<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
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:
<TABLE>
<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
<S> <C>
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. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Amount to Maximum Aggregate
Title of each Class be Offering Price Offering Amount of
of Securities to be Registered Registered (1) Per Share Price (2) Registration Fee (2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock, $0.01 par value per share..... 4,115,782,406(3)
Series LMCN-V common stock, $0.01 par value
per share.................................. 171,185,826
Series E preferred stock, $0.10 par value
per share.................................. 3,127,612 Not Applicable $233,748,192,088 $61,709,522.71
Series F preferred stock, $0.10 par value
per share.................................. 15,766
Series I preferred stock, $0.10 par value
per share.................................. 700,000
Series J preferred stock, $0.10 par value
per share.................................. 1,608,708
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- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the maximum number of shares of each class or series of capital
stock expected to be issued in connection with the transactions described
herein.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f). The registration fee was calculated as
follows:
(i) with respect to the common stock, in accordance with Rule 457(f)(1),
based on the average of the high and low sale prices for shares of
common stock of each of America Online, Inc. and Time Warner Inc. on
the New York Stock Exchange on February 7, 2000:
(a) America Online common stock, 2,319,173,885 shares, multiplied by
average price, $56.9375; plus
(b) Time Warner common stock, 1,197,739,014 shares, multiplied by
average price, $83.4688; and
(ii) with respect to the series LMCN-V common stock and each of the series
preferred stock, in accordance with Rule 457(f)(2), based on the book
value per share on December 31, 1999 for the Time Warner series LMCN-V
common stock and for each of the Time Warner series E, series F,
series I and series J preferred stock:
(a) Time Warner series LMCN-V Common Stock, 171,185,826 shares,
multiplied by book value per share, $6.90; plus
(b) Time Warner series E preferred stock, 3,127,612 shares, multiplied
by book value per share, $100.00; plus
(c) Time Warner series F preferred stock, 15,766 shares, multiplied by
book value per share, $100.00; plus
(d) Time Warner series I preferred stock, 700,000 shares, multiplied by
book value per share, $100.00; plus
(e) Time Warner series J preferred stock, 1,608,708 shares, multiplied
by book value per share, $100.00.
(3) Plus (i) an indeterminate number of shares of series LMC common stock as
may be issued to holders of series LMCN-V common stock upon conversion or
exchange of their shares and (ii) an indeterminate number of shares of
common stock as may be issued to holders of series LMC common stock, series
LMCN-V common stock and preferred stock upon conversion or exchange of
their shares.
--------------
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>
[LOGO] [LOGO]
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.
The new corporation will be named AOL Time Warner Inc. 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. We believe that the merger will benefit the
stockholders of both companies and we ask for your support in voting for the
merger proposals at our special meetings.
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, with appropriate adjustment to the voting rights and
conversion ratio for each series.
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
proposals as described in the attached materials. Information about the merger
is contained in this joint proxy statement-prospectus. We urge you to read this
material, including the section describing risk factors relating to the merger
that begins on page 23.
The dates, times and places of the meetings are as follows:
For America Online stockholders: For Time Warner stockholders:
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 voting instructions 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.
<PAGE>
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.
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 [ ], 2000, and is first
being mailed to stockholders of America Online and Time Warner on or about
[ ], 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
(703) 265-2741 (212) 484-6971
email: AOL [email protected] email: [email protected]
If you would like to request any documents, please do so by [ ], 2000 in
order to receive them before the special meetings.
See "Where You Can Find More Information" that begins on page 127.
<PAGE>
[AMERICA ONLINE LOGO]
AMERICA ONLINE, INC.
22000 AOL Way
Dulles, Virginia 20166
Notice of Special Meeting of America Online Stockholders
[ ], 2000
[ ] at [ ]: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 [ ], 2000 at [ ]:00 a.m., local time, at
[ ] 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 automatically 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 [ ], 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.
Sheila A. Clark
Corporate Secretary
Dulles, Virginia
[ ], 2000
<PAGE>
[TIME WARNER LOGO]
TIME WARNER INC.
75 Rockefeller Plaza
New York, NY 10019
Notice of Special Meeting of Time Warner Stockholders
[ ], 2000
[ ] at [ ] A.M.
To the stockholders of Time Warner Inc.:
We will hold a special meeting of the stockholders of Time Warner Inc. on
[ ], 2000, at [ ] a.m., local time, at [ ], 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 automatically
converted into 1.5 shares of AOL Time Warner common stock;
. each share of Time Warner series LMCN-V common stock will be
automatically 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
automatically 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 [ ], 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. 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 market 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
[ ] , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
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
Stockholder Approvals.................................................... 9
The Special Meetings..................................................... 10
Board of Directors and Management Following the Merger................... 10
Interests of Directors and Executive Officers in the Merger.............. 10
Treatment of Stock Options and Restricted Stock.......................... 11
Tax Consequences......................................................... 11
Overview of the Merger Agreement......................................... 11
Stock Option Agreements.................................................. 13
Voting Agreement......................................................... 13
Market Price Information................................................. 13
Selected Historical and Pro Forma Financial Data......................... 14
Selected Historical Financial Data....................................... 14
Ratio of Earnings to Combined Fixed Charges and Preferred Dividends...... 15
Time Warner Entertainment Group Selected Historical Financial Data....... 19
Selected Unaudited Pro Forma Consolidated Financial Data................. 21
Unaudited Comparative Per Share Information.............................. 22
RISK FACTORS.............................................................. 23
The value of the shares of AOL Time Warner stock that you receive may be
less than the value of your shares of America Online stock or Time
Warner stock............................................................ 23
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................................. 23
AOL Time Warner may fail to realize the anticipated benefits of the
merger.................................................................. 23
</TABLE>
<TABLE>
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Page
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<S> <C>
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........................................................ 24
AOL Time Warner may be subject to adverse regulatory conditions ......... 24
THE SPECIAL MEETINGS...................................................... 25
Joint Proxy Statement-Prospectus......................................... 25
Date, Time and Place of the Special Meetings............................. 25
Purpose of the Special Meetings.......................................... 25
Stockholder Record Date for the Special Meetings......................... 25
Vote Required for Adoption of the Merger Agreement....................... 26
Proxies.................................................................. 27
Voting Electronically or by Telephone.................................... 27
Solicitation of Proxies.................................................. 28
THE MERGER................................................................ 29
Background of the Merger................................................. 29
America Online's Reasons for the Merger.................................. 31
Time Warner's Reasons for the Merger..................................... 34
Recommendation of America Online's Board of Directors.................... 39
Opinion of America Online's Financial Advisor............................ 39
Recommendation of Time Warner's Board of Directors....................... 47
Opinion of Time Warner's Financial Advisor............................... 47
Interests of Certain America Online Directors and Executive Officers in
the Merger.............................................................. 54
Interests of Certain Time Warner Directors and Executive Officers in the
Merger.................................................................. 55
Completion and Effectiveness of the Merger............................... 56
Structure of the Merger and Conversion of America Online and Time Warner
Stock................................................................... 56
Exchange of Stock Certificates for AOL Time Warner Stock Certificates.... 57
Treatment of America Online and Time Warner Stock Options and Other
Equity Based Awards..................................................... 58
</TABLE>
i
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Page
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Effect of the Merger on Outstanding America Online Convertible Notes.... 58
Material United States Federal Income Tax Consequences of the Merger.... 59
Accounting Treatment of the Merger...................................... 61
Regulatory Matters...................................................... 61
Restrictions on Sales of Shares by Affiliates of America Online and Time
Warner................................................................. 62
New York Stock Exchange Listing of AOL Time Warner Common Stock to be
Issued in the Merger................................................... 63
