distribute (other than
a distribution in liquidation of the Corporation) to the holders of its shares
of Common Stock any assets or property, including debt or equity securities of
the Corporation (other than Common Stock subject to a distribution or
reclassification covered by Section 3.6(a)) or of any other Person (including
common stock of such Person) or cash (but excluding regularly scheduled cash
dividends payable on shares of Common Stock), or in case the Corporation shall
at any time distribute (other than a distribution in liquidation of the
Corporation) to such holders rights, options or warrants to subscribe for or
purchase shares of Common Stock (including shares held in the treasury of the
Corporation), or rights, options or warrants to subscribe for or purchase any
other security or rights, options or warrants to subscribe for or purchase any
assets or property (in each case, whether of the Corporation or otherwise, but
other than any distribution of rights to purchase securities of the Corporation
if the holder of shares of this Series would otherwise be entitled to receive
such rights upon conversion of shares of this Series for Common Stock; provided,
--------
however, that if such rights are subsequently redeemed by the Corporation, such
- -------
redemption shall be treated for purposes of this Section 2.3 as a cash dividend
(but not a regularly scheduled cash dividend) on the Common Stock), the
Corporation shall simultaneously distribute such assets, property, securities,
rights, options or warrants pro rata to the holders of Series I Stock on the
record date fixed for determining holders of Common Stock entitled to
participate in such distribution (or, if no such record date shall be
established, the effective time thereof) in an
<PAGE>
11
amount equal to the amount that such holders of Series I Stock would have been
entitled to receive had their shares of Series I Stock been converted into
Common Stock immediately prior to such record date (or effective time). In the
event of a distribution to holders of Series I Stock pursuant to this Section
2.3, such holders shall be entitled to receive fractional shares or interests
only to the extent that holders of Common Stock are entitled to receive the
same. The holders of Series I Stock on the applicable record date (or effective
time) shall be entitled to receive in lieu of such fractional shares or
interests the same consideration as is payable to holders of Common Stock with
respect thereto. If there are no fractional shares or interests payable to
holders of Common Stock, the holders of Series I Stock on the applicable record
date (or effective time) shall receive in lieu of such fractional shares or
interests the fair value thereof as determined by the Board of Directors.
2.4 If a distribution is made in accordance with the provisions of
Section 2.3, anything in Section 3 to the contrary notwithstanding, no
adjustment pursuant to Section 3 shall be effected by reason of the distribution
of such assets, property, securities, rights, options or warrants or the
subsequent modification, exercise, expiration or termination of such securities,
rights, options or warrants.
2.5 In the event that the holders of Common Stock are entitled to
make any election with respect to the kind or amount of securities or other
property receivable by them in any distribution that is subject to Section 2.3,
the kind and amount of securities or other property that shall be distributable
to the holders of the Series I Stock shall be based on (i) the election, if any,
made by the record holder (as of the date used for determining the holders of
Common Stock entitled to make such election) of the largest number of shares of
Series I Stock in writing to the Corporation on or prior to the last date on
which a holder of Common Stock may make such an election or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable by holders of the Series I Stock shall
be based on the kind or amount of securities or other property receivable by a
plurality of shares held by the nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to in
this Section, the
<PAGE>
12
Corporation shall mail a copy thereof to the record holders of the Series I
Stock as of the date used for determining the holders of record of Common Stock
entitled to such mailing.
3. Conversion Rights.
-----------------
3.1 Each holder of a share of this Series shall have the right at any
time or as to any share of this Series called for redemption or exchange, at any
time prior to the close of business on the date fixed for redemption or exchange
(unless the Corporation defaults in the payment of the Redemption Price or fails
to exchange the shares of this Series for the applicable number of shares of
Common Stock and any cash portion of the Exchange Price or exercises its right
to rescind such redemption pursuant to Section 4.5, in which case such right
shall not terminate at the close of business on such date), to convert such
share into (i) a number of shares of Common Stock equal to 6.24792 shares of
Common Stock for each share of this Series, subject to adjustment as provided in
this Section 3 (such rate, as so adjusted from time to time, is herein called
the "Conversion Rate") plus (ii) a number of shares of Common Stock equal to
(A) (1) the Accrued Dividend Amount minus (2) the Common
-----
Dividend Excess, if applicable, or plus (3) the Common Dividend Deficiency,
----
if applicable (the "Net Dividend Amount"), divided by
------- --
(B) the Closing Price of the Common Stock on the last Trading
Day prior to the Conversion Date;
provided, however, that in the event that the Net Dividend Amount is a negative
- -------- -------
number, the number of shares deliverable upon conversion of a share of Series I
Stock shall be equal to
(I) the number of shares determined pursuant to clause (i) minus
(II) a number of shares equal to (x) the absolute value of the
Net Dividend Amount divided by (y) the Closing Price of the Common Stock on
----------
the last Trading Day prior to the Conversion Date;
and provided further that, in the event that the Net Dividend Amount is a
- -------------------------
positive number, the Corporation shall have the right to deliver cash equal to
the Net Dividend Amount or any portion thereof, in which case its obligation to
deliver shares of Common Stock pursuant to clause (ii)
<PAGE>
13
shall be reduced by a number of shares equal to (x) the aggregate amount of cash
so delivered divided by (y) the Closing Price of the Common Stock on the last
------- --
Trading Day prior to the Conversion Date, unless the Corporation shall deliver
cash equal to the entire Net Dividend Amount, in which case its entire
obligation under clause (ii) shall be discharged. The obligations of the
Corporation to issue the Common Stock or make the cash payments provided by this
Section 3.1 shall be absolute whether or not any accrued dividend by which such
issuance or payment is measured has been declared by the Board of Directors and
whether or not the Corporation would have adequate surplus or net profits to pay
such dividend if declared or is otherwise restricted from making such dividend.
3.2 Except as provided in this Section 3, no adjustments in respect
of payments of dividends on shares surrendered for conversion or any dividend on
the Common Stock issued upon conversion shall be made upon the conversion of any
shares of this Series (it being understood that if the Conversion Date for
shares of Series I Stock occurs after a Record Date and on or prior to a
Dividend Payment Date, the holder of record on such Record Date shall be
entitled to receive the dividend payable with respect to such shares on the
related Dividend Payment Date pursuant to Section 2.1 hereof).
3.3 The Corporation may, but shall not be required to, in connection
with any conversion of shares of this Series, issue a fraction of a share of
Common Stock, and if the Corporation shall determine not to issue any such
fraction, the Corporation shall, subject to Section 3.6(c), make a cash payment
(rounded to the nearest cent) equal to such fraction multiplied by the Closing
Price of the Common Stock on the last Trading Day prior to the Conversion Date.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. The Corporation shall, as soon as practicable (subject to
Section 3.6(d)) after such deposit of certificates for shares of this Series,
accompanied by the written notice above prescribed, issue
<PAGE>
14
and deliver at such office to the holder for whose account such shares were
surrendered, or to his nominee, certificates representing the number of shares
of Common Stock and the cash, if any, to which such holder is entitled upon such
conversion.
3.5 Conversion shall be deemed to have been made as of the date (the
"Conversion Date") that certificates for the shares of this Series to be
converted, and the written notice prescribed in Section 3.4 are received by the
transfer agent or agents for this Series; and the Person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything to
the contrary contained herein, in the event the Corporation shall have rescinded
a redemption of shares of this Series pursuant to Section 4.5, any holder of
shares of this Series that shall have surrendered shares of this Series for
conversion following the day on which notice of the subsequently rescinded
redemption shall have been given but prior to the close of business on the later
of (a) the Trading Day next succeeding the date on which public announcement of
the rescission of such redemption shall have been made and (b) the Trading Day
on which the notice of rescission required by Section 4.5 is deemed given
pursuant to Section 8.2 (a "Converting Holder"), may rescind the conversion of
such shares surrendered for conversion by (i) properly completing a form
prescribed by the Corporation and mailed to holders of shares of this Series
(including Converting Holders) with the Corporation's notice of rescission,
which form shall provide for the certification by any Converting Holder
rescinding a conversion on behalf of any beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of shares of this Series that the beneficial
ownership (within the meaning of such Rule) of such shares shall not have
changed from the date on which such shares were surrendered for conversion to
the date of such certification and (ii) delivering such form to the Corporation
no later than the close of business on that date which is ten (10) Trading Days
following the date on which the Corporation's notice of rescission is deemed
given pursuant to Section 8.2. The delivery of such form by a Converting Holder
shall be accompanied by (x) any certificates representing shares of Common Stock
issued to such Converting Holder upon a conversion of shares of this Series that
shall be rescinded by the proper delivery of such form (the "Surrendered
Shares"), (y) any securities, evidences of indebtedness or assets (other than
cash) distributed by the Corporation to such Converting Holder by reason of such
Converting Holder's being a record holder of Surrendered Shares and (z) payment
<PAGE>
15
in New York Clearing House funds or other funds acceptable to the Corporation of
an amount equal to the sum of (I) any cash such Converting Holder may have
received in lieu of the issuance of fractional shares upon conversion and (II)
any cash paid or payable by the Corporation to such Converting Holder by reason
of such Converting Holder being a record holder of Surrendered Shares. Upon
receipt by the Corporation of any such form properly completed by a Converting
Holder and any certificates, securities, evidences of indebtedness, assets or
cash payments required to be returned or made by such Converting Holder to the
Corporation as set forth above, the Corporation shall instruct the transfer
agent or agents for shares of Common Stock and shares of this Series to cancel
any certificates representing Surrendered Shares (which Surrendered Shares shall
be deposited in the treasury of the Corporation) and reissue certificates
representing shares of this Series to such Converting Holder (which shares of
this Series shall be deemed to have been outstanding at all times during the
period following their surrender for conversion). The Corporation shall, as
promptly as practicable, and in no event more than five (5) Trading Days,
following the receipt of any such properly completed form and any such
certificates, securities, evidences of indebtedness, assets or cash payments
required to be so returned or made, pay to the Converting Holder or as otherwise
directed by such Converting Holder any dividend or other payment made on such
shares during the period from the time such shares shall have been surrendered
for conversion to the rescission of such conversion. All questions as to the
validity, form, eligibility (including time or receipt) and acceptance of any
form submitted to the Corporation to rescind the conversion of shares of this
Series, including questions as to the proper completion or execution of any such
form or any certification contained therein, shall be resolved by the
Corporation, whose determination shall be final and binding. The Corporation
shall not be required to deliver certificates for shares of Common Stock while
the stock transfer books for such stock or for this Series are duly closed for
any purpose or during any period commencing at a Redemption Rescission Event and
ending at either (i) the time and date at which the Corporation's right of
rescission shall expire pursuant to Section 4.5 if the Corporation shall not
have exercised such right or (ii) the close of business on that day which is ten
(10) Trading Days following the date on which notice of rescission pursuant to
Section 4.4 is deemed given pursuant to Section 8.2 if the Corporation shall
have exercised such right of rescission, but certificates for shares of Common
Stock shall be delivered as soon as practicable after the opening of such books
or the expiration of such period.
<PAGE>
16
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring after the effective time of the transactions
contemplated by the Merger Agreement:
(a) In case the Corporation shall, at any time or from time to
time while any of the Series I Stock is outstanding, (i) pay a dividend in
shares of its Common Stock, (ii) combine its outstanding shares of Common
Stock into a smaller number of shares, (iii) subdivide its outstanding
shares of Common Stock or (iv) reclassify (other than by way of a merger
that is subject to Section 3.7) its shares of Common Stock, then the
Conversion Rate in effect immediately before such action shall be adjusted
so that immediately following such event the holders of the Series I Stock
shall be entitled to receive upon conversion or exchange thereof the kind
and amount of shares of Capital Stock of the Corporation that they would
have owned or been entitled to receive upon or by reason of such event if
such shares of Series I Stock had been converted or exchanged immediately
before the record date (or, if no record date, the effective date) for such
event (it being understood that any distribution of cash or of Capital
Stock (other than Common Stock), including any distribution of Capital
Stock (other than Common Stock) that shall accompany a reclassification of
the Common Stock, shall be subject to Section 2.3 rather than this Section
3.6(a)). An adjustment made pursuant to this Section 3.6(a) shall become
effective retroactively immediately after the record date in the case of a
dividend or distribution and shall become effective retroactively
immediately after the effective date in the case of a subdivision,
combination or reclassification. For the purposes of this Section 3.6(a),
in the event that the holders of Common Stock are entitled to make any
election with respect to the kind or amount of securities receivable by
them in any transaction that is subject to this Section 3.6(a) (including
any election that would result in all or a portion of the transaction
becoming subject to Section 2.3), the kind and amount of securities that
shall be distributable to the holders of the Series I Stock shall be based
on (i) the election, if any, made by the record holder (as of the date used
for determining the holders of Common Stock entitled to make such election)
of the largest number of shares of Series I Stock in writing to the
Corporation on or prior to the last date on which a holder of Common Stock
may make such an election or (ii) if no such
<PAGE>
17
election is timely made, an assumption that such holder failed to exercise
any such rights (provided that if the kind or amount of securities is not
the same for each nonelecting holder, then the kind and amount of
securities receivable shall be based on the kind or amount of securities
receivable by a plurality of nonelecting holders of Common Stock).
Concurrently with the mailing to holders of Common Stock of any document
pursuant to which such holders may make an election of the type referred to
in this Section, the Corporation shall mail a copy thereof to the record
holders of the Series I Stock as of the date used for determining the
holders of record of Common Stock entitled to such mailing.
(b) In case a Change of Control shall occur, the Conversion Rate
in effect immediately prior to the Change of Control Date shall be
increased (but not decreased) by multiplying such rate by a fraction as
follows: (i) in the case of a Change of Control specified in Section
1.5(a), a fraction in which the numerator is the Conversion Price prior to
adjustment pursuant hereto and the denominator is the Current Market Price
of the Common Stock at the Change of Control Date, (ii) in the case of a
Change of Control specified in Section 1.5(b), the greater of the following
fractions: (x) a fraction the numerator of which is the highest price per
share of Common Stock paid by the Acquiring Person in connection with the
transaction giving rise to the Change of Control or in any transaction
within six months prior to or after the Change of Control Date (the
"Highest Price"), and the denominator of which is the Current Market Price
of the Common Stock as of the date (but not earlier than six months prior
to the Change of Control Date) on which the first public announcement is
made by the Acquiring Person that it intends to acquire or that it has
acquired 40% or more of the outstanding shares of Common Stock (the
"Announcement Date") or (y) a fraction the numerator of which is the
Conversion Price prior to adjustment pursuant hereto and the denominator of
which is the Current Market Price of the Common Stock on the Announcement
Date and (iii) in the case where there co-exists a Change of Control
specified in both Section 1.5(a) and Section 1.5(b), the greatest of the
fractions determined pursuant to clauses (i) and (ii). Such adjustment
shall become effective immediately after the Change of Control Date and
shall be made, in the case of clauses (ii) and (iii) above, successively
for six months thereafter in the event and at the time of any increase in
the Highest Price after
<PAGE>
18
the Change of Control Date; provided, however, that no such successive
-------- -------
adjustment shall be made with respect to the Conversion Rate of the shares
of this Series in respect of any event occurring after the Conversion Date.
(c) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a) and 3.6(b), as shall be necessary in order that any
dividend or distribution in Common Stock or any subdivision,
reclassification or combination of shares of Common Stock referred to
above, shall not be taxable to the holders of Common Stock for United
States Federal income tax purposes so long as such additional adjustments
pursuant to this Section 3.6(c) do not decrease the Conversion Rate.
(d) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the occurrence of the event that necessitates the
filing of the statement referred to in Section 3.6(f)) issuing to the
holder of any shares of this Series converted after such record date (i)
the shares of Common Stock and other Capital Stock of the Corporation
issuable upon such conversion over and above (ii) the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such
conversion on the basis of the Conversion Rate prior to adjustment;
provided, however, that the Corporation shall deliver to such holder a due
-------- -------
bill or other appropriate instrument evidencing such holder's right to
receive such additional shares upon the occurrence of the event requiring
such adjustment.
(e) All calculations under this Section 3 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one hundred-thousandth. Notwithstanding any other provision of this
Section 3, the Corporation shall not be required to make any adjustment of
the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.00000% of such Conversion Rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment that, together with any
adjustment or adjustments so carried forward, shall amount to an increase
or decrease of at least 1.00000% in such rate. Any adjustments under
<PAGE>
19
this Section 3 shall be made successively whenever an event requiring such
an adjustment occurs.
(f) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
(g) In the event that at any time as a result of an adjustment
made pursuant to this Section 3, the holder of any share of this Series
thereafter surrendered for conversion shall become entitled to receive any
shares of Capital Stock of the Corporation other than shares of Common
Stock, the conversion rate of such other shares so receivable upon
conversion of any such share of this Series shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in
subparagraphs (a) through (f) and (h) of this Section 3.6, and the
provisions of Sections 3.1 through 3.5 and 3.7 through 3.10 shall apply on
like or similar terms to any such other shares and the determination of the
Board of Directors as to any such adjustment shall be conclusive.
(h) No adjustment shall be made pursuant to this Section 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below the par
value of the Common Stock or (ii) subject to Section 3.6(c) hereof, with
respect to any share of Series I Stock that is converted, prior to the time
such adjustment otherwise would be made.
3.7 In case, after the effective time of the transactions
contemplated by the Merger Agreement, of (a) any consolidation or merger to
which the Corporation is a party, other than a merger or consolidation in which
the Corporation is the surviving or continuing corporation and that does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of
<PAGE>
20
Common Stock or (b) any sale or conveyance of all or substantially all of the
property and assets of the Corporation, then lawful provision shall be made as
part of the terms of such transaction whereby the holder of each share of Series
I Stock shall have the right thereafter, during the period such share shall be
convertible or exchangeable, to convert such share into or have such share
exchanged for the kind and amount of shares of stock or other securities and
property receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock into which such shares of this
Series could have been converted or exchanged immediately prior to such
consolidation, merger, sale or conveyance, subject to adjustment that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 3 (based on (i) the election, if any, made in writing to the
Corporation by the record holder (as of the date used for determining holders of
Common Stock entitled to make such election) of the largest number of shares of
Series I Stock on or prior to the last date on which a holder of Common Stock
may make an election regarding the kind or amount of securities or other
property receivable by such holder in such transaction or (ii) if no such
election is timely made, an assumption that such holder failed to exercise any
such rights (provided that if the kind or amount of securities or other property
is not the same for each nonelecting holder, then the kind and amount of
securities or other property receivable shall be based upon the kind and amount
of securities or other property receivable by a plurality of the nonelecting
holders of Common Stock)). In the event that any of the transactions referred to
in clause (a) or (b) involve the distribution of cash (or property other than
equity securities) to a holder of Common Stock, lawful provision shall be made
as part of the terms of the transaction whereby the holder of each share of
Series I Stock on the record date fixed for determining holders of Common Stock
entitled to receive such cash or property (or if no such record date is
established, the effective date of such transaction) shall be entitled to
receive the amount of cash or property that such holder would have been entitled
to receive had such holder converted his shares of Series I Stock into Common
Stock immediately prior to such record date (or effective date) (based on the
election or nonelection made by the record holder of the largest number of
shares of Series I Stock, as provided above). Concurrently with the mailing to
holders of Common Stock of any document pursuant to which such holders may make
an election regarding the kind or amount of securities or other property that
will be receivable by such holder in any transaction described in clause (a) or
(b) of the first sentence of this Section 3.7, the Corporation
<PAGE>
21
shall mail a copy thereof to the holders of the Series I Stock as of the date
used for determining the holders of record of Common Stock entitled to such
mailing. The Corporation shall not enter into any of the transactions referred
to in clause (a) or (b) of the preceding sentence unless effective provision
shall be made in the certificate or articles of incorporation or other
constituent documents of the Corporation or the entity surviving the
consolidation or merger, if other than the Corporation, or the entity acquiring
the Corporation's assets, as the case may be, so as to give effect to the
provisions set forth in this Section 3.7. The provisions of this Section 3.7
shall apply similarly to successive consolidations, mergers, sales or
conveyances. For purposes of this Section 3.7 the term "Corporation" shall refer
to the Corporation (as defined in Section 1.14) as constituted immediately prior
to the merger, consolidation or other transaction referred to in this Section.
3.8 The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of this Series, such number of
its duly authorized shares of Common Stock (or, if applicable, any other shares
of Capital Stock of the Corporation) as shall from time to time be sufficient to
effect the conversion of all outstanding shares of this Series into such Common
Stock (or such other shares of Capital Stock) at any time (assuming that, at the
time of the computation of such number of shares, all such Common Stock (or such
other shares of Capital Stock) would be held by a single holder); provided,
--------
however, that nothing contained herein shall preclude the Corporation from
- -------
satisfying its obligations in respect of the conversion of the shares by
delivery of purchased shares of Common Stock (or such other shares of Capital
Stock) that are held in the treasury of the Corporation. All shares of Common
Stock (or such other shares of Capital Stock of the Corporation) that shall be
deliverable upon conversion of the shares of this Series shall be duly and
validly issued, fully paid and nonassessable. For purposes of this Section 3,
any shares of Common Stock at any time outstanding shall not include shares held
in the treasury of the Corporation.
3.9 If any shares of Common Stock or other shares of Capital Stock of
the Corporation that would be issuable upon conversion of shares of this Series
hereunder require registration with or approval of any governmental authority
before such shares may be issued upon conversion, the Corporation will in good
faith and as expeditiously as possible cause such shares to be duly registered
or
<PAGE>
22
approved, as the case may be. The Corporation will use commercially reasonable
efforts to list the shares of (or depositary shares representing fractional
interests in) Common Stock or other shares of Capital Stock of the Corporation
required to be delivered upon conversion of shares of this Series prior to such
delivery upon the principal national securities exchange upon which the
outstanding Common Stock or such other shares of Capital Stock is listed at the
time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock or
other shares of Capital Stock of the Corporation on conversion of shares of this
Series pursuant hereto. The Corporation shall not, however, be required to pay
any tax that is payable in respect of any transfer involved in the issue or
delivery of Common Stock or such other shares of Capital Stock in a name other
than that in which the shares of this Series so converted were registered, and
no such issue or delivery shall be made unless and until the Person requesting
such issue has paid to the Corporation the amount of such tax, or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
3.11 In case of (i) the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, (ii) any Pro Rata Repurchase or
(iii) any action triggering an adjustment to the Conversion Rate pursuant to
this Section 3, then, in each case, the Corporation shall cause to be filed with
the transfer agent or agents for the Series I Stock, and shall cause to be
mailed, first-class postage prepaid, to the holders of record of the outstanding
shares of Series I Stock, at least fifteen (15) days prior to the applicable
record date for any such transaction (or if no record date will be established,
the effective date thereof), a notice stating (x) the date, if any, on which a
record is to be taken for the purpose of any such transaction (or if no record
date will be established, the date as of which holders of record of Common Stock
entitled to participate in such transaction are determined), and (y) the
expected effective date thereof. Failure to give such notice or any defect
therein shall not affect the legality or validity of the proceedings described
in this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 (a) The Corporation may, at its sole option, subject to Section
2.2 hereof, from time to time, redeem, out of funds legally available therefor,
or, as
<PAGE>
23
provided below, exchange shares of Common Stock for, all (or in the case of
Section 4.1(b)(i), any part) of the outstanding shares of this Series. The
redemption price for each share of this Series called for redemption pursuant to
clause (i) of Section 4.1(b) shall be the Liquidation Value together with an
amount equal to the accrued and unpaid dividends to the date fixed for
redemption (hereinafter collectively referred to as the "Redemption Price"). The
exchange price for each share of this Series called for exchange pursuant to
clause (ii) of Section 4.1(b) shall be a number of shares of Common Stock equal
to the Conversion Rate, together with, at the option of the Corporation, either
(x) cash or (y) a number of shares of Common Stock, valued at the Closing Price
on the Trading Day immediately preceding the date fixed for exchange, equal, in
either case, to the aggregate amount of accrued and unpaid dividends on the
Series I Stock to the date fixed for exchange (provided that any dividends that
are in arrears must be paid in cash) (hereinafter collectively referred to as
the "Exchange Price").
(b) On the date fixed for redemption or exchange the Corporation
shall, at its option, effect either
(i) a redemption of the shares of this Series to be redeemed by
way of payment, out of funds legally available therefor, of cash equal to
the aggregate Redemption Price for the shares of this Series then being
redeemed;
(ii) an exchange of the shares of this Series for the Exchange
Price in shares of Common Stock (provided that the Corporation (A) shall be
--------
entitled to deliver cash (1) in lieu of any fractional share of Common
Stock (determined in a manner consistent with Section 3.3) and (2) equal to
accrued and unpaid dividends to the date fixed for exchange in lieu of
shares of Common Stock and (B) shall be required to deliver cash in respect
of any dividends that are in arrears); or
(iii) any combination thereof with respect to each share of this
Series called for redemption or exchange.
(c) Notwithstanding clauses (ii) and (iii) of Section 4.1(b), the
Corporation shall be entitled to effect an exchange of shares of Series I
Stock for Common Stock or other shares of Capital Stock of the Corporation
only to the extent that duly and
<PAGE>
24
validly issued, fully paid and nonassessable shares of Common Stock (or
such other shares of Capital Stock) shall be available for issuance
(including delivery of previously issued shares of Common Stock held in the
Corporation's treasury on the date fixed for exchange). The Corporation
shall comply with Sections 3.9 and 3.10 with respect to shares of Common
Stock or other shares of Capital Stock of the Corporation that would be
issuable upon exchange of shares of this Series. Certificates for shares of
Common Stock issued in exchange for surrendered shares of this Series
pursuant to this Section 4.1 shall be made available by the Corporation not
later than the fifth Trading Day following the date for exchange.
4.2 In the event that fewer than all the outstanding shares of this
Series are to be redeemed pursuant to Section 4.1(b)(i), the number of shares to
be redeemed from each holder of shares of this Series shall be determined by the
Corporation by lot or pro rata or by any other method as may be determined by
the Board of Directors in its sole discretion to be equitable, and the
certificate of the Corporation's Secretary or an Assistant Secretary filed with
the transfer agent or transfer agents for this Series in respect of such
determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares of
this Series pursuant to Section 4.1, notice of such redemption or exchange shall
be given by first class mail, postage prepaid, mailed not less than fifteen (15)
nor more than sixty (60) days prior to the date fixed for redemption or
exchange, as the case may be, to each record holder of the shares to be redeemed
or exchanged, at such holder's address as the same appears on the books of the
Corporation. Each such notice shall state: (i) whether the shares of this
Series are to be redeemed or exchanged; (ii) the time and date as of which the
redemption or exchange shall occur; (iii) the total number of shares of this
Series to be redeemed or exchanged and, if fewer than all the shares held by
such holder are to be redeemed, the number of such shares to be redeemed from
such holder; (iv) the Redemption Price or the Exchange Price, as the case may
be; (v) that shares of this Series called for redemption or exchange may be
converted at any time prior to the time and date fixed for redemption or
exchange (unless the Corporation shall, in the case of a redemption, default in
payment of the Redemption Price or, in the case of an exchange, fail to exchange
the shares of this Series for the applicable number of shares of Common Stock
and any cash portion of the Exchange Price or shall exercise its right to
<PAGE>
25
rescind such redemption pursuant to Section 4.5, in which case such right of
conversion shall not terminate at such time and date); (vi) the applicable
Conversion Price and Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered for payment of the Redemption
Price, in the case of redemption, or for delivery of certificates representing
the shares of Common Stock and the payment of any cash portion of the Exchange
Price, in the case of exchange; and (viii) that dividends on the shares of this
Series to be redeemed or exchanged will cease to accrue on such redemption or
exchange date.
4.4 If notice of redemption or exchange shall have been given by the
Corporation as provided in Section 4.3, dividends on the shares of this Series
so called for redemption or exchange shall cease to accrue, such shares shall no
longer be deemed to be outstanding, and all rights of the holders thereof as
stockholders with respect to shares so called for redemption or exchange (except
(i) in the case of redemption, the right to receive from the Corporation the
Redemption Price without interest and in the case of exchange, the right to
receive from the Corporation the Exchange Price without interest and (ii) the
right to convert such shares in accordance with Section 3) shall cease
(including any right to receive dividends otherwise payable on any Dividend
Payment Date that would have occurred after the time and date of redemption or
exchange) either (i) in the case of a redemption or exchange pursuant to Section
4.1, from and after the time and date fixed in the notice of redemption or
exchange as the time and date of redemption or exchange (unless the Corporation
shall (x) in the case of a redemption, default in the payment of the Redemption
Price, (y) in the case of an exchange, fail to exchange the applicable number of
shares of Common Stock and any cash portion of the Exchange Price or (z)
exercise its right to rescind such redemption pursuant to Section 4.5, in which
case such rights shall not terminate at such time and date) or (ii) if the
Corporation shall so elect and state in the notice of redemption or exchange,
from and after the time and date (which date shall be the date fixed for
redemption or exchange or an earlier date not less than fifteen (15) days after
the date of mailing of the redemption or exchange notice) on which the
Corporation shall irrevocably deposit with a designated bank or trust company
doing business in the Borough of Manhattan, City and State of New York, as
paying agent, money sufficient to pay at the office of such paying agent, on the
redemption date, the Redemption Price, in the case of redemption, or
certificates representing the shares of Common Stock to be so exchanged and any
cash portion of the
<PAGE>
26
Exchange Price, in the case of an exchange. Any money or certificates so
deposited with any such paying agent that shall not be required for such
redemption or exchange because of the exercise of any right of conversion or
otherwise shall be returned to the Corporation forthwith. Upon surrender (in
accordance with the notice of redemption or exchange) of the certificate or
certificates for any shares of this Series to be so redeemed or exchanged
(properly endorsed or assigned for transfer, if the Corporation shall so require
and the notice of redemption or exchange shall so state), such shares shall be
redeemed or exchanged by the Corporation at the Redemption Price or the Exchange
Price, as applicable, as set forth in Section 4.1 (unless the Corporation shall
have exercised its right to rescind such redemption pursuant to Section 4.5). In
case fewer than all the shares represented by any such certificate are to be
redeemed, a new certificate shall be issued representing the unredeemed shares
(or fractions thereof as provided in Section 8.4), without cost to the holder
thereof, together with the amount of cash, if any, in lieu of fractional shares
other than those issuable in accordance with Section 8.4. Subject to applicable
escheat laws, any moneys so set aside by the Corporation in the case of
redemption and unclaimed at the end of one year from the redemption date shall
revert to the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption or exchange shall look only to
the general funds of the Corporation for the payment of the Redemption Price or
the Exchange Price, as applicable, without interest. Any interest accrued on
funds so deposited shall be paid to the Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption shall have been given pursuant
to Section 4.3 but at or prior to the earlier of (a) the time and date fixed for
redemption as set forth in such notice of redemption and (b) the time and date
at which the Corporation shall have irrevocably deposited funds or certificates
with a designated bank or trust company pursuant to Section 4.4, the Corporation
may, at its sole option, at any time prior to the earliest of (i) the close of
business on that day which is two (2) Trading Days following such Redemption
Rescission Event, (ii) the time and date fixed for redemption as set forth in
such notice and (iii) the time and date on which the Corporation shall have
irrevocably deposited such funds with a designated bank or trust company,
rescind the redemption to which such notice of redemption shall have related by
making a public announcement of such rescission (the date on which such
<PAGE>
27
public announcement shall have been made being hereinafter referred to as the
"Rescission Date"). The Corporation shall be deemed to have made such
announcement if it shall issue a release to the Dow Jones News Service, Reuters
Information Services or any successor news wire service. From and after the
making of such announcement, the Corporation shall have no obligation to redeem
shares of this Series called for redemption pursuant to such notice of
redemption or to pay the redemption price therefor and all rights of holders of
shares of this Series shall be restored as if such notice of redemption had not
been given. The Corporation shall give notice of any such rescission by one of
the means specified in Section 8.2 as promptly as practicable, but in no event
later than the close of business on that date which is five (5) Trading Days
following the Rescission Date to each record holder of shares of this Series at
the close of business on the Rescission Date and to any other Person or entity
that was a record holder of shares of this Series and that shall have
surrendered shares of this Series for conversion following the giving of notice
of the subsequently rescinded redemption. Each notice of rescission shall (w)
state that the redemption described in the notice of redemption has been
rescinded, (x) state that any Converting Holder shall be entitled to rescind the
conversion of shares of this Series surrendered for conversion following the day
on which notice of redemption was given but prior to the close of business on
the later of (1) the Trading Day next succeeding the date on which public
announcement of the rescission of such redemption shall have been made and (2)
the Trading Day on which the Corporation's notice of rescission is deemed given
pursuant to Section 8.2, (y) be accompanied by a form prescribed by the
Corporation to be used by any Converting Holder rescinding the conversion of
shares so surrendered for conversion (and instructions for the completion and
delivery of such form, including instructions with respect to payments that may
be required to accompany such delivery shall be in accordance with Section 3.5)
and (z) state that such form must be properly completed and received by the
Corporation no later than the close of business on a date that shall be ten (10)
Trading Days following the date of the mailing of such notice of rescission is
deemed given pursuant to Section 8.2.