Appraisal Rights........................................................ 63
Delisting and Deregistration of America Online and Time Warner Common
Stock after the Merger................................................. 64
Stockholder Lawsuits Challenging the Merger............................. 64
The Merger Agreement.................................................... 64
AOL Time Warner Charter and By-laws..................................... 74
Stock Option Agreements................................................. 74
Voting Agreement........................................................ 78
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.................... 79
DESCRIPTION OF AOL TIME WARNER CAPITAL STOCK............................. 90
Authorized Capital Stock................................................ 90
AOL Time Warner Common Stock............................................ 91
AOL Time Warner Series Common Stock..................................... 91
Series LMCN-V Common Stock.............................................. 94
AOL Time Warner Preferred Stock......................................... 96
Transfer Agent.......................................................... 103
Anti-Takeover Considerations............................................ 103
COMPARISON OF RIGHTS OF AOL TIME WARNER STOCKHOLDERS, AMERICA ONLINE
STOCKHOLDERS AND TIME WARNER STOCKHOLDERS............................... 104
</TABLE>
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Capitalization............................................................ 104
Voting Rights............................................................. 105
Number and Election of Directors.......................................... 106
Vacancies on the Board of Directors and Removal of Directors.............. 107
Amendments to the Certificate of Incorporation............................ 107
Amendments to Bylaws...................................................... 109
Action by Written Consent................................................. 109
Ability to Call Special Meetings.......................................... 110
Notice of Stockholder Action.............................................. 110
Limitation of Personal Liability of Directors and Officers................ 112
Indemnification of Directors
and Officers............................................................. 113
Stockholders Rights Plans................................................. 115
State Anti-Takeover Statutes.............................................. 119
Fair Price Provisions..................................................... 119
MANAGEMENT OF AOL TIME WARNER AFTER THE MERGER............................. 122
Board of Directors of AOL Time Warner..................................... 122
Committees of the AOL Time Warner Board of Directors...................... 123
Compensation of Directors................................................. 124
Executive Officers of AOL Time Warner..................................... 124
Compensation of Executive Officers........................................ 124
Integration Committee..................................................... 124
BUSINESS RELATIONSHIPS BETWEEN AMERICA ONLINE AND
TIME WARNER............................................................... 125
LEGAL MATTERS.............................................................. 126
EXPERTS.................................................................... 126
OTHER MATTERS.............................................................. 126
WHERE YOU CAN FIND MORE INFORMATION........................................ 127
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION........................... 129
</TABLE>
ANNEX A--Agreement and Plan of Merger
ANNEX B--America Online Stock Option Agreement
ANNEX C--Time Warner Stock Option Agreement
ANNEX D--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.
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.
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.
1
<PAGE>
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: Who is the exchange agent for the merger?
A: [ ] is the exchange agent.
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 their 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, VA 20166
Telephone: (703) 265-2741
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>
[AMERICA ONLINE LOGO] [TIME WARNER LOGO]
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 127 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 21
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 No. 1 branded local content network and
community guide on the AOL service and the Internet;
. ICQ, the world's leading communications portal that provides instant
communications and chat technology;
4
<PAGE>
. MovieFone, Inc., the nation's No. 1 movie guide and ticketing service
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.
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 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 putative class
action lawsuits. 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.
5
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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 leading 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 directors, 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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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 56)
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 of Former Holders of Former Holders of Former Holders of
Time Warner Series America Online Time Warner of Time Warner
LMCN-
V Common Stock Common Stock Common Stock Series E, F, I and J
1 to 1.5 1 to 1 1 to 1.5 Preferred Stock 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 39)
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.
Stockholder Approvals (see page 26)
Approval of America Online's Stockholders. The affirmative vote of the
holders of a majority of the shares of America Online common stock outstanding
as of the record date is required to adopt the merger agreement. As of the
record date, America Online directors and executive officers and their
affiliates owned approximately [ ]% of the outstanding shares.
Approval of Time Warner's Stockholders. 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 as of the record date, 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 [ ] shares
of Time Warner common stock, which represented approximately [ ]% 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 (which represent approximately [ ]% of the voting power of
Time Warner capital stock entitled to vote at the Time Warner special meeting)
in favor of the adoption of the merger agreement.
Procedures for Voting Your Shares. 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. You may vote your shares by
signing your proxy card and mailing it in the enclosed return envelope, or you
may be able to submit your proxy or voting instructions by telephone or by the
Internet. If you are a holder of record, you may vote in person at the special
meeting. If you do not include instructions on how to vote your
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<PAGE>
properly executed proxy card, your shares will be voted FOR adoption of the
merger agreement. If your shares are held in an account at a brokerage firm or
bank, your broker 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 do
not vote, it will have the same effect as voting against the merger.
Procedure for Changing Your Vote. You can change your vote at any time
before your proxy is voted at the special meeting of your company's
stockholders. You can do this in one of three ways. First, you can send a
written notice stating that you are revoking your proxy. Second, you can
complete and submit a new proxy card. If you choose either of these two
methods, you must submit your notice of revocation or your new proxy for
America Online shares to the Corporate Secretary of America Online at the
address on page 27 and for Time Warner shares to the Corporate Secretary of
Time Warner at the address on page 27. If your shares are held in an account at
a brokerage firm or bank, you should contact your broker to change your vote.
Third, if you are a holder of record, you can attend the special meeting of
your company's stockholders and vote in person. To revoke a proxy previously
submitted electronically through the Internet or by telephone, you may simply
submit a proxy at a later date, using the same procedures, in which case your
later submitted proxy will be recorded and your earlier proxy will be revoked.
Appraisal Rights. 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 market
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 25)
Special Meeting of America Online's Stockholders. The America Online special
meeting will be held at [ ] on [ ], 2000, starting at [ ] a.m., local
time.
Special Meeting of Time Warner's Stockholders. The Time Warner special
meeting will be held at [ ] on [ ], 2000, starting at [ ] a.m., local
time.
Board of Directors and Management Following the Merger (see page 122)
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.
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. R. E. Turner, Vice Chairman of Time Warner, will become
Vice Chairman 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, 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 54)
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.
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<PAGE>
Treatment of Stock Options and Restricted Stock (see page 58)
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 (1) their normal vesting date, (2) the first anniversary
of the completion of the merger and (3) 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 59)
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 64)
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;
. 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.
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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 70; 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 70 and 71.
"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 66. 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 67 and 68.
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 with the Department of Justice and the
Federal Trade Commission.
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 or obtain approvals from the European Commission and other
international regulatory authorities in connection with the merger, including
regulatory authorities in Brazil, Canada and South Africa.
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 to 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
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<PAGE>
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 74)
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 78)
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 [ ]% 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
$73.75 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 $110.63 per share.