4.6 The shares of this Series shall not be subject to the provisions
of Section 5 of Article IV of the Certificate of Incorporation.
<PAGE>
28
5. Pro Rata Repurchase.
-------------------
5.1 Upon a Pro Rata Repurchase, each holder of shares of this Series
shall have the right to require that the Corporation repurchase, out of funds
legally available therefor, a Pro Rata Portion (as defined below) of the shares
of such holder, or any lesser number requested by the holder, at a price per
share equal to the highest price per share of Common Stock paid in the Pro Rata
Repurchase multiplied by the Conversion Rate then in effect plus an amount equal
to the accrued but unpaid dividends on such shares to the date of repurchase.
5.2 At any time prior to or within thirty (30) days following any Pro
Rata Repurchase, the Corporation shall mail a notice to each holder of shares of
this Series stating:
(a) that a Pro Rata Repurchase will occur or has occurred and
that such holder will have (upon such Pro Rata Repurchase) or has the right
to require the Corporation to repurchase such holder's shares in an amount
not in excess of the Pro Rata Portion at a repurchase price in cash
determined as set forth above plus an amount equal to accrued and unpaid
dividends, if any, to the date of repurchase;
(b) the repurchase date for the Series I Stock (which shall be
no earlier than fifteen (15) days nor later than sixty (60) days from the
date such notice is mailed); and
(c) the instructions determined by the Corporation, consistent
with this Section, that a holder must follow in order to have its shares
repurchased.
5.3 Holders electing to have any shares repurchased will be required
to surrender such shares, with an appropriate form duly completed, to the
Corporation at the address specified in the notice at least five (5) days prior
to the repurchase date. Holders will be entitled to withdraw their election if
the Corporation receives, not later than three (3) days prior to the repurchase
date, a telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the certificate numbers of the shares delivered for purchase by
the holder and a statement that such holder is withdrawing his election to have
such shares repurchased. Holders will have such additional withdrawal and other
rights as may be required pursuant to applicable law.
<PAGE>
29
5.4 On the repurchase date, the Corporation shall (i) pay the
repurchase price plus an amount equal to accrued and unpaid dividends as
provided in Section 5.1, if any, to the holders entitled thereto and (ii) issue
to such holders any equity securities of the Corporation (other than Common
Stock) that would at the time be issuable upon conversion of the shares of
Series I Stock that are then being repurchased pursuant hereto.
5.5 The Board of Directors will not approve any tender or exchange
offer by the Corporation or a third party for shares of Common Stock or
recommend that the holders of Common Stock accept any offer or tender their
shares into any offer unless a Pro Rata Portion of the shares of this Series of
all holders are entitled to be tendered into such offer at a price not less than
the price per share for shares of Common Stock pursuant to such offer multiplied
by the Conversion Rate then in effect plus an amount equal to accrued but unpaid
dividends on such shares to the date of payment for such shares in such tender
or exchange offer.
5.6 For purposes hereof, "Pro Rata Portion" with respect to the
shares of this Series held by any holder shall mean all the shares of this
Series then owned by such holder times a fraction, the numerator of which is the
number of outstanding shares of Common Stock (a) purchased in the applicable Pro
Rata Repurchase or (b) for which a tender or exchange offer referred to in
Section 5.5 is made, as the case may be, and the denominator of which is the
number of outstanding shares of Common Stock immediately prior to such Pro Rata
Repurchase or the commencement of such tender or exchange offer, as the case may
be.
6. Voting. The shares of this Series shall have no voting rights
------
except as required by law or as set forth below.
6.1 Each share of this Series shall be entitled to vote together with
holders of the shares of Common Stock (and any other class or series that may
similarly be entitled to vote with the shares of Common Stock) as a single class
upon all matters upon which holders of Common Stock are entitled to vote. In
any such vote, the holders of this Series shall be entitled to six (6) votes per
$100 of Liquidation Value of Series I Stock, subject to adjustment at the same
time and in the same manner as each adjustment of the Conversion Rate pursuant
to Section 3, so that the holders of this Series shall be entitled following
such adjustment to the number of votes equal to the number
<PAGE>
30
of votes such holders were entitled to under this Section 6.1 immediately prior
to such adjustment multiplied by a fraction (x) the numerator of which is the
Conversion Rate as adjusted pursuant to Section 3 and (y) the denominator of
which is the Conversion Rate immediately prior to such adjustment.
6.2 (a) So long as any shares of this Series remain outstanding,
unless a greater percentage shall then be required by law, the Corporation shall
not, without the affirmative vote at a meeting or the written consent with or
without a meeting of the holders of shares of this Series representing at least
66-2/3% of the aggregate voting power of shares of this Series then outstanding
(i) authorize any Senior Stock or reclassify (by merger, consolidation or
otherwise) any Junior Stock or Parity Stock as Senior Stock, (ii) merge into or
consolidate with any Person where the surviving or continuing corporation will
have any authorized Senior Stock other than Capital Stock corresponding to
shares of Senior Stock existing immediately before such merger or consolidation
or (iii) amend, alter or repeal (by operation of law or otherwise) any of the
provisions of the Certificate or the Certificate of Incorporation, so as in any
such case to adversely affect the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions of the shares of this Series.
(b) No consent of holders of shares of this Series shall be
required for (i) the creation of any indebtedness of any kind of the
Corporation, (ii) the authorization or issuance of any class of Junior Stock or
Parity Stock, (iii) the authorization, designation or issuance of additional
shares of Series I Stock or (iv) subject to Section 6.2(a), the authorization or
issuance of any other shares of Preferred Stock.
6.3 (a) If and whenever at any time or times dividends payable on
shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately
<PAGE>
31
as a class with such other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by written
consent or at a special meeting of the holders of the Preferred Stock having
such voting right, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at each
such annual meeting until such time as all dividends in arrears on the shares of
this Series shall have been paid in full and all dividends payable on the shares
of this Series on four subsequent consecutive Dividend Payment Dates shall have
been paid in full on such dates or funds shall have been set aside for the
payment thereof, at which time such voting right and the term of the directors
elected pursuant to Section 6.3(a) shall terminate.
(c) At any time when such voting right shall have vested in holders of
shares of such series of Preferred Stock described in Section 6.3(a), and if
such right shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request, addressed to
the Secretary of the Corporation, of the record holders of shares representing
ten percent (10%) of the voting power of the shares then outstanding of such
Preferred Stock having such voting right, shall call, a special meeting of the
holders of such Preferred Stock having such voting right. Such meeting shall be
held at the earliest practicable date upon the notice required for annual
meetings of stockholders at the place for holding annual meetings of
stockholders, or, if none, at a place designated by the Board of Directors.
Notwithstanding the provisions of this Section 6.3(c), no such special meeting
shall be called during a period within 60 days immediately preceding the date
fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at which
the holders of such Preferred Stock shall have the right to elect directors as
provided herein, the presence in Person or by proxy of the holders of shares
representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of Preferred Stock pursuant to the
voting right created under this Section 6.3 shall hold office until the next
annual
<PAGE>
32
meeting of stockholders (unless such term has previously terminated pursuant to
Section 6.3(b)) and any vacancy in respect of any such director shall be filled
only by vote of the remaining director, by the holders of such Preferred Stock,
entitled to elect such director or directors by written consent or at a special
meeting called in accordance with the procedures set forth in Section 6.3(c),
or, if no special meeting is called or written consent executed, at the next
annual meeting of stockholders. Upon any termination of such voting right,
subject to applicable law, the term of office of all directors elected by
holders of such Preferred Stock voting separately as a class pursuant to this
Section 6.3 shall terminate.
(f) In exercising the voting rights set forth in this Section 6.3,
each share of this Series shall have a number of votes equal to its Liquidation
Value.
7. Liquidation Rights.
------------------
7.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (the "Liquidation Value"), plus an amount equal to all accrued
and unpaid dividends to the date of final distribution.
7.2 Neither the sale, exchange or other conveyance (for cash, shares
of stock, securities or other consideration) of all or substantially all the
property and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation into or with the Corporation,
shall be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 7.
7.3 After the payment to the holders of the shares of this Series of
full preferential amounts provided for in this Section 7, the holders of this
Series as such shall have no right or claim to any of the remaining assets of
the Corporation.
7.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to
<PAGE>
33
Section 7.1, no such distribution shall be made on account of any shares of any
Parity Stock upon such dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on account of the shares of
this Series, ratably, in proportion to the full distributable amounts for which
holders of all Parity Stock are entitled upon such dissolution, liquidation or
winding up.
8. Other Provisions.
----------------
8.1 All notices from the Corporation to the holders shall be given by
one of the methods specified in Section 8.2. With respect to any notice to a
holder of shares of this Series required to be provided hereunder, neither
failure to give such notice, nor any defect therein or in the transmission
thereof, to any particular holder shall affect the sufficiency of the notice or
the validity of the proceedings referred to in such notice with respect to the
other holders or affect the legality or validity of any distribution, right,
warrant, reclassification, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up, or the vote upon any such action. Any
notice that was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the notice.
8.2 All notices and other communications hereunder shall be deemed
given (i) on the first Trading Day following the date received, if delivered
personally, (ii) on the Trading Day following timely deposit with an overnight
courier service, if sent by overnight courier specifying next day delivery and
(iii) on the first Trading Day that is at least five days following deposit in
the mails, if sent by first class mail to (x) a holder at its last address as it
appears on the transfer records or registry for the Series I Stock and (y) the
Corporation at the following address (or at such other address as the
Corporation shall specify in a notice pursuant to this Section): AOL Time
Warner Inc., 75 Rockefeller Plaza, New York, New York 10019, Attention: General
Counsel.
8.3 Any shares of this Series that have been converted, redeemed,
exchanged or otherwise acquired by the Corporation shall, after such conversion,
redemption, exchange or acquisition, as the case may be, be retired and promptly
cancelled and the Corporation shall take all appropriate action to cause such
shares to obtain the status of authorized but unissued shares of Preferred
Stock, without designation as to series, until such shares are once more
designated as part of a particular series by the Board of Directors. The
Corporation may cause a certificate
<PAGE>
34
setting forth a resolution adopted by the Board of Directors that none of the
authorized shares of this Series are outstanding to be filed with the Secretary
of State of the State of Delaware. When such certificate becomes effective, all
matters set forth in the Certificate with respect to the Series I Stock shall be
eliminated from the Certificate of Incorporation and the shares of Preferred
Stock designated hereby as Series I Stock shall have the status of authorized
and unissued shares of Preferred Stock and may be reissued as part of any new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors.
8.4 The shares of this Series shall be issuable in whole shares or,
if authorized by the Board of Directors, in any fraction of a whole share so
authorized or any integral multiple of such fraction.
8.5 The Corporation shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of this
Series, and such record holder shall be deemed the holder of such shares for all
purposes.
8.6 All notice periods referred to in the Certificate shall commence
on the date of the mailing of the applicable notice.
8.7 Certificates for shares of this Series shall bear such legends as
the Corporation shall from time to time deem appropriate.
IN WITNESS WHEREOF, AOL Time Warner Inc. has caused this certificate
to be signed this [ ]th day of [ ], 2000.
AOL TIME WARNER INC.,
by
-------------------------------
Name:
Title:
<PAGE>
EXHIBIT 3.8
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS, AND QUALIFICATIONS, LIMITATIONS OR
RESTRICTIONS THEREOF, OF SERIES J CONVERTIBLE
PREFERRED STOCK
OF
AOL TIME WARNER INC.
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Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
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AOL Time Warner Inc. (the "Corporation"), a corporation organized and
existing by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"), does hereby certify that the following resolution was duly adopted by
action of the Board of Directors of the Corporation (the "Board of Directors")
at a meeting duly held on [ ], 2000.
RESOLVED that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 2 of Article IV of
the Restated Certificate of Incorporation of the Corporation, as amended from
time to time (the "Certificate of Incorporation"), and Section 151(g) of the
DGCL, the Board of Directors hereby creates, from the authorized shares of
Preferred Stock, par value $0.10 per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series as follows:
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The series of Preferred Stock hereby established shall consist of
1,700,000 shares designated as Series J Convertible Preferred Stock. The
rights, preferences and limitations of such series shall be as follows:
1. Definitions. As used herein, the following terms shall have the
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indicated meanings:
1.1 "Board of Directors" shall mean the Board of Directors of
the Corporation or, with respect to any action to be taken by the Board of
Directors, any committee of the Board of Directors duly authorized to take such
action.
1.2 "Certificate" shall mean the certificate of the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
Series J Convertible Preferred Stock filed with respect to this resolution with
the Secretary of State of the State of Delaware pursuant to Section 151 of the
DGCL.
1.3 "Closing Price" of the Common Stock shall mean the last
reported sale price of the Common Stock (regular way) as shown on the Composite
Tape of the NYSE, or, in case no such sale takes place on such day, the average
of the closing bid and asked prices on the NYSE, or, if the Common Stock is not
listed or admitted to trading on the NYSE, on the principal national securities
exchange on which such stock is listed or admitted to trading, or, if it is not
listed or admitted to trading on any national securities exchange, the last
reported sale price of the Common Stock, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported by NASDAQ.
1.4 "Common Stock" shall mean the class of Common Stock, par
value $0.01 per share, of the Corporation authorized at the date of the
Certificate, or any other class of stock resulting from (x) successive changes
or reclassifications of such Common Stock consisting solely of changes in par
value, or from par value to no par value or (y) a subdivision or combination,
and in any such case including any shares thereof authorized after the date of
the Certificate.
1.5 "Conversion Price" shall have the meaning set forth in
Section 3.1.
1.6 "Conversion Rate" shall have the meaning set forth in
Section 3.1.
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1.7 "Converting Holder" shall have the meaning set forth in
Section 3.5.9
1.8 "Current Market Price" of the Common Stock on any date shall
mean the average of the daily Closing Prices per share of the Common Stock for
the five (5) consecutive Trading Days ending on the Trading Day immediately
preceding the applicable conversion, redemption or exchange date referred to in
Section 3 or Section 4.
1.9 "Dividend Payment Date" shall have the meaning set forth in
Section 2.1.
1.10 "DGCL" shall mean the General Corporation Law of the State
of Delaware.
1.11 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
1.12 "Junior Stock" shall mean the Common Stock, the Series LMC
Stock, the Series LMCN-V Stock and the shares of any other class or series of
stock of the Corporation that, by the terms of the Certificate of Incorporation
or of the instrument by which the Board of Directors, acting pursuant to
authority granted in the Certificate of Incorporation, shall fix the relative
rights, preferences and limitations thereof, shall be junior to the Series J
Stock in respect of the right to receive dividends or to participate in any
distribution of assets other than by way of dividends.
1.13 "Liquidation Value" shall have the meaning set forth in
Section 6.1.
1.14 "Merger Agreement" shall mean the Second Amended and
Restated Agreement and Plan of Merger dated as of January 10, 2000, among AOL
Time Warner Inc., America Online, Inc., Time Warner Inc., America Online Merger
Sub Inc. and Time Warner Merger Sub Inc., as such agreement may be amended from
time to time in accordance with its terms.
1.15 "NASDAQ" shall mean the Nasdaq Stock Market.
1.16 "NYSE" shall mean the New York Stock Exchange, Inc.
1.17 "Parity Stock" shall mean the Series E Stock, the Series F
Stock, the Series I Stock and the shares of any other class or series of stock
of the Corporation
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that, by the terms of the Certificate of Incorporation or of the instrument by
which the Board of Directors, acting pursuant to authority granted in the
Certificate of Incorporation, shall fix the relative rights, preferences and
limitations thereof, shall, in the event that the stated dividends thereon are
not paid in full, be entitled to share ratably with the Series J Stock in the
payment of dividends, including accumulations, if any, in accordance with the
sums that would be payable on such shares if all dividends were declared and
paid in full, or shall, in the event that the amounts payable thereon on
liquidation are not paid in full, be entitled to share ratably with the Series J
Stock in any distribution of assets other than by way of dividends in accordance
with the sums that would be payable in such distribution if all sums payable
were discharged in full; provided, however, that the term "Parity Stock" shall
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be deemed to refer (i) in Section 2.2, to any stock that is Parity Stock in
respect of dividend rights; (ii) in Section 6, to any stock that is Parity Stock
in respect of the distribution of assets; and (iii) in Sections 5.2 and 5.3, to
any stock that is Parity Stock in respect of either dividend rights or the
distribution of assets and that, pursuant to the Certificate of Incorporation or
any instrument in which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall so designate, is entitled to
vote with the holders of Series J Stock.
1.18 "Preferred Stock" shall mean the class of Preferred Stock,
par value $0.10 per share, of the Corporation authorized at the date of the
Certificate, including any shares thereof authorized after the date of the
Certificate.
1.19 "Pro Rata Repurchase" shall mean the purchase of shares of
Common Stock by the Corporation or by any of its subsidiaries, which purchase is
subject to Section 13(e) of the Exchange Act or is made pursuant to an offer
made available to all holders of Common Stock, but excluding any purchase made
in open market transactions that satisfies the conditions of clause (b) of Rule
10b-18 under the Exchange Act or has been designed (as reasonably determined by
the Board of Directors) to prevent such purchase from having a material effect
on the trading market of the Common Stock. The "Effective Date" of a Pro Rata
Repurchase shall mean the applicable expiration date (including all extensions
thereof) of any tender or exchange offer that is a Pro Rata Repurchase or the
date of purchase with respect to any Pro Rata Repurchase that is not a tender or
exchange offer.
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1.20 "Record Date" shall have the meaning set forth in
Section 2.1.
1.21 "Redemption Price" shall have the meaning set forth in
Section 4.1.
1.22 "Redemption Rescission Event" shall mean the occurrence
of (a) any general suspension of trading in, or limitation on prices for,
securities on the principal national securities exchange on which shares of
Common Stock are registered and listed for trading (or, if shares of Common
Stock are not registered and listed for trading on any such exchange, in the
over-the-counter market) for more than six-and-one-half (6-1/2) consecutive
trading hours, (b) any decline in either the Dow Jones Industrial Average or the
Standard & Poor's Index of 400 Industrial Companies (or any successor index
published by Dow Jones & Company, Inc. or Standard & Poor's Corporation) by
either (i) an amount in excess of 10%, measured from the close of business on
any Trading Day to the close of business on the next succeeding Trading Day
during the period commencing on the Trading Day preceding the day notice of any
redemption or exchange of shares of this Series is given (or, if such notice is
given after the close of business on a Trading Day, commencing on such Trading
Day) and ending at the earlier of (x) the time and date fixed for redemption or
exchange in such notice and (y) the time and date at which the Corporation shall
have irrevocably deposited funds with a designated bank or trust company
pursuant to Section 3.5 or (ii) an amount in excess of 15% (or, if the time and
date fixed for redemption or exchange is more than 15 days following the date on
which notice of redemption or exchange is given, 20%), measured from the close
of business on the Trading Day preceding the day notice of such redemption or
exchange is given (or, if such notice is given after the close of business on a
Trading Day, from such Trading Day) to the close of business on any Trading Day
on or prior to the earlier of the dates specified in clauses (x) and (y) above,
(c) a declaration of a banking moratorium or any suspension of payments in
respect of banks by Federal or state authorities in the United States or (d) the
commencement of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States that in the
reasonable judgment of the Corporation could have a material adverse effect on
the market for the Common Stock.
1.23 "Rescission Date" shall have the meaning set forth in
Section 4.5.
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1.24 "Senior Stock" shall mean the shares of any class or
series of stock of the Corporation that, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series J Stock in respect of the right to receive dividends or to participate in
any distribution of assets other than by way of dividends.
1.25 "Series E Stock" shall mean the series of Preferred Stock
authorized and designated as the Series E Convertible Preferred Stock at the
date of the Certificate, including any shares thereof authorized and designated
after the date of the Certificate.
1.26 "Series F Stock" shall mean the series of Preferred Stock
authorized and designated as the Series F Convertible Preferred Stock at the
date of the Certificate, including any shares thereof authorized and designated
after the date of the Certificate.
1.27 "Series I Stock" shall mean the series of Preferred Stock
authorized and designated as the Series I Convertible Preferred Stock at the
date of the Certificate, including any shares thereof authorized and designated
after the date of the Certificate.
1.28 "Series J Stock" and "this Series" shall mean the series of
Preferred Stock authorized and designated as the Series J Convertible Preferred
Stock, including any shares thereof authorized and designated after the date of
the Certificate.
1.29 "Series LMC Stock" shall mean the series of Series Common
Stock authorized and designated as Series LMC Common Stock at the date of the
Certificate, including any shares thereof authorized and designated after the
date of the Certificate.
1.30 "Series LMCN-V Stock" shall mean the series of Series
Common Stock authorized and designated as Series LMCN-V Common Stock at the date
of the Certificate, including any shares thereof authorized and designated after
the date of the Certificate.
1.31 "Surrendered Shares" shall have the meaning set forth in
Section 3.5.
1.32 "Trading Day" shall mean, so long as the Common Stock is
listed or admitted to trading on the
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NYSE, a day on which the NYSE is open for the transaction of business, or, if
the Common Stock is not listed or admitted to trading on the NYSE, a day on
which the principal national securities exchange on which the Common Stock is
listed is open for the transaction of business, or, if the Common Stock is not
so listed or admitted for trading on any national securities exchange, a day on
which NASDAQ is open for the transaction of business.
2. Cash Dividends.
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2.1 The holders of the outstanding Series J Stock shall be
entitled to receive quarter-annual dividends, as and when declared by the Board
of Directors out of funds legally available therefor. Each quarter-annual
dividend shall be an amount per share equal to, in the case of each Dividend
Payment Date (as defined below), an amount per $100 in Liquidation Value of
Series J Stock equal to the product of (1) the Conversion Rate and (2) the
aggregate per share amount of regularly scheduled dividends paid in cash on the
Common Stock during the period from but excluding the immediately preceding
Dividend Payment Date to and including such Dividend Payment Date. All
dividends shall be payable in cash on or about the first day of February, May,
August and November in each year, as fixed by the Board of Directors, or such
other dates as are fixed by the Board of Directors (each, a "Dividend Payment
Date"), to the holders of record of Series J Stock at the close of business on
or about the 15th day of the month next preceding such first day of February,
May, August and November, as the case may be, as fixed by the Board of
Directors, or such other dates as are fixed by the Board of Directors (each, a
"Record Date"). Dividends on the Series J Stock (determined as to amount as
provided herein) shall accrue to the extent, but only to the extent, that
regularly scheduled cash dividends are declared by the Board of Directors on the
Common Stock with a payment date after the Dividend Payment Date next preceding
the date of original issuance). All dividends that accrue in accordance with
the foregoing provisions shall be cumulative from and after the day immediately
succeeding the date of issuance of the relevant shares of Series J Stock. The
amount payable to each holder of record on any Dividend Payment Date shall be
rounded to the nearest cent.
2.2 Except as hereinafter provided in this Section 2.2, unless
all dividends on the outstanding shares of Series J Stock and any Parity Stock
that shall have accrued and become payable as of any date shall have been paid,
or declared and funds set apart for payment thereof, no dividend or other
distribution (payable other than in
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shares of Junior Stock) shall be paid to the holders of Junior Stock or Parity
Stock, and no shares of Series J Stock, Parity Stock or Junior Stock shall be
purchased or redeemed by the Corporation or any of its subsidiaries (except by
conversion into or exchange for, or out of the net cash proceeds from the
concurrent sale of, Junior Stock), nor shall any monies be paid or made
available for a sinking fund for the purchase or redemption of any Series J
Stock, Junior Stock or Parity Stock; provided, however, that nothing herein
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shall prevent the Corporation from completing the purchase of Series J Stock,
Parity Stock or Junior Stock for which a purchase contract was entered into, or
the notice of redemption of which was originally published, prior to the date on
which any such dividends were first required to be paid. When dividends are not
paid in full upon the shares of this Series and any Parity Stock, all dividends
declared upon shares of this Series and all Parity Stock shall be declared pro
rata so that the amount of dividends declared per share on this Series and all
such Parity Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of this Series and all such Parity
Stock bear to each other. Holders of shares of this Series shall not be entitled
to any dividends, whether payable in cash, property or stock, in excess of the
full amount of dividends that become payable pursuant to the terms of this
Section 2. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on this Series that may be in
arrears.
3. Conversion Rights.
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3.1 Each holder of a share of this Series shall have the right
at any time or, as to any share of this Series called for redemption or
exchange, at any time prior to the close of business on the date fixed for
redemption or exchange (unless the Corporation defaults in the payment of the
Redemption Price, fails to exchange the shares of this Series for the applicable
number of shares of Common Stock and any applicable cash amount, or exercises
its right to rescind such redemption or exchange pursuant to Section 4.5, in
which case such right shall not terminate at the close of business on such
date), to convert such share into fully paid and nonassessable shares of Common
Stock at a rate of 6.24792 shares of Common Stock for each share of this Series,
subject to adjustment as provided in this Section 3 (such rate, as so adjusted
from time to time, is herein called the "Conversion Rate"). The "Conversion
Price" at any time shall equal $100 divided by the Conversion Rate in effect at
such time (rounded to the nearest one hundredth of a cent).
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3.2 If any shares of this Series are surrendered for conversion
subsequent to the Record Date preceding a Dividend Payment Date but on or prior
to such Dividend Payment Date (except shares called for redemption or exchange
on a redemption date or exchange date between such Record Date and Dividend
Payment Date and with respect to which such redemption or exchange has not been
rescinded), the registered holder of such shares at the close of business on
such Record Date shall be entitled to receive the dividend, if any, payable on
such shares on such Dividend Payment Date notwithstanding the conversion
thereof. Shares of this Series surrendered for conversion during the period
from the close of business on any Record Date next preceding any Dividend
Payment Date to the opening of business on such Dividend Payment Date shall
(except in the case of shares that have been called for redemption or exchange
on a redemption date or exchange date within such period and with respect to
which such redemption or exchange has not been rescinded) be accompanied by
payment in New York Clearing House funds or other funds acceptable to the
Corporation of an amount equal to the dividend payable on such Dividend Payment
Date on the shares being surrendered for conversion. Except as provided in this
Section 3.2, no adjustments in respect of payments of dividends on shares
surrendered for conversion or any dividend on the Common Stock issued upon
conversion shall be made upon the conversion of any shares of this Series.
3.3 The Corporation may, but shall not be required to, in
connection with any conversion of shares of this Series, issue a fraction of a
share of Common Stock, and if the Corporation shall determine not to issue any
such fraction, the Corporation shall, subject to Section 3.6(f), make a cash
payment (rounded to the nearest cent) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the date of
conversion.
3.4 Any holder of shares of this Series electing to convert such
shares into Common Stock shall surrender the certificate or certificates for
such shares at the office of the transfer agent or agents therefor (or at such
other place as the Corporation may designate by notice to the holders of shares
of this Series) during regular business hours, duly endorsed to the Corporation
or in blank, or accompanied by instruments of transfer to the Corporation or in
blank, or in form satisfactory to the Corporation, and shall give written notice
to the Corporation at such office that such holder elects to convert such shares
of this Series. The Corporation shall, as soon as practicable (subject to
Section 3.6(f)) after
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such deposit of certificates for shares of this Series, accompanied by the
written notice above prescribed and the payment of cash in the amount required
by Section 3.2, if any, issue and deliver at such office to the holder for whose
account such shares were surrendered, or to his nominee, certificates
representing the number of shares of Common Stock and the cash, if any, to which
such holder is entitled upon such conversion.
3.5 Conversion shall be deemed to have been made as of the date
that certificates for the shares of this Series to be converted, and the written
notice and payment prescribed in Sections 3.2 and 3.4 are received by the
transfer agent or agents for this Series; and the person entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such Common Stock on such date. Notwithstanding anything
to the contrary contained herein, in the event the Corporation shall have
rescinded a redemption or exchange of shares of this Series pursuant to Section
4.5, any holder of shares of this Series that shall have surrendered shares of
this Series for conversion following the day on which notice of the subsequently
rescinded redemption or exchange shall have been given but prior to the close of
business on the later of (a) the Trading Day next succeeding the date on which
public announcement of the rescission of such redemption or exchange shall have
been made and (b) the date of the mailing of the notice of rescission required
by Section 4.5 (a "Converting Holder") may rescind the conversion of such shares
surrendered for conversion by (i) properly completing a form prescribed by the
Corporation and mailed to holders of shares of this Series (including Converting
Holders) with the Corporation's notice of rescission, which form shall provide
for the certification by any Converting Holder rescinding a conversion on behalf
of any beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of shares of this Series that the beneficial ownership (within the meaning
of such Rule) of such shares shall not have changed from the date on which such
shares were surrendered for conversion to the date of such certification and
(ii) delivering such form to the Corporation no later than the close of business
on that date which is fifteen (15) Trading Days following the date of the
mailing of the Corporation's notice of rescission. The delivery of such form by
a Converting Holder shall be accompanied by (x) any certificates representing
shares of Common Stock issued to such Converting Holder upon a conversion of
shares of this Series that shall be rescinded by the proper delivery of such
form (the "Surrendered Shares"), (y) any securities, evidences of indebtedness
or assets (other than cash) distributed by the Corporation to
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such Converting Holder by reason of such Converting Holder's being a record
holder of Surrendered Shares and (z) payment in New York Clearing House funds or
other funds acceptable to the Corporation of an amount equal to the sum of (I)
any cash such Converting Holder may have received in lieu of the issuance of
fractional shares upon conversion and (II) any cash paid or payable by the
Corporation to such Converting Holder by reason of such Converting Holder being
a record holder of Surrendered Shares. Upon receipt by the Corporation of any
such form properly completed by a Converting Holder and any certificates,
securities, evidences of indebtedness, assets or cash payments required to be
returned or made by such Converting Holder to the Corporation as set forth
above, the Corporation shall instruct the transfer agent or agents for shares of
Common Stock and shares of this Series to cancel any certificates representing
Surrendered Shares (which Surrendered Shares shall be deposited in the treasury
of the Corporation) and reissue certificates representing shares of this Series
to such Converting Holder (which shares of this Series shall be deemed to have
been outstanding at all times during the period following their surrender for
conversion). The Corporation shall, as promptly as practicable, and in no event
more than five (5) Trading Days, following the receipt of any such properly
completed form and any such certificates, securities, evidences of indebtedness,
assets or cash payments required to be so returned or made, pay to the
Converting Holder or as otherwise directed by such Converting Holder any
dividend or other payment made on such shares during the period from the time
such shares shall have been surrendered for conversion to the rescission of such
conversion. All questions as to the validity, form, eligibility (including time
or receipt) and acceptance of any form submitted to the Corporation to rescind
the conversion of shares of this Series, including questions as to the proper
completion or execution of any such form or any certification contained therein,
shall be resolved by the Corporation, whose determination shall be final and
binding. The Corporation shall not be required to deliver certificates for
shares of Common Stock while the stock transfer books for such stock or for this
Series are duly closed for any purpose or during any period commencing at a
Redemption Rescission Event and ending at either (A) the time and date at which
the Corporation's right of rescission shall expire pursuant to Section 4.5 if
the Corporation shall not have exercised such right or (B) the close of business
on that day which is fifteen (15) Trading Days following the date of the mailing
of a notice of rescission pursuant to Section 4.4 if the Corporation shall have
exercised such right of rescission, but certificates for shares of Common Stock
shall be issued and delivered as soon
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as practicable after the opening of such books or the expiration of such period.