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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 have 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 three months
ended September 30, 1999 and 1998, and have been adjusted to reflect the two-
for-one common stock split in November 1999. The historical data are only a
summary, and you should read them 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>
Three Months
Ended
September 30, Year Ended June 30,
-------------- ------------------------------------
1999 1998 1999 1998 1997 1996 1995
------- ------ ------ ------ ------ ------ ------
(in millions, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 1,467 $999 $4,777 $3,091 $2,197 $1,323 $ 425
Business segment
operating income
(loss)(1).............. 286 91 529 (63) (446) 86 (34)
Interest and other,
net.................... 37 5 638 30 10 5 3
Net income (loss)....... 184 76 762 (74) (485) 35 (55)
Net income (loss) per
share
Basic................. $ 0.08 $ 0.04 $ 0.37 $(0.04) $(0.29) $ 0.02 $(0.05)
Diluted............... $ 0.07 $ 0.03 $ 0.30 $(0.04) $(0.29) $ 0.02 $(0.05)
Average common shares:
Basic................. 2,221 1,993 2,081 1,850 1,676 1,501 1,175
Diluted............... 2,575 2,398 2,555 1,850 1,676 1,889 1,175
</TABLE>
- --------
(1) Business segment operating income (loss) reflects income (loss) from
operations adjusted to exclude corporate related expenses.
<TABLE>
<CAPTION>
June 30,
September 30, ----------------------------
1999 1999 1998 1997 1996 1995
------------- ----- ----- ----- ----- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and equivalents............... $1,330 $ 887 $ 677 $ 191 $ 177 $63
Total assets....................... 6,502 5,348 2,874 1,501 1,271 459
Debt due within one year........... 18 6 2 2 3 3
Long-term debt..................... 346 358 372 52 22 21
Stockholders' equity............... 3,849 3,033 996 610 707 242
</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. 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
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<PAGE>
fiscal 1998, America Online incurred special 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 $385 million related to the
write-off of previously capitalized deferred subscriber acquisition costs, $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. 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>
Three Months
Ended
September 30, Year Ended June 30,
------------- ------------------------
1999 1998 1999 1998 1997 1996 1995
------------- ---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Business segment operating income..... $ 286 $91 $649 $123 $45 $111 $18
Earnings before interest, taxes,
depreciation and amortization
(EBITDA) (1)......................... 342 134 866 265 95 131 22
</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. For the fiscal years ended on or before June 30, 1997, EBITDA does
not add back the amortization of subscriber acquisition costs. 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 three months ended September 30, 1999
and for each of the last five fiscal years.
<TABLE>
<CAPTION>
Three Months Ended Year Ended June 30,
September 30, ---------------------------
1999 1999 1998 1997 1996 1995
------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to combined
fixed charges and
preferred dividends.......... 7.14x 7.72x 0.25x -- 5.06x --
</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
and 1995, the deficiency of earnings to combined fixed charges and preferred
dividends totaled $420 million and $36 million, respectively.
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TIME WARNER
Selected Historical Financial Data
The selected historical financial data of Time Warner have 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,
1998 and the unaudited consolidated financial statements for the nine months
ended September 30, 1999 and 1998. The historical data are only a summary, and
you should read them 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.
The selected historical financial data for the nine months ended September
30, 1999 reflect 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 have not been changed. However, in order to enhance
comparability, pro forma financial information for 1998 reflecting the
consolidation of the entertainment group has been presented.
The selected historical financial data for 1998 reflect (a) 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 (b) 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 reflect (a) 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 (b) the
acquisitions of Turner Broadcasting System, Inc. and Cablevision Industries
Corporation and related companies, resulting in (i) 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 (ii) the assumption or incurrence of approximately $4.8
billion of indebtedness.
The selected historical financial information for 1995 reflect (a) Time
Warner's acquisitions of KBLCOM Incorporated and Summit Communications Group,
Inc. and (b) the exchange by Toshiba Corporation and ITOCHU Corporation of
their direct and indirect interests in TWE, resulting in (i) 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 (ii) the assumption or incurrence of approximately $1.3
billion of indebtedness.
Per common share amounts and average common shares have been restated to
give effect to the two-for-one common stock split that occurred on December 15,
1998.
16
<PAGE>
Statement of Operations Data:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------------------ ---------------------------------------------------------------
1998 1998
1999 Pro 1998 Pro 1998 1997 1996 1995 1994
Historical Forma Historical Forma Historical Historical Historical Historical Historical
---------- ------- ---------- ------- ---------- ---------- ---------- ---------- ----------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $19,345 $18,977 $10,387 $26,244 $14,582 $13,294 $10,064 $8,067 $ 7,396
Business segment
operating income...... 3,931 2,093 869 3,132 1,496 1,271 966 697 713
Equity in pretax income
of entertainment
group................. -- -- 437 -- 356 686 290 256 176
Interest and other,
net................... (1,387) (1,410) (877) (2,122) (1,180) (1,044) (1,174) (877) (724)
Income (loss) before
extraordinary item.... 1,112 78 78 168 168 301 (156) (124) (91)
Net income (loss)...... 1,100 78 78 168 168 246 (191) (166) (91)
Net income (loss)
applicable to common
shares (after
preferred dividends).. 1,055 (158) (158) (372) (372) (73) (448) (218) (104)
Net income (loss) per
share of common stock:
Basic................. $ 0.84 $ (0.13) $ (0.13) $ (0.31) $ (0.31) $ (0.06) $ (0.52) $(0.28) $ (0.14)
Diluted............... $ 0.81 $ (0.13) $ (0.13) $ (0.31) $ (0.31) $ (0.06) $ (0.52) $(0.28) $ (0.14)
Dividends.............. $ 0.135 $ 0.135 $ 0.135 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.18 $ 0.175
Average common shares:
Basic................. 1,260.5 1,184.0 1,184.0 1,194.7 1,194.7 1,135.4 862.4 767.6 757.8
Diluted............... 1,400.4 1,184.0 1,184.0 1,194.7 1,194.7 1,135.4 862.4 767.6 757.8
EBITDA(1).............. $ 5,784 $ 4,077 $ 1,753 $ 5,767 $ 2,674 $ 2,565 $ 1,954 $1,256 $ 1,150
</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 nine
months ended September 30, 1999, these items included (a) net pretax gains of
approximately $1.248 billion relating to the sale or exchange of cable
television systems and investments, (b) a net pretax gain of approximately $215
million from the early termination of a long-term video distribution agreement,
(c) a pretax gain of approximately $115 million relating to the initial public
offering of a 20% interest in Time Warner Telecom, Inc. and (d) an
extraordinary loss of approximately $12 million on the retirement of debt. For
the full year 1998, significant and nonrecurring items included (a) net pretax
gains of approximately $108 million relating to the sale or exchange of cable
television systems and investments, (b) a pretax charge of approximately $210
million principally to reduce the carrying value of an interest in Primestar,
Inc. and (c) a one-time 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 (a) net pretax gains of approximately $212 million
relating to the sale or exchange of cable television systems and investments,
(b) 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, (c) a pretax gain of
approximately $250 million relating to the sale of an interest in E!