3.6 The Conversion Rate shall be adjusted from time to time as
follows for events occurring after the effective time of the transactions
contemplated by the Merger Agreement:
(a) In case the Corporation shall, at any time or from time to
time while any of the Series J Stock is outstanding, (i) pay a dividend in
shares of its Common Stock, (ii) combine its outstanding shares of Common
Stock into a smaller number of shares, (iii) subdivide its outstanding
shares of Common Stock or (iv) issue by reclassification of its shares of
Common Stock any shares of stock of the Corporation, then the Conversion
Rate in effect immediately before such action shall be adjusted so that the
holders of the Series J Stock, upon conversion of all shares thereof
immediately following such event, shall be entitled to receive the kind and
amount of shares of capital stock of the Corporation that they would have
owned or been entitled to receive upon or by reason of such event if such
shares of Series J Stock had been converted immediately before the record
date (or, if no record date, the effective date) for such event. An
adjustment made pursuant to this Section 3.6(a) shall become effective
retroactively immediately after the record date in the case of a dividend
or distribution and shall become effective retroactively immediately after
the effective date in the case of a subdivision, combination or
reclassification. For the purposes of this Section 3.6(a), each holder of
Series J Stock shall be deemed to have failed to exercise any right to
elect the kind or amount of securities receivable upon the payment of any
such dividend, subdivision, combination or reclassification (provided that
if the kind or amount of securities receivable upon such dividend,
subdivision, combination or reclassification is not the same for each
nonelecting share, then the kind and amount of securities receivable upon
such dividend, subdivision, combination or reclassification for each
nonelecting share shall be deemed to be the kind and amount so receivable
per share by a plurality of the nonelecting shares).
(b) In case the Corporation shall, at any time or from time to
time while any of the Series J Stock is outstanding, issue rights or
warrants to all holders of shares of its Common Stock entitling them (for a
period expiring within 45 days after the record
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date for such issuance) to subscribe for or purchase shares of Common Stock
(or securities convertible into shares of Common Stock) at a price per
share less than the Current Market Price of the Common Stock at such record
date (treating the price per share of the securities convertible into
Common Stock as equal to (x) the sum of (i) the price for a unit of the
security convertible into Common Stock plus (ii) any additional
consideration initially payable upon the conversion of such security into
Common Stock divided by (y) the number of shares of Common Stock initially
underlying such convertible security), the Conversion Rate shall be
adjusted so that it shall equal the rate determined by multiplying the
Conversion Rate in effect immediately prior to the date of issuance of such
rights or warrants by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are initially convertible), and the denominator of
which shall be the number of shares of Common Stock outstanding on the date
of issuance of such rights or warrants plus the number of shares that the
aggregate offering price of the total number of shares so offered for
subscription or purchase (or the aggregate purchase price of the
convertible securities so offered plus the aggregate amount of any
additional consideration initially payable upon conversion into Common
Stock) would purchase at such Current Market Price of the Common Stock.
Such adjustment shall become effective retroactively immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants.
(c) In case the Corporation shall, at any time or from time to
time while any of the Series J Stock is outstanding, distribute to all
holders of shares of its Common Stock (including any such distribution made
in connection with a consolidation or merger in which the Corporation is
the continuing corporation and the Common Stock is not changed or
exchanged, but excluding any transaction for which an adjustment is made
under Section 3.7) cash, evidences of its indebtedness, securities or
assets (excluding (i) regularly scheduled cash dividends in amounts, if
any, determined from time to time by the Board of Directors or (ii)
dividends payable in shares of Common Stock for which adjustment is made
under Section 3.6(a)) or rights or warrants to subscribe for
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or purchase securities of the Corporation (excluding those referred to in
Section 3.6(b)), then in each such case the Conversion Rate shall be
adjusted so that it shall equal the rate determined by multiplying the
Conversion Rate in effect immediately prior to the date of such
distribution by a fraction, the numerator of which shall be the Current
Market Price of the Common Stock on the record date referred to below, and
the denominator of which shall be such Current Market Price of the Common
Stock less the then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the portion of the
cash or assets or evidences of indebtedness or securities so distributed or
of such subscription rights or warrants applicable to one share of Common
Stock (provided that such denominator shall never be less than 1.0);
provided, however, that no adjustment shall be made with respect to any
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distribution of rights to purchase securities of the Corporation if the
holder of shares of this Series would otherwise be entitled to receive such
rights upon conversion at any time of shares of this Series into Common
Stock unless such rights are subsequently redeemed by the Corporation, in
which case such redemption shall be treated for purposes of this Section as
a dividend on the Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective retroactively
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(d) In case the Corporation or any subsidiary thereof shall, at
any time and from time to time while any of the Series J Stock is
outstanding, make a Pro Rata Repurchase, the Conversion Rate in effect
immediately prior to such action shall be adjusted by multiplying such
Conversion Rate by a fraction, the numerator of which shall be the product
of (i) the number of shares of Common Stock outstanding immediately before
such Pro Rata Repurchase minus the number of shares of Common Stock
repurchased in such Pro Rata Repurchase and (ii) the Current Market Price
of the Common Stock as of the day immediately preceding the first public
announcement by the Corporation of the intent to effect such Pro Rata
Repurchase, and the denominator of which shall be (A) the product of (x)
the number of shares of Common Stock outstanding immediately before such
Pro Rata Repurchase and (y) the Current Market Price of the Common Stock as
of the day immediately preceding the first public announcement by the
Corporation of the intent to effect such Pro Rata
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Repurchase minus (B) the aggregate purchase price of the Pro Rata
Repurchase (provided that such denominator shall never be less than 1.0).
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Such adjustment shall become effective immediately after the Effective Date
of such Pro Rata Repurchase.
(e) The Corporation shall be entitled to make such additional
adjustments in the Conversion Rate, in addition to those required by
subsections 3.6(a), 3.6(b), 3.6(c) and 3.6(d), as shall be necessary in
order that any dividend or distribution in Common Stock, any subdivision,
reclassification or combination of shares of Common Stock or any issuance
of rights or warrants referred to above, shall not be taxable to the
holders of Common Stock for United States Federal income tax purposes.
(f) In any case in which this Section 3.6 shall require that any
adjustment be made effective as of or retroactively immediately following a
record date, the Corporation may elect to defer (but only for five (5)
Trading Days following the filing of the statement referred to in Section
3.6(h)) issuing to the holder of any shares of this Series converted after
such record date (i) the shares of Common Stock and other capital stock of
the Corporation issuable upon such conversion over and above (ii) the
shares of Common Stock and other capital stock of the Corporation issuable
upon such conversion on the basis of the Conversion Rate prior to
adjustment; provided, however, that the Corporation shall deliver to such
-------- -------
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(g) All calculations under this Section 3.6 shall be made to the
nearest cent, one-hundredth of a share or, in the case of the Conversion
Rate, one ten-thousandth. Notwithstanding any other provision of this
Section 3.6, the Corporation shall not be required to make any adjustment
of the Conversion Rate unless such adjustment would require an increase or
decrease of at least 1.0000% of such rate. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment that, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least
1.0000% in such rate. Any adjustments under this Section 3.6 shall be made
successively whenever an event requiring such an adjustment occurs.
<PAGE>
16
(h) Whenever an adjustment in the Conversion Rate is required,
the Corporation shall forthwith place on file with its transfer agent or
agents for this Series a statement signed by a duly authorized officer of
the Corporation, stating the adjusted Conversion Rate determined as
provided herein. Such statements shall set forth in reasonable detail such
facts as shall be necessary to show the reason for and the manner of
computing such adjustment. Promptly after the adjustment of the Conversion
Rate, the Corporation shall mail a notice thereof to each holder of shares
of this Series.
(i) In the event that at any time as a result of an adjustment
made pursuant to this Section 3.6, the holder of any share of this Series
thereafter surrendered for conversion shall become entitled to receive any
shares of stock of the Corporation other than shares of Common Stock, the
conversion rate of such other shares so receivable upon conversion of any
such share of this Series shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in subparagraphs (a)
through (h) and (j) of this Section 3.6, and the provisions of Sections 3.1
through 3.5 and 3.7 through 3.10 shall apply on like or similar terms to
any such other shares and the determination of the Board of Directors as to
any such adjustment shall be conclusive.
(j) No adjustment shall be made pursuant to this Section 3.6 (i)
if the effect thereof would be to reduce the Conversion Price below the par
value of the Common Stock or (ii) subject to Section 3.6(f), with respect
to any share of Series J Stock that is converted, prior to the time such
adjustment otherwise would be made.
3.7 In case, after the effective time of the transactions
contemplated by the Merger Agreement, of (a) any consolidation or merger to
which the Corporation is a party, other than a merger or consolidation in which
the Corporation is the surviving or continuing corporation and that does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock
or (b) in a transaction where the Common Stock will cease to be registered under
the Securities Exchange Act of 1934, any sale or conveyance of all or
substantially
<PAGE>
17
all of the property and assets of the Corporation, then each share of this
Series remaining outstanding after such consolidation, merger, sale or
conveyance shall be convertible from and after the date of such consolidation,
merger, sale or conveyance, as the case may be, into the kind and amount of
shares of stock or other securities and property receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock into which such shares of this Series could have been converted
immediately prior to such consolidation, merger, sale or conveyance, subject to
adjustment that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 3 (and assuming such holder of Common
Stock failed to exercise his rights of election, if any, as to the kind or
amount of securities, cash or other property receivable upon such consolidation,
merger, sale or conveyance (provided that if the kind or amount of securities,
cash or other property receivable upon such consolidation, merger, sale or
conveyance is not the same for each nonelecting share, then the kind and amount
of securities, cash or other property receivable upon such consolidation,
merger, sale or conveyance for each nonelecting share shall be deemed to be the
kind and amount so receivable per share by a plurality of the nonelecting
shares)). The Corporation shall not enter into any of the transactions referred
to in clause (a) or (b) of the preceding sentence unless effective provision
shall be made so as to give effect to the provisions set forth in this Section
3.7. The provisions of this Section 3.7 shall apply similarly to successive
consolidations, mergers, sales or conveyances.
3.8 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
stock, for the purpose of effecting the conversion of the shares of this Series,
such number of its duly authorized shares of Common Stock (or, if applicable,
any other shares of capital stock of the Corporation) as shall from time to time
be sufficient to effect the conversion of all outstanding shares of this Series
into such Common Stock (or such other shares of capital stock) at any time
(assuming that, at the time of the computation of such number of shares, all
such Common Stock (or such other shares of capital stock) would be held by a
single holder); provided, however, that nothing contained herein shall preclude
-------- -------
the Corporation from satisfying its obligations in respect of the conversion of
the shares by delivery of purchased shares of Common Stock (or such other shares
of capital stock) that are held in the treasury of the Corporation. The
Corporation shall from time to time, in accordance with the laws of the State of
<PAGE>
18
Delaware, use its best efforts to cause the authorized amount of Common Stock
(or such other shares of capital stock) to be increased if the aggregate of the
authorized amount of the Common Stock (or such other shares of capital stock)
remaining unissued and the issued shares of such Common Stock (or such other
shares of capital stock) in its treasury (other than any shares of such Common
Stock (or such other shares capital stock) reserved for issuance in any other
connection) shall not be sufficient to permit the conversion of the shares of
this Series into the Common Stock (or such other shares of capital stock).
3.9 If any shares of Common Stock that would be issuable upon
conversion of shares of this Series hereunder require registration with or
approval of any governmental authority before such shares may be issued upon
conversion, the Corporation will in good faith and as expeditiously as possible
cause such shares to be duly registered or approved, as the case may be. The
Corporation will endeavor to list the shares of (or depositary shares
representing fractional interests in) Common Stock required to be delivered upon
conversion of shares of this Series prior to such delivery upon the principal
national securities exchange upon which the outstanding Common Stock is listed
at the time of such delivery.
3.10 The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of shares of this Series pursuant hereto. The Corporation
shall not, however, be required to pay any tax that is payable in respect of any
transfer involved in the issue or delivery of Common Stock in a name other than
that in which the shares of this Series so converted were registered, and no
such issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of such tax, or has established, to
the satisfaction of the Corporation, that such tax has been paid.
3.11 In case (i) of a consolidation or merger to which the
Corporation is a party and in which the Common Stock is to be exchanged for
securities or other property or of the sale or conveyance to another person or
entity or group of persons or entities acting in concert as a partnership,
limited partnership, syndicate or other group (within the meaning of Rule 13d-3
under the Exchange Act) of all or substantially all of the property and assets
of the Corporation, (ii) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation or (iii) of any Pro Rata Repurchase
or other action triggering an adjustment to the Conversion Rate pursuant to this
<PAGE>
19
Section 3; then, in each case, the Corporation shall cause to be filed with the
transfer agent or agents for the Series J Stock, and shall cause to be mailed,
first-class postage prepaid, to the holders of record of the outstanding shares
of Series J Stock, at least fifteen (15) days prior to the applicable record
date hereinafter specified, a notice stating (x) the date on which a record is
to be taken for the purpose of any distribution or grant of rights or warrants
triggering an adjustment to the Common Stock Conversion Rate pursuant to this
Section 3, or, if a record is not to be taken, the date as of which the holders
of record of Common Stock entitled to such distribution, rights or warrants are
to be determined, or (y) the date on which any reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation, winding up or Pro Rata
Repurchase triggering an adjustment to the Conversion Rate pursuant to this
Section 3 is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation, winding up or Pro Rata Repurchase. Failure to give such notice or
any defect therein shall not affect the legality or validity of the proceedings
described in clause (i), (ii) or (iii) of this Section 3.11.