Entertainment Television, Inc. and (d) 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. For 1995, significant and nonrecurring items included (a)
pretax losses of
17
<PAGE>
approximately $85 million relating to certain businesses and joint ventures
owned by Time Warner's music division that were either restructured or closed
and (b) 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>
Nine Months Ended
September 30, Years Ended December 31,
---------------------------- -------------------------------------------------------------
1998 1998
1999 Pro 1998 Pro 1998 1997 1996 1995 1994
Historical Forma Historical Forma Historical Historical Historical Historical Historical
---------- ------ ---------- ------ ---------- ---------- ---------- ---------- ----------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Business segment
operating income....... $2,468 $2,003 $ 869 $3,024 $1,478 $1,259 $ 966 $ 782 $ 713
EBITDA.................. 4,321 3,987 1,753 5,659 2,656 2,553 1,954 1,341 1,150
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
December 31,
September 30, ----------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
Historical Pro Forma Historical Historical Historical Historical Historical
------------- --------- ---------- ---------- ---------- ---------- ----------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents.... $ 645 $ 529 $ 442 $ 645 $ 514 $ 1,185 $ 282
Total assets............ 48,432 47,951 31,640 34,163 35,064 22,132 16,716
Debt due within one
year................... 26 25 19 8 11 34 355
Long-term debt and other
obligations(/1/)....... 19,617 19,190 12,395 12,941 14,150 10,856 8,839
Series M preferred
stock.................. -- -- -- 1,857 1,672 -- --
Shareholders' equity:
Preferred stock
liquidation
preference............ 840 2,260 2,260 3,539 3,559 2,994 140
Equity applicable to
common stock.......... 7,946 6,592 6,592 5,817 5,943 673 1,008
Total shareholders'
equity................ 8,786 8,852 8,852 9,356 9,502 3,667 1,148
Total capitalization... 28,429 28,067 21,266 24,162 25,335 14,557 10,342
</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 have been derived
from and should be read in conjunction with the Time Warner selected financial
information previously presented, 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, 1998 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
September 30, 1999. The historical financial information 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 reflect (a) the TWE-A/N
Transfers effective as of January 1, 1998, (b) the transfer of Time Warner
Cable's direct broadcast satellite operations to Primestar, Inc. effective as
of April 1, 1998, (c) 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, (d) 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 (e) 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 (a) formation of the TWE-
Advance Newhouse Partnership, effective as of April 1, 1995, (b) the
consolidation of Paragon Communications, effective as of July 6, 1995 and (c)
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.
Statement of Operations Data:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Years Ended December 31,
------------------ -----------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- ------- ------- ------- ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 9,468 $ 8,987 $12,256 $11,328 $10,861 $9,629 $8,509
Business segment
operating income....... 2,726 1,294 1,724 1,461 1,090 992 852
Interest and other,
net.................... (577) (550) (965) (357) (524) (539) (616)
Income before
extraordinary item..... 1,640 437 331 642 220 170 136
Net income.............. 1,640 437 331 619 220 146 136
EBITDA(1)............... 3,724 2,379 3,160 2,847 2,334 2,052 1,811
</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 1999, these items included (a) net pretax gains of approximately
$1.118 billion relating to the sale or exchange of cable television systems and
investments and (b) a net pretax gain of approximately $215 million from the
early termination of a long-term video distribution agreement. For 1998,
significant and nonrecurring items included (a) net pretax gains of
approximately $90 million relating to the sale or exchange of cable television
systems and investments and (b) 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 (a) net pretax gains of
approximately $200 million relating to the sale or exchange of cable television
systems and investments, (b) a pretax gain of approximately $250 million
relating to the sale of an interest in E! Entertainment Television, Inc. and
(c) 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>
Nine Months Ended
September 30, Years Ended December 31,
----------------- --------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- ------ ------ ------ ----- -----
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Business segment operating
income.................... $ 1,393 $ 1,204 $1,634 $1,261 $1,090 $ 992 $ 852
EBITDA..................... 2,391 2,289 3,070 2,647 2,334 2,052 1,811
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
September 30, December 31,
--------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and equivalents.... $ 235 $ 125 $ 87 $ 322 $ 216 $ 209 $ 1,071
Total assets............ 23,228 22,417 22,241 20,739 20,027 18,960 18,992
Debt due within one
year................... 6 7 6 8 7 47 32
Long-term debt and other
obligations(1)......... 6,725 7,656 6,795 6,223 5,676 6,137 7,160
Time Warner General
Partners' Senior
Capital................ -- 591 603 1,118 1,543 1,426 1,663
Partners' capital....... 6,342 5,854 5,210 6,430 6,681 6,576 6,491
</TABLE>
- --------
(1) Long-term debt and other obligations include preferred stock of a
subsidiary.
20
<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: (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.
<TABLE>
<CAPTION>
Three Months Year Nine Months Year
Ended Ended Ended Ended
September 30, June 30, September 30, December 31,
1999 1999 1999 1998
------------- -------- ------------- ------------
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues.................... $ 8,190 $31,259 $23,442 $30,091
Amortization of goodwill
and other intangible
assets.................... (2,115) (8,457) (6,326) (8,480)
Business segment operating
loss...................... (203) (2,142) (812) (3,799)
Interest and other, net.... (453) (1,479) (733) (2,081)
Loss before extraordinary
item...................... (831) (3,959) (2,320) (5,294)
Loss before extraordinary
item per basic
and diluted share......... $ (0.20) $ (1.11) $ (0.58) $ (1.56)
Average common shares...... 4,154 3,928 4,057 3,744
EBITDA(1)(2) .............. $ 2,293 $ 7,778 $ 6,606 $ 6,180
- --------
(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:
Increase (decrease) in
EBITDA..................... $ 477 $ 890 $ 1,345 $ (39)
======== ======= ======= =======
Adjusted EBITDA............. $ 1,816 $ 6,888 $ 5,261 $ 6,219
======== ======= ======= =======
See "Selected Historical Financial Data" elsewhere herein for further
reference.
<CAPTION>
September 30,
1999
-------------
(in millions)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and equivalents....... $ 1,975
Total assets............... 230,399
Long-term debt and other
obligations(3)............ 19,963
Shareholders' equity....... 152,824
</TABLE>
- --------
(3) Includes $1.230 billion of borrowings against future stock option proceeds
and $575 million of mandatorily redeemable preferred securities of
subsidiaries.
21
<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 Nine Months Ended As of and for the
Three Months Ended Year Ended June September 30, Year Ended
September 30, 1999 30, 1999 1999 December 31, 1998
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
America Online
Historical:
Net income per common
share:
Basic................. $ 0.08 $ 0.37 -- --
Diluted............... 0.07 0.30 -- --
Cash dividends declared
per common share...... -- -- -- --
Book value per common
share................. 1.72 1.38 -- --
Time Warner Historical:
Income (loss) per
common share before
extraordinary item:
Basic................. -- -- $ 0.85 $(0.31)
Diluted............... -- -- 0.82 (0.31)
Cash dividends declared
per common share...... -- -- 0.135 0.18
Book value per common
share................. -- -- 6.18 5.35
AOL Time Warner--Pro
Forma Combined:
Loss per common share
before extraordinary
item.................. $(0.20) $(1.11) $(0.58) $(1.56)
Cash dividends declared
per common share(1)... -- -- -- --
Book value per common
share................. 36.50 -- 36.50 --
Time Warner Per Share
Equivalent Pro Forma:
Loss per common share
before extraordinary
item.................. $(0.30) $(1.67) $(0.87) $(2.34)
Cash dividends declared
per common share(1)... -- -- -- --
Book value per common
share................. 54.75 -- 54.75 --
</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.
22
<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.
The value of the shares of AOL Time Warner stock that you receive may 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 common stock and
Time Warner common stock will be automatically converted into shares of AOL
Time Warner common stock. Similarly, all shares of Time Warner LMCN-V series
common stock will be automatically converted into shares of LMCN-V series
common stock of AOL Time Warner and all shares of Time Warner preferred stock
will be automatically converted into shares of a corresponding series of AOL
Time Warner preferred stock. The ratios on 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. 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. America Online common stock has historically experienced
significant volatility. 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.
The market value of the shares of AOL Time Warner stock that will be
received in exchange for shares of America Online common stock and shares of
Time Warner stock in the merger will not be known at the time stockholders of
America Online and stockholders of Time Warner vote on the adoption of the
merger agreement, because the shares of AOL Time Warner common stock will not
trade publicly until the completion of the merger. Shares of America Online
common stock and shares of Time Warner common stock may have a greater market
value than the shares of AOL Time Warner common stock for which they are
exchanged.
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;
23
<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.
24
<PAGE>
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 [ ], 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:
[ ], 2000 [ ], 2000
[ ] a.m., local time [ ] a.m., local time
[__________] [__________]
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
automatically converted into one share of AOL Time Warner common stock;
. each outstanding share of Time Warner common stock will be automatically
converted into 1.5 shares of AOL Time Warner common stock;
. each outstanding share of Time Warner series LMCN-V common stock will be
automatically 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 automatically 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 [ ], 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 [ ] shares of America Online common stock
outstanding, held by approximately [ ] holders of record.
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Time Warner. Time Warner's board of directors has fixed the close of
business on [ ], 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:
. [ ] shares of Time Warner common stock outstanding, held by
approximately [ ] holders of record;
. [ ] shares of Time Warner series E preferred stock outstanding, held by
[ ] holders of record;
. [ ] shares of Time Warner series F preferred stock outstanding, held by
[ ] holders of record;
. [ ] shares of Time Warner series I preferred stock outstanding, held by
[ ] holders of record; and
. [ ] shares of Time Warner series J preferred stock outstanding, held by
[ ] 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.
As of the record date, America Online directors and executive officers and
their affiliates owned approximately [ ]% 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 [ ]% 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 (which represent approximately [ ]% of the voting power of
Time Warner capital stock entitled to vote at the Time Warner special meeting)
in favor of the adoption of the merger agreement.
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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 instructions, 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 instructions 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.
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.
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.
Voting Electronically or by Telephone
Instead of submitting your vote 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.
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The Internet and telephone procedures 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
applicable 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.
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., at an estimated cost of $[ ] plus reimbursement of expenses, to assist
in the solicitation of proxies. Time Warner has retained D.F. King & Co., at an
estimated cost of $[ ] 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.
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 127 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. 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 and recommendation
that stockholders approve the merger, 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 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 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. 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" and
noted that, while the absence of these provisions exposes Time Warner
stockholders to some market risk, the risk is mitigated by the fact that
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 and the fact
that 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 (based on stock market prices at the time of execution of
the merger agreement) for their Time Warner shares 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 outstanding common stock of AOL Time Warner after completion of the
merger.
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 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.
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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 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
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various regulatory filings were expected to be timely made and that the various
regulatory approvals were expected to be granted in due course.
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
America Online's stockholders and in their best interest, 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 54
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.
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
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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
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
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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 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.
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>
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
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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
values calculated in its analyses to derive a range of implied exchange ratios
for each valuation methodology. These implied exchange ratios 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.
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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.
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
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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 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>
EPrivate 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 Primestar and 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
44
<PAGE>
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.
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>
45
<PAGE>
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 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.
46
<PAGE>
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 financial advisory fees.
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, for which services Salomon Smith Barney
has received compensation. 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 55 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
47
<PAGE>
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;
. 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.
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<PAGE>
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.
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
49
<PAGE>
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.
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.
50
<PAGE>
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>
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.
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<PAGE>
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>
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.
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<PAGE>
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 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,
53
<PAGE>
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
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
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 transaction fees to Morgan Stanley. 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 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, Kenneth J. Novack, and Kenneth B. Lerer, 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.
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
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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 (1) their
normal vesting date, (2) the first anniversary of the completion of the merger
and (3) the employee's termination without cause or constructive termination.
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 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;
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. R.E. Turner, Vice Chairman of Time Warner, will serve as Vice Chairman
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 employee 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.
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
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. 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.
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 AOL Time Warner 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 AOL
Time Warner 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
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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.
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 (1) their normal vesting date, (2) the first anniversary of the
completion of the merger and (3) 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
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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.
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
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. 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 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, each dated as of the Closing Date, to
the effect that, on the basis of the facts, representations and assumptions set
forth in such opinion, the exchange of America Online common stock or Time
Warner capital stock for AOL Time Warner capital stock in the 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. 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.
Based on such tax opinions, the following tax consequences would arise:
. no gain or loss will be recognized by AOL Time Warner, America Online,
Time Warner, America Online Merger Sub or Time Warner Merger Sub in
connection with the merger;
. no gain or loss will be recognized by (i) U.S. Holders of America Online
common stock on the exchange of their America Online common stock for
AOL Time Warner common stock or (ii) 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);
. (i) 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 (ii) the aggregate adjusted basis of the AOL Time Warner
capital stock received in the merger by 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
. (i) 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 (ii) the holding
period of the AOL Time Warner capital stock received in the merger by 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.
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 Time Warner stockholder 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.
The summary of material U.S. federal income tax consequences is intended to
provide only a general summary and is not intended to be a complete analysis or
description of all potential federal income tax consequences of the merger. In
addition, the 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 information and materials with the
Department of Justice and the Federal Trade Commission.
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
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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 anticipate that the requisite
notification will be filed with respect to the merger with the European
Commission. In addition, America Online and Time Warner are required to make
filings with or obtain approvals from other international regulatory
authorities in connection with the merger including regulatory authorities in
Brazil, Canada 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
or about [ ], 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.
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 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
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.
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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 approved by the required vote of Time Warner's
stockholders, 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
market 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.
Notwithstanding the foregoing, within 120 days of the effective date, the
holders of dissenting shares may also, upon written request, receive from AOL
Time Warner a statement setting forth the aggregate number of shares with
respect to which demands for appraisals have been received.
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
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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 the appraisal and purchase of his or her shares under Section 262 fails
to perfect, or effectively withdraws or loses the right to the purchase, 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 mailing of the approval
notice; or
. the stockholder delivers to AOL Time Warner, as the surviving
corporation, a written withdrawal of the stockholder's demand for
appraisal of the dissenting shares.
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 in the Delaware Court of Chancery or
Supreme Court of New York naming as defendants one or more of (a) America
Online, (b) the directors of America Online, (c) Time Warner and (d) the
directors of Time Warner. The complaints purport to be filed on behalf of
holders of America Online stock or Time Warner 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.
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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.
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
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. 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 the 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.