4. Redemption or Exchange.
----------------------
4.1 Redemption or Exchange at the Option of the Corporation.
-------------------------------------------------------
(a) The Corporation may, at its sole option, subject to Section 2.2, from time
to time, redeem, out of funds legally available therefor, or, as provided below,
exchange shares of Common Stock for, all or any part of the outstanding shares
of this Series. The redemption or exchange price for each share of this Series
called for redemption or exchange pursuant to clause (i) of the next sentence of
this Section 4.1(a) shall be the Liquidation Value together in each case with an
amount equal to the accrued and unpaid dividends to the date fixed for
redemption or exchange (hereinafter collectively referred to as the "Redemption
Price"). On the date fixed for redemption or exchange, the Corporation shall,
at its option, effect either
(i)(A) a redemption of the shares of this Series to be redeemed
by way of payment, out of funds legally available therefor, of cash equal
to the aggregate Redemption Price for the shares of this Series then being
redeemed, (B) an exchange of the shares of this Series being exchanged for
shares of
<PAGE>
20
Common Stock the aggregate Current Market Price of which shall be equal to
the aggregate Redemption Price of the shares of this Series then being
exchanged (provided that the Corporation shall be entitled to deliver cash
in lieu of any fractional share of Common Stock (determined in a manner
consistent with Section 3.3)) or (C) any combination thereof with respect
to each share of this Series called for redemption or exchange; provided,
--------
however, that the Corporation may not redeem or exchange any shares of this
-------
Series pursuant to this clause (i) unless the Closing Price of the Common
Stock shall have equalled or exceeded 125% of the applicable Conversion
Price (as determined in accordance with Section 3) for at least twenty (20)
Trading Days within thirty (30) consecutive Trading Days ending within
fifteen (15) Trading Days prior to the date notice of redemption is given;
or
(ii) an exchange of the shares of this Series being exchanged for
shares of Common Stock at a rate of exchange per $100 in Liquidation Value
of Series J Stock equal to the Conversion Rate (provided that the
Corporation shall be entitled to deliver cash in lieu of any fractional
share of Common Stock (determined in a manner consistent with Section
3.3)); provided, however, that the Corporation may not exchange any shares
-------- -------
of this Series pursuant to this clause (ii) unless all dividends with
respect to such shares accrued through the Dividend Payment Date
immediately prior to the date fixed for such exchange shall have been
declared and paid in accordance with Section 2. Except as provided in the
proviso in the previous sentence, upon receipt of shares of Common Stock in
exchange for shares of this Series being exchanged pursuant to this clause
(ii), the holders of such shares of this Series shall not be entitled to
any accrued and unpaid dividends to the date fixed for exchange.
(b) Notwithstanding clauses (i)(B), (i)(C) and (ii) of Section 4.1(a),
the Corporation shall be entitled to effect an exchange of shares of Series J
Stock for Common Stock only to the extent Common Stock shall be available for
issuance (including delivery of previously issued shares of Common Stock held in
the Corporation's treasury) on the date for exchange and only to the extent
shares of Common Stock are issued and exchanged for shares of this Series on a
timely basis in accordance with the terms of this Section 4. Certificates for
shares of Common Stock issued in exchange for surrendered shares pursuant to
this Section 4.1 shall be made available by the Corporation not later than the
fifth
<PAGE>
21
Trading Day following the date for exchange; subject, however, to Section
------- -------
4.2.
4.2 In the event that fewer than all the outstanding shares of
this Series are to be redeemed or exchanged pursuant to Section 4.1(a), the
number of shares to be redeemed or exchanged from each holder of shares of this
Series shall be determined by the Corporation by lot or pro rata or by any other
method as may be determined by the Board of Directors in its sole discretion to
be equitable, and the certificate of the Corporation's Secretary or an Assistant
Secretary filed with the transfer agent or transfer agents for this Series in
respect of such determination by the Board of Directors shall be conclusive.
4.3 In the event the Corporation shall redeem or exchange shares
of this Series pursuant to Section 4.1(a), notice of such redemption or exchange
shall be given by first class mail, postage prepaid, mailed not less than
fifteen (15) nor more than sixty (60) days prior to the date fixed for
redemption or exchange, as applicable, to each record holder of the shares to be
redeemed or exchanged, at such holder's address as the same appears on the books
of the Corporation. Each such notice shall state: (i) whether the shares of
this Series are to be redeemed or exchanged and, if exchanged, whether such
shares are to be exchanged at the Redemption Price or the Conversion Rate; (ii)
the time and date as of which the redemption or exchange shall occur; (iii) the
total number of shares of this Series to be redeemed or exchanged and, if fewer
than all the shares held by such holder are to be redeemed or exchanged, the
number of such shares to be redeemed or exchanged from such holder; (iv) the
Redemption Price, if applicable; (v) that shares of this Series called for
redemption or exchange may be converted at any time prior to the time and date
fixed for redemption or exchange (unless the Corporation shall, in the case of a
redemption, default in payment of the Redemption Price or, in the case of an
exchange, fail to exchange the shares of this Series for the applicable number
of shares of Common Stock and amount of cash, or shall exercise its right to
rescind such redemption or exchange pursuant to Section 4.5, in which case such
right of conversion shall not terminate at such time and date); (vi) the
applicable Conversion Price or Conversion Rate; (vii) the place or places where
certificates for such shares are to be surrendered (A) for payment of the
Redemption Price, in the case of redemption, or (B) for delivery of certificates
representing the shares of Common Stock and for payment of any applicable cash
amount, in the case of exchange; and (viii) that, in the case of any redemption
or exchange pursuant to Section 4.1(a)(i),
<PAGE>
22
dividends on the shares to be redeemed or exchanged will cease to accrue on such
date fixed for redemption or exchange.
4.4 If notice of redemption or exchange shall have been given by
the Corporation as provided in Section 4.3, dividends on the shares of this
Series so called for redemption or exchange shall cease to accrue, such shares
shall no longer be deemed to be outstanding, and all rights of the holders
thereof as stockholders with respect to shares so called for redemption or
exchange (except (i) in the case of redemption, the right to receive from the
Corporation the Redemption Price without interest and, in the case of exchange,
the right to receive from the Corporation the shares of Common Stock and cash
amount, if any, exchanged therefor and (ii) the right to convert such shares in
accordance with Section 3) shall cease (including any right to receive dividends
otherwise payable on any Dividend Payment Date that would have occurred after
the time and date of redemption or exchange) either (A) in the case of a
redemption or exchange pursuant to Section 4.1(a), from and after the time and
date fixed in the notice of redemption or exchange as the time and date of
redemption or exchange (unless the Corporation shall (x) in the case of a
redemption, default in the payment of the Redemption Price, (y) in the case of
an exchange, fail to exchange the shares of this Series for the applicable
number of shares of Common Stock and any applicable cash amount pursuant to
Section 4.1, or (z) exercise its right to rescind such redemption pursuant to
Section 4.5, in which case such rights shall not terminate at such time and
date) or (B) if the Corporation shall so elect and state in the notice of
redemption or exchange, from and after the time and date (which date shall be
the date of redemption or exchange or an earlier date not less than fifteen (15)
days after the date of mailing of the redemption or exchange notice) on which
the Corporation shall irrevocably deposit with a designated bank or trust
company doing business in the Borough of Manhattan, City and State of New York,
as paying agent, money sufficient to pay at the office of such paying agent, on
the redemption date, the Redemption Price, in the case of redemption, or
certificates representing the shares of Common Stock to be so exchanged and any
applicable cash amount, in the case of an exchange. Any money or certificates
so deposited with any such paying agent that shall not be required for such
redemption or exchange because of the exercise of any right of conversion or
otherwise shall be returned to the Corporation forthwith. Upon surrender (in
accordance with the notice of redemption or exchange) of the certificate or
certificates for any shares of this Series to be so redeemed or exchanged
<PAGE>
23
(properly endorsed or assigned for transfer, if the Corporation shall so require
and the notice of redemption or exchange shall so state), such shares shall be
redeemed or exchanged by the Corporation at the Redemption Price or the
Conversion Rate, as applicable, as set forth in Section 4.1 (unless the
Corporation shall have exercised its right to rescind such redemption or
exchange pursuant to Section 4.5). In case fewer than all the shares
represented by any such certificate are to be redeemed or exchanged, a new
certificate shall be issued representing the unredeemed shares (or fractions
thereof as provided in Section 7.3), without cost to the holder thereof,
together with the amount of cash, if any, in lieu of fractional shares other
than those issuable in accordance with Section 7.3. Subject to applicable
escheat laws, any moneys so set aside by the Corporation in the case of
redemption and unclaimed at the end of one year from the redemption date shall
revert to the general funds of the Corporation, after which reversion the
holders of such shares so called for redemption shall look only to the general
funds of the Corporation for the payment of the Redemption Price without
interest. Any interest accrued on funds so deposited shall be paid to the
Corporation from time to time.
4.5 In the event that a Redemption Rescission Event shall occur
following any day on which a notice of redemption or exchange shall have been
given pursuant to Section 4.3 but at or prior to the earlier of (a) the time and
date fixed for redemption or exchange as set forth in such notice of redemption
or exchange and (b) the time and date at which the Corporation shall have
irrevocably deposited funds or certificates with a designated bank or trust
company pursuant to Section 4.4, the Corporation may, at its sole option, at any
time prior to the earliest of (i) the close of business on that day which is two
(2) Trading Days following such Redemption Rescission Event, (ii) the time and
date fixed for redemption or exchange as set forth in such notice and (iii) the
time and date on which the Corporation shall have irrevocably deposited such
funds with a designated bank or trust company, rescind the redemption or
exchange to which such notice of redemption or exchange shall have related by
making a public announcement of such rescission (the date on which such public
announcement shall have been made being hereinafter referred to as the
"Rescission Date"). The Corporation shall be deemed to have made such
announcement if it shall issue a release to the Dow Jones News Service, Reuters
Information Services or any successor news wire service. From and after the
making of such announcement, the Corporation shall have no obligation to redeem
or exchange shares of this Series called for redemption or
<PAGE>
24
exchange pursuant to such notice of redemption or exchange or to pay the
redemption or exchange price therefor and all rights of holders of shares of
this Series shall be restored as if such notice of redemption or exchange had
not been given. The Corporation shall give notice of any such rescission by
first-class mail, postage prepaid, mailed as promptly as practicable, but in no
event later than the close of business on that date which is five (5) Trading
Days following the Rescission Date to each record holder of shares of this
Series at the close of business on the Rescission Date and to any other person
or entity that was a record holder of shares of this Series and that shall have
surrendered shares of this Series for conversion following the giving of notice
of the subsequently rescinded redemption or exchange. Each notice of rescission
shall (w) state that the redemption or exchange described in the notice of
redemption or exchange has been rescinded, (x) state that any Converting Holder
shall be entitled to rescind the conversion of shares of this Series surrendered
for conversion following the day on which notice of redemption or exchange was
given but on or prior to the date of the mailing of the Corporation's notice of
rescission, (y) be accompanied by a form prescribed by the Corporation to be
used by any Converting Holder rescinding the conversion of shares so surrendered
for conversion (and instructions for the completion and delivery of such form,
including instructions with respect to payments that may be required to
accompany such delivery shall be in accordance with Section 3.5) and (z) state
that such form must be properly completed and received by the Corporation no
later than the close of business on a date that shall be fifteen (15) Trading
Days following the date of the mailing of such notice of rescission.
5. Voting. The shares of this Series shall have no voting rights
-------
except as required by law or as set forth below.
5.1 Each share of this Series shall be entitled to vote together
with holders of the shares of Common Stock (and any other class or series that
may similarly be entitled to vote with the shares of Common Stock) as a single
class upon all matters upon which holders of Common Stock are entitled to vote.
In any such vote, the holders of this Series shall be entitled to six (6) votes
per $100 in Liquidation Value of Series J Stock, subject to adjustment at the
same time and in the same manner as each adjustment of the Conversion Rate
pursuant to Section 3.6, so that the holders of this Series shall be entitled
following such adjustment to the number of votes equal to the number of votes
such holders were entitled to under this
<PAGE>
25
Section 5.1 immediately prior to such adjustment multiplied by a fraction (x)
the numerator of which is the Conversion Rate as adjusted pursuant to Section
3.6 and (y) the denominator of which is the Conversion Rate immediately prior to
such adjustment.
5.2 (a) So long as any shares of this Series remain
outstanding, unless a greater percentage shall then be required by law, the
Corporation shall not, without the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of shares of this Series
representing at least 66-2/3% of the aggregate voting power of shares of this
Series then outstanding (i) authorize any Senior Stock or reclassify any Junior
Stock or Parity Stock as Senior Stock or (ii) amend, alter or repeal any of the
provisions of the Certificate or the Certificate of Incorporation, so as in any
such case to materially and adversely affect the preferences, special rights,
powers or privileges of the shares of this Series; provided, however, that no
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amendment that effects a split of this Series or that effects a combination of
the shares of this Series into a fewer number of Shares shall be deemed to have
any such material adverse effect.
(b) No consent of holders of shares of this Series shall be required
for (i) the creation of any indebtedness of any kind of the Corporation, (ii)
the authorization or issuance of any class of Junior Stock or Parity Stock,
(iii) the authorization, designation or issuance of additional shares of Series
J Stock or (iv) subject to Section 5.2(a), the authorization or issuance of any
other shares of Preferred Stock.
5.3 (a) If and whenever at any time or times dividends payable
on shares of this Series shall have been in arrears and unpaid in an aggregate
amount equal to or exceeding the amount of dividends payable thereon for six
quarterly dividend periods, then the number of directors constituting the Board
of Directors shall be increased by two and the holders of shares of this Series,
together with the holders of any shares of any Parity Stock as to which in each
case dividends are in arrears and unpaid in an aggregate amount equal to or
exceeding the amount of dividends payable thereon for six quarterly dividend
periods, shall have the exclusive right, voting separately as a class with such
other series, to elect two directors of the Corporation.
(b) Such voting right may be exercised initially either by written
consent or at a special meeting of the holders of the Preferred Stock having
such voting right,
<PAGE>
26
called as hereinafter provided, or at any annual meeting of stockholders held
for the purpose of electing directors, and thereafter at each such annual
meeting until such time as all dividends accumulated on the shares of this
Series shall have been paid in full and all dividends payable on the shares of
this Series on four subsequent consecutive Dividend Payment Dates shall have
been paid in full on such dates or funds shall have been set aside for the
payment thereof, at which time such voting right and the term of the directors
elected pursuant to Section 5.3(a) shall terminate.
(c) At any time when such voting right shall have vested in holders of
shares of such series of Preferred Stock described in Section 5.3(a), and if
such right shall not already have been exercised by written consent, a proper
officer of the Corporation may call, and, upon the written request, addressed to
the Secretary of the Corporation, of the record holders of shares representing
twenty-five percent (25%) of the voting power of the shares then outstanding of
such Preferred Stock having such voting right, shall call, a special meeting of
the holders of such Preferred Stock having such voting right. Such meeting
shall be held at the earliest practicable date upon the notice required for
annual meetings of stockholders at the place for holding annual meetings of
stockholders, or, if none, at a place designated by the Board of Directors.
Notwithstanding the provisions of this Section 5.3(c), no such special meeting
shall be called during a period within 60 days immediately preceding the date
fixed for the next annual meeting of stockholders.
(d) At any meeting held for the purpose of electing directors at which
the holders of such Preferred Stock shall have the right to elect directors as
provided herein, the presence in person or by proxy of the holders of shares
representing more than fifty percent (50%) in voting power of the then
outstanding shares of such Preferred Stock having such right shall be required
and shall be sufficient to constitute a quorum of such class for the election of
directors by such class.
(e) Any director elected by holders of Preferred Stock pursuant to the
voting right created under this Section 5.3 shall hold office until the next
annual meeting of stockholders (unless such term has previously terminated
pursuant to Section 5.3(b)) and any vacancy in respect of any such director
shall be filled only by vote of the remaining director so elected, or if there
be no such remaining director, by the holders of such Preferred Stock entitled
to elect such director or directors by written
<PAGE>
27
consent or at a special meeting called in accordance with the procedures set
forth in Section 5.3(c), or, if no special meeting is called or written consent
executed, at the next annual meeting of stockholders. Upon any termination of
such voting right, subject to applicable law, the term of office of all
directors elected by holders of such Preferred Stock voting separately as a
class pursuant to this Section 5.3 shall terminate.