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;
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. 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;
. 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
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. 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
. 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;
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. 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;
. 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;
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. 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 of 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 America Online and Time Warner to pay a termination fee to
one another 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 of Recommendation; or
. 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 amounts
previously paid or payable by Time Warner in connection with the
termination of the merger agreement, as described in the next sentence. In
addition, 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.
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"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 Common on the
New York Stock Exchange on January 7, 2000.
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 of 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 amounts
previously paid or payable by America Online in connection with the
termination of the merger agreement, as described in the next sentence. In
addition, 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 Common on the
New York Stock Exchange on January 7, 2000.
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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;
. 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
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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.
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 are 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.
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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.
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
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. 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
. 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 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
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. 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
. 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:
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. 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;
. 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
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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
agreements.
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. 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 [ ]% of the
outstanding shares of Time Warner common stock (and approximately % 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 September 30, 1999 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 three months ended
September 30, 1999 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 nine months ended September 30, 1999 and the year ended December 31,
1998 give effect to the merger as if it occurred as of January 1, 1998. In
addition, the pro forma consolidated condensed statements of operations of AOL
Time Warner for the years ended June 30, 1999 and December 31, 1998 also give
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, which is incorporated in this joint proxy statement-
prospectus by reference.
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 September 30, 1999 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 and the effects of certain business combinations accounted for as
a pooling-of-interests. For Time Warner and TWE, those financial statements are
included in Time Warner's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and Time Warner's Annual Report on Form 10-K for the year
ended December 31, 1998, as amended, 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, we anticipate that the former stockholders of
America Online will have a 55% interest in AOL Time Warner and that the former
stockholders of Time Warner will have a 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.
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Under the purchase method of accounting, the estimated cost of approximately
$146 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. The work needed to provide
the basis for estimating these fair values 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 from the preliminary allocation.
Pro forma adjustments for the merger include:
. the issuance of approximately 1.9 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 8.4 million shares of AOL Time Warner
preferred stock in exchange for all of the 8.4 million outstanding
shares of Time Warner preferred stock;
. the issuance of options to purchase approximately 209 million shares of
AOL Time Warner common stock in exchange for all of the outstanding
options to purchase 139 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. 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.
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AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1999
(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............... $1,330 $ 645 $ -- $ 1,975
Other current assets............... 1,078 7,955 -- 9,033
------ ------- -------- --------
Total current assets............. 2,408 8,600 -- 11,008
Noncurrent inventories............. -- 3,942 -- 3,942
Investments........................ 2,760 1,702 -- 4,462
Property, plant and equipment,
net............................... 744 8,489 -- 9,233
Goodwill and other intangibles,
net............................... 422 24,042 175,465 199,929
Other assets....................... 168 1,657 -- 1,825
------ ------- -------- --------
Total assets..................... $6,502 $48,432 $175,465 $230,399
====== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities.......... $2,011 $ 8,576 $ 300 $ 10,887
Long-term debt and other
obligations(/1/).................. 346 19,617 -- 19,963
Deferred income taxes.............. 5 3,848 34,976 38,829
Other long-term liabilities........ 291 4,430 -- 4,721
Minority interests................. -- 3,175 -- 3,175
Shareholders' Equity
Preferred stock.................... -- 1 -- 1
Series LMCN-V common stock......... -- 1 -- 1
Common stock....................... 22 12 6 40
Paid-in capital.................... 3,068 12,880 136,075 152,023
Accumulated earnings (deficit)..... 335 (3,952) 3,952 335
Accumulated other comprehensive
income............................ 424 (156) 156 424
------ ------- -------- --------
Total shareholders' equity....... 3,849 8,786 140,189 152,824
------ ------- -------- --------
Total liabilities and
shareholders' equity............ $6,502 $48,432 $175,465 $230,399
====== ======= ======== ========
</TABLE>
- --------
(/1/)For Time Warner, includes $1.230 billion of borrowings against future
stock option proceeds and $575 million of mandatorily redeemable preferred
securities of subsidiaries.
See accompanying notes.
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AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited)
(a) Reflects the historical financial position of America Online at September
30, 1999. America Online's historical common stock and paid-in capital as
of September 30, 1999 have been restated to reflect the effect of a 2-for-1
common stock split that occurred in November 1999.
(b) Reflects the historical financial position of Time Warner at September 30,
1999.
(c) Pro forma adjustments to record the merger as of September 30, 1999
reflect:
. an increase in equity of $130.758 billion relating to the issuance of
1.930 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 1.287 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 $3.557 billion relating to the issuance of
approximately 8.404 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 $11.636 billion relating to the issuance of
options to purchase 208.455 million shares of AOL Time Warner common
stock in exchange for all of the 138.970 million outstanding options to
purchase shares of Time Warner common stock, based on a value per common
share of $55.82, calculated using the Black-Scholes option pricing
model;
. 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 $15.377 billion of Time Warner's pre-
existing goodwill;
. the preliminary allocation of the excess of the $146.251 billion
purchase price, including transaction costs, over the book value of the
net assets acquired to (i) goodwill in the amount of $95.842 billion,
(ii) other intangible assets in the amount of $95 billion and (iii)
deferred income taxes in the amount of $38 billion. 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;
. a reduction of $3.024 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; and
. a decrease in stockholders' equity of $8.786 billion relating to the
elimination of Time Warner's historical shareholders' equity.
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AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Months Ended September 30, 1999
(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........................ $1,467 $6,723 $ -- $8,190
Cost of revenues(/1/)........... (791) (3,718) -- (4,509)
Selling, general and
administrative(/1/)............ (372) (1,874) -- (2,246)
Gain on sale or exchange of
cable systems and investments.. -- 477 -- 477
Amortization of goodwill and
other intangible assets........ (18) (321) (1,776) (2,115)
------ ------ ------- ------
Business segment operating
income (loss).................. 286 1,287 (1,776) (203)
Interest and other, net......... 37 (490) -- (453)
Minority interest............... -- (59) -- (59)
Corporate expenses.............. (21) (40) -- (61)
------ ------ ------- ------
Income (loss) before income
taxes.......................... 302 698 (1,776) (776)
Income tax benefit (provision).. (118) (317) 380 (55)
------ ------ ------- ------
Income (loss) before
extraordinary item............. 184 381 (1,396) (831)
Preferred dividend
requirements................... -- (9) -- (9)
------ ------ ------- ------
Income (loss) applicable to
common shares before
extraordinary item............. $ 184 $ 372 $(1,396) $ (840)
====== ====== ======= ======
Income (loss) per common share
before extraordinary item:
Basic......................... $ 0.08 $ 0.29 $(0.20)
====== ====== ======
Diluted....................... $ 0.07 $ 0.28 $(0.20)
====== ====== ======
Average common shares:
Basic......................... 2,221 1,289 4,154
====== ====== ======
Diluted....................... 2,575 1,398 4,154
====== ====== ======
EBITDA (l)(m)................... $ 365 $1,928 $ -- $2,293
====== ====== ======= ======
- --------
(/1/) Includes depreciation ex-
pense of:...................... $ 61 $ 320 $ -- $ 381
====== ====== ======= ======
</TABLE>
See accompanying notes.
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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(g) Adjustments(f) Pro Forma
------ --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues........................ $4,777 $ 26,482 $ -- $ 31,259
Cost of revenues(/1/)........... (2,657) (14,609) -- (17,266)
Selling, general and
administrative(/1/)............ (1,431) (7,162) -- (8,593)
Gain on sale or exchange of
cable systems and investments.. -- 795 -- 795
Gain on early termination of
video distribution agreement... -- 215 -- 215
Amortization of goodwill and
other intangible assets........ (65) (1,291) (7,101) (8,457)
Merger, restructuring and other
charges........................ (95) -- -- (95)
------ -------- ------- --------
Business segment operating
income (loss).................. 529 4,430 (7,101) (2,142)
Interest and other, net......... 638 (2,117) -- (1,479)
Minority interest............... -- (418) -- (418)
Corporate expenses.............. (71) (164) -- (235)
------ -------- ------- --------
Income (loss) before income
taxes.......................... 1,096 1,731 (7,101) (4,274)
Income tax benefit (provision).. (334) (871) 1,520 315
------ -------- ------- --------
Net income (loss)............... 762 860 (5,581) (3,959)
Preferred dividend
requirements................... -- (416) -- (416)
------ -------- ------- --------
Net income (loss) applicable to
common shares.................. $ 762 $ 444 $(5,581) $ (4,375)
====== ======== ======= ========
Net income (loss) per common
share:
Basic......................... $ 0.37 $ 0.36 $ (1.11)
====== ======== ========
Diluted....................... $ 0.30 $ 0.36 $ (1.11)
====== ======== ========
Average common shares:
Basic......................... 2,081 1,231 3,928
====== ======== ========
Diluted....................... 2,555 1,231 3,928
====== ======== ========
EBITDA (l)(m)................... $ 827 $ 6,951 $ -- $ 7,778
====== ======== ======= ========
- --------
(/1/) Includes depreciation ex-
pense of:...................... $ 233 $ 1,230 $ -- $ 1,463
====== ======== ======= ========
</TABLE>
See accompanying notes.
84
<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 three
months ended September 30, 1999 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 three
months ended September 30, 1999, including various reclassifications that
have been made to conform to AOL Time Warner's combined financial
statements presentation.
(f) Pro forma adjustments to record the merger for the three months ended
September 30, 1999 and the year ended June 30, 1999 reflect:
. increases of $1.908 billion and $7.634 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 $132 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;
. 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; and
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) 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, as shown in the following
reconciliation, 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. A complete description of Time Warner's
consolidation of the entertainment group, and the nature of the pro forma
adjustments is in Time Warner's Current Report on Form 8-K dated August 3,
1999, which is incorporated by reference in this joint proxy statement-
prospectus.
85
<PAGE>
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS--
(Continued)
(in millions, unaudited)
A summary of how the Time Warner results of operations for the year ended
June 30, 1999 were derived is presented below:
<TABLE>
<CAPTION>
Time
Time Warner Time
Warner Entertainment Intercompany Pro Warner Time
Historical Group Eliminations Forma Historical Warner Pro
6 Mos. Historical and 6 Mos. 6 Mos. Forma Year
Ended 6 Mos. Consolidating Ended Ended Ended
12/98(1) Ended 12/98(1) Adjustments(2) 12/98 6/30/99(3) 6/30/99(4)
---------- -------------- -------------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $7,773 $6,491 $ (404) $13,860 $12,622 $26,482
Business segment operat-
ing income
(loss)(a)(b)........... 942 899 (55) 1,786 2,644 4,430
Equity in pretax income
of Entertainment
Group.................. 83 -- (83) -- -- --
Interest and other,
net.................... (614) (618) 12 (1,220) (897) (2,117)
Minority interest....... -- (118) (1) (119) (299) (418)
Income (loss) before in-
come taxes............. 363 127 (127) 363 1,368 1,731
Income tax benefit (pro-
vision)................ (234) (60) 60 (234) (637) (871)
Net income (loss)....... 129 67 (67) 129 731 860
Preferred dividend re-
quirements............. (380) -- -- (380) (36) (416)
Net income (loss)
applicable to common
shares................. $(251) $ 67 $(67) $(251) $ 695 $ 444
Basic and diluted income
(loss) per common
share.................. $(0.21) $(0.21) $ 0.56 $ 0.36
====== ======= ======= =======
Average common shares:.. 1,215 1,215 1,246 1,231
====== ======= ======= =======
- --------
(a) Includes deprecia-
tion expense of:...... $ 187 $ 458 $ -- $ 645 $ 585 $ 1,230
====== ====== ====== ======= ======= =======
(b) Includes amortiza-
tion expense of:...... $ 402 $ 251 $ 11 $ 664 $ 627 $ 1,291
====== ====== ====== ======= ======= =======
</TABLE>
- --------
(1) Reflects the historical and operating results of Time Warner and the
entertainment group, as of and for the six months ended December 31, 1998.
Various reclassifications have been made to conform to the new,
consolidated presentation.
(2) Adjustments reflect the elimination of all significant intercompany
accounts and transactions between Time Warner and the entertainment group
and other consolidating adjustments necessary to prepare a consolidated set
of financial statements.
(3) As filed in Time Warner's Current Report on Form 8-K, dated August 3, 1999.
(4) Per common share amounts for the six-month period and full year have been
calculated separately. Accordingly, per share amounts for the six-month
periods do not add to the annual amount because of differences in the
average common shares outstanding during each period.
86
<PAGE>
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1999
(in millions, except per share amounts, unaudited)
<TABLE>
<CAPTION>
AOL-
Time Pro Forma Time Warner
AOL(h) Warner(i) Adjustments(j) Pro Forma
------- --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues....................... $ 4,097 $ 19,345 $ -- $ 23,442
Cost of revenues(/1/).......... (2,225) (10,550) -- (12,775)
Selling, general and adminis-
trative(/1/).................. (1,144) (5,379) -- (6,523)
Gain on sale or exchange of ca-
ble systems and investments... -- 1,248 -- 1,248
Gain on early termination of
video distribution agreement.. -- 215 -- 215
Amortization of goodwill and
other intangible assets....... (51) (948) (5,327) (6,326)
Merger, restructuring and other
charges....................... (93) -- -- (93)
------- -------- ------- --------
Business segment operating in-
come (loss)................... 584 3,931 (5,327) (812)
Interest and other, net........ 654 (1,387) -- (733)
Minority interest.............. -- (358) -- (358)
Corporate expenses............. (61) (120) -- (181)
------- -------- ------- --------
Income (loss) before income
taxes......................... 1,177 2,066 (5,327) (2,084)
Income tax benefit (provi-
sion)......................... (422) (954) 1,140 (236)
------- -------- ------- --------
Income (loss) before extraordi-
nary item..................... 755 1,112 (4,187) (2,320)
Preferred dividend require-
ments......................... -- (45) -- (45)
------- -------- ------- --------
Income (loss) applicable to
common shares before
extraordinary item............ $ 755 $ 1,067 $(4,187) $(2,365)
======= ======== ======= ========
Income (loss) per common share
before extraordinary item:
Basic........................ $ 0.35 $ 0.85 $ (0.58)
======= ======== ========
Diluted...................... $ 0.29 $ 0.82 $ (0.58)
======= ======== ========
Average common shares:
Basic........................ 2,165 1,261 4,057
======= ======== ========
Diluted...................... 2,580 1,400 4,057
======= ======== ========
EBITDA (l)(m).................. $ 822 $ 5,784 $ -- $ 6,606
======= ======== ======= ========
- --------
(/1/) Includes depreciation ex-
pense of:..................... $ 187 $ 905 $ -- $ 1,092
======= ======== ======= ========
</TABLE>
See accompanying notes.