(f) In exercising the voting rights set forth in this Section 5.3,
each share of this Series shall have a number of votes equal to its Liquidation
Value.
6. Liquidation Rights.
------------------
6.1 Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of this
Series shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, in preference to the holders of, and
before any payment or distribution shall be made on, Junior Stock, the amount of
$100 per share (which amount shall be appropriately adjusted from time to time
to reflect any split or combination of the shares of this Series) (the
"Liquidation Value"), plus an amount equal to all accrued and unpaid dividends
to the date of final distribution.
6.2 Neither the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Corporation nor the merger or consolidation of
the Corporation into or with any other corporation, or the merger or
consolidation of any other corporation into or with the Corporation, shall be
deemed to be a dissolution, liquidation or winding up, voluntary or involuntary,
for the purposes of this Section 6.
6.3 After the payment to the holders of the shares of this
Series of full preferential amounts provided for in this Section 6, the holders
of this Series as such shall have no right or claim to any of the remaining
assets of the Corporation.
6.4 In the event the assets of the Corporation available for
distribution to the holders of shares of this Series upon any dissolution,
liquidation or winding up of the Corporation, whether voluntary or involuntary,
shall be insufficient to pay in full all amounts to which such holders are
entitled pursuant to Section 6.1, no such distribution shall be made on account
<PAGE>
28
of any shares of any Parity Stock upon such dissolution, liquidation or winding
up unless proportionate distributive amounts shall be paid on account of the
shares of this Series, ratably, in proportion to the full distributable amounts
for which holders of all Parity Stock are entitled upon such dissolution,
liquidation or winding up.
7. Other Provisions.
----------------
7.1 All notices from the Corporation to the holders shall be
given by first class mail. With respect to any notice to a holder of shares of
this Series required to be provided hereunder, neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings referred to in such notice with respect to the other holders or
affect the legality or validity of any distribution, right, warrant,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding up, or the vote upon any such action. Any notice that
was mailed in the manner herein provided shall be conclusively presumed to have
been duly given whether or not the holder receives the notice.
7.2 Any shares of this Series that have been converted,
redeemed, exchanged or otherwise acquired by the Corporation shall, after such
conversion, redemption, exchange or acquisition, as the case may be, be retired
and the Corporation shall take all appropriate action to cause such shares to
obtain the status of authorized but unissued shares of Preferred Stock, without
designation as to series, until such shares are once more designated as part of
a particular series by the Board of Directors. The Corporation may cause a
certificate setting forth a resolution adopted by the Board of Directors that
none of the authorized shares of this Series are outstanding to be filed with
the Secretary of State of the State of Delaware. When such certificate becomes
effective, all matters set forth in the Certificate with respect to the Series J
Stock shall be eliminated from the Certificate of Incorporation and the shares
of Preferred Stock designated hereby as Series J Stock shall have the status of
authorized and unissued shares of Preferred Stock and may be reissued as part of
any new series of Preferred Stock to be created by resolution or resolutions of
the Board of Directors.
7.3 The shares of this Series shall be issuable in whole shares
or, if authorized by the Board of Directors of the Corporation, in any fraction
of a whole
<PAGE>
29
share so authorized or any integral multiple of such fraction.
7.4 Subject to Section 7.6, the Corporation shall be entitled to
recognize the exclusive right of a person registered on its records as the
holder of shares of this Series, and such record holder shall be deemed the
holder of such shares for all purposes.
7.5 All notice periods referred to in the Certificate shall
commence on the date of the mailing of the applicable notice.
7.6 Certificates for shares of this Series shall bear such
legends as the Corporation shall from time to time deem appropriate.
IN WITNESS WHEREOF, AOL Time Warner Inc. has caused this certificate
to be signed this [ ]th day of [ ], 2000.
AOL TIME WARNER INC.,
by ______________________________
Name:
Title:
<PAGE>
EXHIBIT 8.1
[Letterhead of Simpson Thacher & Bartlett]
May 18, 2000
America Online, Inc.
22000 AOL Way
Dulles, VA 20166-9323
Agreement and Plan of Merger
----------------------------
Dated as of January 10, 2000,
-----------------------------
Between America Online, Inc. and
--------------------------------
Time Warner Inc.
----------------
Dear Sirs:
We have acted as counsel for America Online, Inc., a Delaware
Corporation ("America Online"), in connection with the transactions contemplated
by the Agreement and Plan of Merger dated as of January 10, 2000, between
America Online and Time Warner Inc. ("Time Warner") (as amended and restated,
the "Merger Agreement"), in which America Online Merger Sub Inc. ("America
Online Merger Sub"), a subsidiary of AOL Time Warner Inc. ("AOL Time Warner"), a
newly organized Delaware corporation, shall be merged with and into America
Online with America Online surviving as a wholly owned subsidiary of AOL Time
Warner (the "America Online Merger") and Time Warner Merger Sub Inc. ("Time
Warner Merger Sub"), another subsidiary of AOL Time Warner, shall be merged with
and into Time Warner with Time Warner surviving as a wholly owned subsidiary of
AOL Time Warner (the "Time Warner Merger") (the America Online Merger together
with the Time Warner Merger, the "Merger"). Capitalized terms not otherwise
defined herein shall have the meanings specified in the registration
<PAGE>
2
statement on Form S-4 and any amendments thereto (the "Registration Statement"),
which includes the Joint Proxy Statement and Prospectus of America Online and
Time Warner (the "Proxy Statement/Prospectus"), as filed with the Securities and
Exchange Commission (the "SEC"). This opinion is being delivered in connection
with, and as of the date of the declaration of effectiveness by the SEC of, the
Registration Statement to which this opinion appears as an exhibit.
In that connection, you have requested our opinion regarding certain
U.S. federal income tax consequences of the Merger. In providing our opinion,
we have examined the Merger Agreement, the Registration Statement which includes
the Joint Proxy Statement/Prospectus, and such other documents and corporate
records as we have deemed necessary or appropriate for purposes of our opinion.
We have not, however, undertaken any independent investigation of any factual
matter set forth in any of the foregoing. In addition, we have assumed with
your consent that (i) the Merger will be consummated in accordance with the
provisions of the Merger Agreement and the Registration Statement, (ii) the
statements concerning the Merger set forth in the Merger Agreement and the
Registration Statement are true, complete and correct and will remain true,
complete and correct at all times up to and including the Effective Time (as
defined in the Merger Agreement), (iii) the representations made by AOL Time
Warner, America Online and Time Warner, in their respective letters delivered to
us for purposes of this opinion (the "Representation Letters") are true,
complete and correct and will remain true, complete and correct at all times up
to and including the Effective Time (as defined in the Merger Agreement) and
(iv) any representations made in the Representation Letters "to the knowledge
of" or similarly qualified are correct without such qualification. We have also
assumed that the parties have complied with and, if applicable, will continue to
comply with, the covenants contained in the Merger Agreement. If any of the
above described assumptions are untrue for any reason or if the Merger is
consummated in a manner that is different from the manner in which they are
described in the Merger Agreement or the Proxy Statement/Prospectus, our
opinions as expressed below may be adversely affected and may not be relied
upon.
Based upon the foregoing, for U.S. federal income tax purposes, we are
of the opinion that (i) the America Online Merger and the Time Warner Merger
will each constitute an exchange to which Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), applies or a
<PAGE>
3
reorganization within the meaning of Section 368(a) of the Code, or both; (ii)
no gain or loss will be recognized by AOL Time Warner, America Online or America
Online Merger Sub as a result of the Merger; (iii) no gain or loss will be
recognized by U.S. Holders of America Online common stock on the exchange of
their America Online common stock for AOL Time Warner common stock; (iv) the
aggregate adjusted basis of the AOL Time Warner capital stock received in the
Merger by a U.S. Holder of America Online common stock will be equal to the
aggregate adjusted basis of the U.S. Holder's America Online common stock
exchanged for that AOL Time Warner common stock; and (v) assuming America Online
common stock is held by a U.S. Holder as a capital asset within the meaning of
Section 1221 of the Code, the holding period of the AOL Time Warner common stock
received in the Merger by such U.S. Holder of America Online common stock will
include the holding period of the U.S. Holder's America Online common stock
exchanged for that AOL Time Warner common stock.
Our opinions are based on current provisions of the Code, Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or the facts and
circumstances surrounding the Merger, or any inaccuracy in the statements,
facts, assumptions or representations upon which we have relied, may affect the
continuing validity of our opinions as set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur or
come to our attention. Finally, our opinions are limited to the tax matters
specifically covered hereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the Merger.
We express our opinion herein only as to those matters specifically
set forth above and no opinion should be inferred as to the tax consequences of
the Merger under any state, local or foreign law, or with respect to other areas
of United States federal taxation. We are members of the Bar of the State of
New York, and we do not express any opinion herein concerning any law other than
the federal law of the United States. We hereby consent to the filing of this
opinion as Exhibit 8.1 to the Registration Statement and to the use of our name
under the caption "Material United States Federal Income Tax Consequences of the
Merger."
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
<PAGE>
EXHIBIT 8.2
[Letterhead of]
CRAVATH, SWAINE & MOORE
[New York Office]
May 18, 2000
Agreement and Plan of Merger
----------------------------
Dated as of January 10, 2000,
-----------------------------
Between America Online, Inc. and
--------------------------------
Time Warner Inc.
----------------
Dear Sirs:
We have acted as counsel for Time Warner Inc., a Delaware corporation
("Time Warner"), in connection with the transactions contemplated by the
Agreement and Plan of Merger dated as of January 10, 2000, between America
Online, Inc. ("America Online"), and Time Warner (as amended and restated, the
"Merger Agreement"), in which America Online Merger Sub Inc. ("America Online
Merger Sub"), a subsidiary of AOL Time Warner Inc. ("AOL Time Warner"), a newly
organized Delaware corporation, shall be merged with and into America Online
with America Online surviving as a wholly owned subsidiary of AOL Time Warner
(the "America Online Merger") and Time Warner Merger Sub Inc. ("Time Warner
Merger Sub"), another subsidiary of AOL Time Warner, shall be merged with and
into Time Warner with Time Warner surviving as a wholly owned subsidiary of AOL
Time Warner (the "Time Warner Merger") (the America Online Merger together with
the Time Warner Merger, the "Merger"). Capitalized terms not otherwise defined
herein shall have the meanings specified in the registration statement on Form
S-4 and any amendments thereto (the "Registration Statement"), which includes
the Joint Proxy Statement and Prospectus of America Online and Time Warner (the
"Proxy Statement/Prospectus"), as filed with the Securities and Exchange
Commission (the "SEC"). This opinion is being delivered in connection with, and
as of the date of the declaration of effectiveness by the SEC of, the
Registration Statement to which this opinion appears as an exhibit.
<PAGE>
2
In that connection, you have requested our opinion regarding certain
U.S. federal income tax consequences of the Merger. In providing our opinion,
we have examined the Merger Agreement, the Registration Statement, which
includes the Joint Proxy Statement/Prospectus, and such other documents and
corporate records as we have deemed necessary or appropriate for purposes of our
opinion. We have not, however, undertaken any independent investigation of any
factual matter set forth in any of the foregoing. In addition, we have assumed
with your consent that (i) the Merger will be consummated in accordance with the
provisions of the Merger Agreement and the Registration Statement, (ii) the
statements concerning the Merger set forth in the Merger Agreement and the
Registration Statement are true, complete and correct and will remain true,
complete and correct at all times up to and including the Effective Time (as
defined in the Merger Agreement), (iii) the representations made by AOL Time
Warner, America Online and Time Warner, in their respective letters delivered to
us for purposes of this opinion (the "Representation Letters") are true,
complete and correct and will remain true, complete and correct at all times up
to and including the Effective Time (as defined in the Merger Agreement) and
(iv) any representations made in the Representation Letters "to the knowledge
of" or similarly qualified are correct without such qualification. We have also
assumed that the parties have complied with and, if applicable, will continue to
comply with, the covenants contained in the Merger Agreement. If any of the
above described assumptions are untrue for any reason or if the Merger is
consummated in a manner that is different from the manner in which they are
described in the Merger Agreement or the Proxy Statement/Prospectus, our opinion
as expressed below may be adversely affected and may not be relied upon.
Based upon the foregoing, for U.S. federal income tax purposes, we are
of the opinion that (i) the America Online Merger and the Time Warner Merger
will each constitute an exchange to which Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), applies or a reorganization within the
meaning of Section 368(a) of the Code, or both; (ii) no gain or loss will be
recognized by AOL Time Warner, Time Warner or Time Warner Merger Sub as a result
of the Merger; (iii) no gain or loss will be recognized by U.S. Holders of Time
Warner capital stock on the exchange of their Time Warner capital stock for AOL
Time Warner capital stock (except with respect to cash received by U.S. Holders
of Time Warner capital stock in lieu of fractional shares of AOL Time Warner
capital stock); (iv) the aggregate adjusted basis of the AOL Time Warner capital
stock received in the Merger by a U.S. Holder of Time Warner
<PAGE>
3
capital stock will be equal to the aggregate adjusted basis of the U.S. Holder's
Time Warner capital stock exchanged for that AOL Time Warner capital stock
(reduced by any amount allocable to the fractional share interests in AOL Time
Warner capital stock for which cash is received); and (v) assuming Time Warner
capital stock is held by a U.S. Holder as a capital asset within the meaning of
Section 1221 of the Code, the holding period of the AOL Time Warner capital
stock received in the Merger by such U.S. Holder of Time Warner capital stock
will include the holding period of the U.S. Holder's Time Warner capital stock
exchanged for that AOL Time Warner capital stock.
Our opinions are based on current provisions of the Code, Treasury
Regulations promulgated thereunder, published pronouncements of the Internal
Revenue Service and case law, any of which may be changed at any time with
retroactive effect. Any change in applicable laws or the facts and
circumstances surrounding the Merger, or any inaccuracy in the statements,
facts, assumptions or representations upon which we have relied, may affect the
continuing validity of our opinion as set forth herein. We assume no
responsibility to inform you of any such change or inaccuracy that may occur or
come to our attention. Finally, our opinion is limited to the tax matters
specifically covered hereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the Merger.
We express our opinion herein only as to those matters specifically
set forth above and no opinion should be inferred as to the tax consequences of
the Merger under any state, local or foreign law, or with respect to other areas
of United States federal taxation. We are members of the Bar of the State of
New York, and we do not express any opinion herein concerning any law other than
the federal law of the United States. We hereby consent to the filing of this
opinion as Exhibit 8.2 to the Registration Statement and to the use of our name
under the caption "Material United States Federal Income Tax Consequences of the
Merger."
Very truly yours,
/s/ CRAVATH, SWAINE & MOORE
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 21, 1999, except for Note 3, as to which the
date is May 12, 2000, with respect to the consolidated financial statements of
America Online, Inc. for the three years ended June 30, 1999, incorporated by
reference as Exhibit 99 to its Form 10-Q/A for the quarterly period ended March
31, 2000, filed with the Securities and Exchange Commission, incorporated by
reference in the Joint Proxy Statement-Prospectus of America Online, Inc. and
Time Warner Inc. that is made part of Amendment No. 3 to the Registration
Statement (Form S-4 No. 333-30184) of AOL Time Warner Inc. for the registration
of its common and preferred stocks.
/s/ Ernst & Young LLP
McLean, Virginia
May 18, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of reports dated February 2, 2000, with respect to the consolidated
financial statements, schedule and supplementary information of Time Warner
Inc. ("Time Warner") and the consolidated financial statements and schedule of
Time Warner Entertainment Company, L.P., included in Time Warner's Annual
Report on Form 10-K for the year ended December 31, 1999, filed with the
Securities and Exchange Commission, incorporated by reference in the Joint
Proxy Statement-Prospectus of America Online, Inc. and Time Warner Inc. that is
made part of Amendment No. 3 to the Registration Statement (Form S-4 No. 333-
30184) of AOL Time Warner Inc. for the registration of its common and preferred
stocks.
/s/ Ernst & Young LLP
New York, New York
May 18, 2000
<PAGE>
EXHIBIT 99.3
DETACH HERE
PROXY
AMERICA ONLINE, INC.
THIS PROXY IS BEING SOLICITED ON BEHALF OF
AMERICA ONLINE, INC.'S BOARD OF DIRECTORS
The undersigned, revoking previous proxies relating to these shares, hereby
acknowledges receipt of the Notice and the joint proxy statement-prospectus
dated _________, 2000 in connection with the special meeting to be held at
___:00 a.m. local time on ________, 2000 at ______________________, and hereby
appoints Stephen M. Case, J. Michael Kelly and Paul T. Cappuccio and each of
them (with full power to act alone), the attorneys and proxies of the
undersigned, with power of substitution to each, to vote all the shares of
common stock of America Online, Inc. registered in the name provided on this
proxy card, which the undersigned is entitled to vote at the special meeting of
stockholders, and at any adjournment or adjournments of the special meeting,
with all the powers the undersigned would have if personally present. Without
limiting the general authorization given, the proxies are, and each of them is,
instructed to vote or act as follows on the proposal described in this proxy.
When properly executed, this proxy will be voted in the manner directed on the
reverse side by the undersigned stockholder. If no direction is made this proxy
will be voted FOR proposal 1 on the reverse side, and in the discretion of the
proxies on any other business matters or proposals as may properly come before
the special meeting or any adjournment of the special meeting. Abstaining or
failing to vote at all will have the same effect as voting against proposal 1.
SEE REVERSE SIDE FOR PROPOSAL 1. If you do not sign and return this proxy card,
vote by telephone or through the Internet, or attend the meeting and vote by
ballot, your shares cannot be voted. If you wish to vote in accordance with the
Board of Directors' recommendations, just sign on the reverse side. You need
not mark any boxes.
- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ------------- -------------
<PAGE>
Vote by Telephone
It's fast, convenient and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps:
1. Read the accompanying joint proxy statement-prospectus and proxy card.
2. Call the toll-free number 1-877-PRX-VOTE (1-877-779-8683). For shareholders
residing outside the United States call collect on a touch-tone phone
1-201-536-8073.
3. Enter your 14-digit Voter Control Number located on your proxy card above
your name.
4. Follow the recorded instructions.
Your vote is important!
At anytime call 1-877-PRX-VOTE
Vote by Internet
It's fast, convenient and your vote is immediately confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Joint Proxy Statement and Proxy Card.
2. Go to the Website
http://www.eproxyvote.com/aol.
3. Enter your 14-digit Voter Control Number located on your Proxy Card above
your name
4. Follow the instructions provided.
Your vote is important!
At anytime go to http://www.eproxyvote.com/aol
Under Delaware law, your telephone or Internet vote authorizes the named
proxies to vote your shares in the same manner as if you completed, signed and
returned your proxy card. Therefore, if you vote by telephone or the Internet,
please DO NOT return your proxy card.
DETACH HERE
Please mark
[X] votes as in
this example.
The Board of Directors recommends a vote FOR proposal 1.
1. Proposal to approve and adopt the Second Amended and Restated Agreement
and Plan of Merger, dated as of January 10, 2000, among America Online, Inc.,
Time Warner Inc., America Online Merger Sub Inc. and Time Warner Merger Sub Inc.
pursuant to which America Online and Time Warner will each become a wholly owned
subsidiary of a new holding company that will be named AOL Time Warner Inc. In
the merger, one share of America Online common stock will be automatically
converted into one share of AOL Time Warner common stock. Adoption of
the merger agreement will also constitute approval of the merger and the other
transactions contemplated by the merger agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting or any adjournments thereof.
MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT [ ]
MARK HERE IF YOU PLAN TO
ATTEND THE MEETING [ ]
Please sign exactly as your name(s) appear(s) on this proxy card. Joint owners
should each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such.
___________________________________ ___________________________________
Signature Date Signature Date
<PAGE>
EXHIBIT 99.4
P
R
O
X
Y
TIME WARNER INC.
Proxy Solicited on Behalf of the Board of Directors of
Time Warner Inc. for the Special Meeting on [ ], 2000
The undersigned hereby constitutes and appoints Christopher P. Bogart,
Joseph A. Ripp and John A. LaBarca, and each of them, its true and lawful agents
and proxies, with full power of substitution in each, to attend the Special
Meeting of Stockholders of TIME WARNER INC. on [ ], 2000, and any
adjournment thereof, and to vote on the matters indicated all the shares of
Common Stock which the undersigned would be entitled to vote if personally
present.
----------------------------------------------
Please mark, sign and date this Proxy Card on
the reverse side and return it promptly using
the enclosed reply envelope or submit your
proxy by telephone or the Internet.
----------------------------------------------
(Continued, and to be completed
on reverse side)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
This proxy when properly executed will be voted in the manner directed herein. If no [X] Please mark
direction is made, this proxy will be voted FOR proposal 1. your votes
this way
The Board of Directors recommends a vote FOR proposal 1.
<CAPTION>
<S> <C> <C>
FOR AGAINST ABSTAIN
1. Approval of the Second Amended [ ] [ ] [ ] ***If you wish to submit
and Restated Agreement and Plan your proxy by
of Merger. telephone or
Internet, see the
instructions below***
<CAPTION>
<S> <C>
2. In their discretion, upon such other MEETING ATTENDANCE
matters as may properly come Please mark this box if you plan to [ ]
before the Special Meeting or any attend the Special Meeting
postponement or adjournment
thereof.
ADDRESS CHANGE [ ]
Please mark this box if you have
indicated an address change.
Receipt is hereby acknowledged of the Time
Warner Inc. Notice of Special Meeting and Joint
Proxy Statement-Prospectus.
</TABLE>
Signature Date
------------------------------------------------ ------------
Signature
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
- --------------------------------------------------------------------------------
[GRAPHIC] SUBMIT YOUR PROXY BY TELEPHONE OR INTERNET [GRAPHIC]
QUICK *** EASY *** IMMEDIATE
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT! - YOU CAN SUBMIT YOUR PROXY IN ONE OF THREE WAYS:
<TABLE>
<S> <C>
1. BY TELEPHONE: Call toll-free 1-800-840-1208 in the U.S., Canada or Puerto Rico on a touch tone telephone
24 hours a day--7 days a week
</TABLE>
There is NO CHARGE to you for this call. Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box
in the lower right hand corner of this form.
- --------------------------------------------------------------------------------
To vote FOR as the Board of Directors recommends on Proposal 1, press 1
- --------------------------------------------------------------------------------
When asked, please confirm by Pressing 1.
To vote AGAINST, press 9;
To ABSTAIN, press 0.
When asked, please confirm by Pressing 1.
or
--
2. BY INTERNET: Follow the instructions at our Website Address:
http://www.eproxy.com/twx
or
--
3. BY PROXY CARD: Mark, sign and date your proxy card and return it promptly in
the enclosed envelope.
NOTE: If you submit a proxy by Internet or telephone, you must do so by
4:00 p.m., New York time, on [ ], 2000 and THERE IS NO NEED TO
MAIL BACK your Proxy Card.
THANK YOU FOR VOTING.
<PAGE>
EXHIBIT 99.5
========================================================================
Please mark, sign and date this Proxy and return it promptly using the
enclosed reply envelope.
========================================================================
PROXY
TIME WARNER INC.
Proxy Solicited on Behalf of the Board of Directors of
Time Warner Inc. for the Special Meeting on [ ], 2000
The undersigned hereby constitutes and appoints Christopher P. Bogart,
Joseph A. Ripp and John A. LaBarca, and each of them, its true and lawful agents
and proxies, with full power of substitution in each, to attend the Special
Meeting of Stockholders of TIME WARNER INC. on [ ], 2000, and any
adjournment thereof, and to vote on the matters indicated all the shares of
Preferred Stock which the undersigned would be entitled to vote if personally
present.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR proposal 1.
- ---------------- ------------------------- ----------------
Name of Holder Series of Preferred Stock Number of Shares
The Time Warner Inc. Board of Directors recommends a vote FOR proposal 1.
---
1. Approval of the Second Amended and Restated Agreement and Plan of Merger.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, upon such other matters as may properly come before
the meeting.
Please check this box if you plan to attend the meeting. [ ]
Receipt is hereby acknowledged of the
Time Warner Inc. Notice of Special
Meeting and Joint Proxy Statement-
Prospectus.
Signature(s)
-------------------------------------
------------------------------------- -------
Note: Please sign exactly as name Date
appears hereon. When signing as
attorney, officer, administrator
or trustee, please give full title as
such.
<PAGE>
The undersigned hereby instructs Fidelity, as Trustee, to vote as follows by
proxy at the Special Meeting of Stockholders of Time Warner Inc. to be held on
[ ], 2000 and at any adjournment thereof, the undersigned's proportionate
interest in the shares of Time Warner Common Stock held in the Time Warner
Common Stock fund under each of the Plans.
Please vote by filling in the appropriate boxes.
---
1. Approval of the Second Amended and Restated Agreement and Plan of Merger.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To grant discretionary voting authority to management persons regarding such
other matters as may properly come before the meeting.
Please check this box if you plan to attend the meeting. [ ]
PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE>
Exhibit 99.6
TIME WARNER SAVINGS PLAN
TIME WARNER THRIFT PLAN
TWC SAVINGS PLAN
SUBMIT YOUR CONFIDENTIAL VOTING INSTRUCTIONS
BY TELEPHONE, INTERNET OR MAIL
You may send your voting instructions to the Trustee over the telephone, on the
Internet or by mail, as follows:
. By telephone: dial 800-597-7657 from a touch tone phone in the United States,
Canada or Puerto Rico, 24 hours a day, 7 days a week. There is NO CHARGE to you
for this call. You will be asked to enter a control number, which is located on
the reverse side above the perforation. Follow the prompts.
. By Internet: visit the website at www.401kproxy.com and follow the
instructions. You will be asked to enter a control number, which is located on
the reverse side above the perforation.
. By mail: complete and return the instruction card set out below.
You must provide instructions to the Trustee by [ ], 2000 for your
instructions to be tabulated. You may issue instructions by telephone or the
Internet until 12:00 Midnight (eastern time) on that day. If you are sending
instructions by mail, the Trustee must receive your executed instruction card by
[ ], 2000. If you submit your instructions by telephone or the Internet,
there is no need to mail back your instruction card. If you do not provide
instructions to the Trustee, the Trustee will vote your interests as required by
the terms of the Plans and described below.
please fold and detach card at perforation before mailing
- --------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
Instructions solicited by Fidelity Management Trust Company on behalf of the
Board of Directors for the Time Warner Inc. Special Meeting on
[ ], 2000.
Under the provisions of the Trust relating to these Plans, Fidelity Management
Trust Company ("Fidelity"), as Trustee, is required to request your confidential
instructions as to how your proportionate interest in the shares of Time Warner
Common Stock held in the Time Warner Common Stock fund under those Plans (an
"interest") is to be voted at the Special Meeting of Stockholders scheduled to
be held on [ ], 2000. Your instructions to Fidelity will not be divulged or
revealed to anyone at
<PAGE>
Time Warner Inc. If Fidelity does not receive your instructions on or prior to
the deadlines stated above, your interest, if any, attributable to (a) accounts
transferred from the Time Incorporated Payroll-Based Employee Stock Ownership
Plan ("PAYSOP") and the WCI Employee Stock Ownership Plan ("WCI ESOP") will not
be voted and (b) the remainder of your Plan accounts, if any, will be voted at
the Special Meeting in the same proportion as other participants' interests in
each such respective Plan for which Fidelity has received voting instructions
(excluding PAYSOP and WCI ESOP accounts).
This instruction card must be
signed exactly as name appears
hereon.
_____________________________
_____________________________
Signature(s) Date
(CONTINUED ON REVERSE SIDE)
<PAGE>
SUBMIT YOUR INSTRUCTIONS BY TELEPHONE OR INTERNET
-------------------------------------------------
QUICK**** EASY**** IMMEDIATE
----------------------------
INTERNET VOTING: www.401kproxy.com
- ----------------------------------
TOUCH TONE TELEPHONE VOTING: 800-597-7657
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The undersigned hereby instructs Fidelity, as Trustee, to vote as follows by
proxy at the Special Meeting of Stockholders of Time Warner Inc. to be held on
[ ], 2000 and at any adjournment thereof, the undersigned's proportionate
interest in the shares of Time Warner Common Stock held in the Time Warner
Common Stock fund under each of the Plans.
1. Approval of the Second Amended and Restated Agreement and Plan of Merger.
FOR AGAINST ABSTAIN
2. To grant discretionary voting authority to management persons regarding such
other matters as may properly come before the meeting.
Please check this box if you plan to attend the meeting.
PLEASE SIGN AND DATE ON REVERSE SIDE AND RETURN PROMPTLY TO THE TRUSTEE OR
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SUBMIT YOUR INSTRUCTIONS BY TELEPHONE OR THE INTERNET
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Exhibit 99.12
CONSENT
The undersigned, who has agreed to serve as a member of the Board of
Directors of AOL Time Warner Inc. (the "Company") hereby grants the Company
consent to use his name in its Registration Statement on Form S-4 and all
amendments, including post-effective amendments, to the Registration Statement
(or any other Registration Statement for the same offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933).
Dated: May 15, 2000
/s/ Kenneth J. Novack
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Kenneth J. Novack
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EXHIBIT 99.13
Consent of Person Named
As About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I, Stephen
F. Bollenbach, hereby consent to be named as a person about to become a director
of AOL Time Warner Inc. in the Registration Statement on Form S-4 of AOL Time
Warner Inc., initially filed with the Securities and Exchange Commission on
February 11, 2000, and any amendments thereto.
Dated: April 14, 2000
/s/ Stephen F. Ballenbach
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Stephen F. Ballenbach
<PAGE>
EXHIBIT 99.14
Consent of Person Named
As About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I, Carla
A. Hills, hereby consent to be named as a person about to become a director of
AOL Time Warner Inc. in the Registration Statement on Form S-4 of AOL Time
Warner Inc., initially filed with the Securities and Exchange Commission on
February 11, 2000, and any amendments thereto.
Dated: April 14, 2000
/s/ Carla A. Hills
___________________________
Carla A. Hills
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EXHIBIT 99.15
Consent of Person Named
As About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I, Carla
A. Hills, hereby consent to be named as a person about to become a director of
AOL Time Warner Inc. in the Registration Statement on Form S-4 of AOL Time
Warner Inc., initially filed with the Securities and Exchange Commission on
February 11, 2000, and any amendments thereto.
Dated: April 14, 2000
/s/ Reuben Mark
___________________________
Reuben Mark
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EXHIBIT 99.16
Consent of Person Named
As About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I,
Michael A. Miles, hereby consent to be named as a person about to become a
director of AOL Time Warner Inc. in the Registration Statement on Form S-4 of
AOL Time Warner Inc., initially filed with the Securities and Exchange
Commission on February 11, 2000, and any amendments thereto.
Dated: April 14, 2000
/s/ Michael A. Miles
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Michael A. Miles
<PAGE>
EXHIBIT 99.17
Consent of Person Named
As About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I, Carla
A. Hills, hereby consent to be named as a person about to become a director of
AOL Time Warner Inc. in the Registration Statement on Form S-4 of AOL Time
Warner Inc., initially filed with the Securities and Exchange Commission on
February 11, 2000, and any amendments thereto.
Dated: April 14, 2000
/s/ Francis T. Vincent, Jr.
____________________________
Francis T. Vincent, Jr.