87
<PAGE>
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1998
(in millions, except per share amounts, unaudited)
<TABLE>
<CAPTION>
AOL-
Time Pro Forma Time Warner
AOL(h) Warner(k) Adjustments(j) Pro Forma
------ --------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues......................... $3,847 $26,244 $ -- $ 30,091
Cost of revenues(/1/)............ (2,254) (14,820) -- (17,074)
Selling, general and
administrative(/1/)............. (1,227) (7,070) -- (8,297)
Gain on sale or exchange of cable
systems and investments......... -- 108 -- 108
Amortization of goodwill and
other intangible assets......... (48) (1,330) (7,102) (8,480)
Merger, restructuring and other
charges......................... (147) -- -- (147)
------ ------- ------- --------
Business segment operating income
(loss).......................... 171 3,132 (7,102) (3,799)
Interest and other, net.......... 41 (2,122) -- (2,081)
Minority interest................ -- (266) -- (266)
Corporate expenses............... (62) (158) -- (220)
------ ------- ------- --------
Income (loss) before income
taxes........................... 150 586 (7,102) (6,366)
Income tax benefit (provision)... (30) (418) 1,520 1,072
------ ------- ------- --------
Net income (loss)................ 120 168 (5,582) (5,294)
Preferred dividend requirements.. -- (540) -- (540)
------ ------- ------- --------
Net income (loss) applicable to
common shares................... $ 120 $ (372) $(5,582) $ (5,834)
====== ======= ======= ========
Income (loss) per common share:
Basic.......................... $ 0.06 $ (0.31) $ (1.56)
====== ======= ========
Diluted........................ $ 0.05 $ (0.31) $ (1.56)
====== ======= ========
Average common shares:
Basic.......................... 1,951 1,195 3,744
====== ======= ========
Diluted........................ 2,360 1,195 3,744
====== ======= ========
EBITDA (l)(m).................... $ 413 $ 5,767 $ -- $ 6,180
====== ======= ======= ========
- --------
(/1/) Includes depreciation ex-
pense of:....................... $ 194 $ 1,305 $ -- $ 1,499
====== ======= ======= ========
</TABLE>
See accompanying notes.
88
<PAGE>
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS--
(Continued)
(unaudited)
(h) Reflects the historical operating results of America Online for the nine
months ended September 30, 1999 and the year ended December 31, 1998. 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.
(i) Reflects the historical operating results of Time Warner for the nine
months ended September 30, 1999, including various reclassifications that
have been made to conform to AOL Time Warner's combined financial statement
presentation.
(j) Pro forma adjustments to record the merger for the nine months ended
September 30, 1999 and the year ended December 31, 1998 reflect:
. increases of $5.725 billion and $7.634 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 $398 million and $532 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.
(k) Reflects the pro forma operating results of Time Warner for the year ended
December 31, 1998 giving effect to the consolidation 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.
(l) Pro forma EBITDA for AOL Time Warner 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>
<CAPTION>
Three Months Nine Months
Ended Year Ended Ended Year Ended
September 30, June 30, September 30, December 31,
1999 1999 1999 1999
------------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Increase (decrease) in
pro forma EBITDA....... $ 477 $ 890 $1,345 $ (39)
====== ====== ====== ======
Adjusted EBITDA......... $1,816 $6,888 $5,261 $6,219
====== ====== ====== ======
</TABLE>
See Selected Historical Financial Data elsewhere herein for further
references.
(m) 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.
89
<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 4,115,782,406 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:
. 3,127,612 shares of AOL Time Warner series E preferred stock;
. 15,766 shares of AOL Time Warner series F preferred stock;
. 700,000 shares of AOL Time Warner series I preferred stock; and
. 1,608,708 shares of AOL Time Warner series J preferred stock.
90
<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.
91
<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 a single class with holders of AOL Time Warner common stock and any
other class or series of AOL Time Warner capital stock that is entitled to vote
with the 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.
92
<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; 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 transfer or sale of
any AOL Time Warner common stock received immediately upon the
conversion of shares of 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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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 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 a single class with the holders of AOL Time Warner
common stock and any other class or series of AOL Time Warner capital stock
that is entitled to vote with the 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 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 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 shares of AOL Time Warner series LMCN-V common stock then outstanding 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
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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; 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 converting holder's ownership 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 term "permitted transferee" has the same meaning
for holders of AOL Time Warner series LMCN-V common stock as for holders of
AOL Time Warner series LMC common stock. See "AOL Time Warner Series LMC
Common Stock-Transfer Restrictions."
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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 on or 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 an amount equal to the product of the conversion rate in effect at
that time multiplied by the amount of regularly scheduled cash dividends paid
on shares of AOL Time Warner common stock during the dividend period. Dividends
payable 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, of AOL Time Warner, 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 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 preferred 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 LMC common stock, AOL Time Warner 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 ratio.
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 a single class 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 distributions 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; or
. under specified circumstances, authorize, designate or issue additional
shares of AOL Time Warner series E 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 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 a
class 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 and all dividends
payable on the shares of AOL Time Warner series E preferred stock have been
paid in full 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 on the share
tendered for conversion. 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 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.
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 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 person, each share of
AOL Time Warner series E preferred stock will thereafter 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,
holders of AOL Time Warner series E preferred stock will be entitled to
receive, before any distribution of the assets is made to the holders of AOL
Time Warner common stock, AOL Time Warner LMC common stock, AOL Time Warner
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 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 the 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 cash dividends when and if declared by the AOL Time Warner
board of directors out of funds legally available for payment, payable
quarterly in a per share amount equal to the product of:
. the conversion rate in effect at that time; multiplied by
. the amount of regularly scheduled dividends paid in cash on 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 paid or declared 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 preferred 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
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 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 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 the 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--Dividends."
Distributions. Holders of AOL Time Warner series I preferred stock will be
entitled to the same rights with respect to distributions 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 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 preferred 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
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 be entitled 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 be entitled to redeem
or exchange the AOL Time Warner series I preferred stock at any time. 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 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. Prior to May 2, 2000, holders of AOL Time Warner series J
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 on or before May 2, 2000 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 May 2, 2000, holders of AOL Time Warner series J 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
an amount equal to the product of the conversion rate in effect at that time
multiplied by the amount of regularly scheduled cash dividends paid on shares
of AOL Time Warner common stock during the dividend period. Dividends payable
after May 2, 2000 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 J preferred stock will be entitled to
receive full accumulated cash dividends for all quarterly dividend periods
before any dividends are paid or declared on AOL Time Warner common stock or
any other stock of AOL Time Warner that is junior to the AOL Time Warner series
J preferred stock as to 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 preferred 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 LMC common stock, AOL Time Warner 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.
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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 and
special rights, powers or privileges of the AOL Time Warner series J
preferred stock.
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. A holder of shares of AOL Time Warner series J preferred stock on the
record date for a dividend will be entitled to receive the dividend even if the
shares have been converted to shares of AOL Time Warner common stock.
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 common stock's market price;
. the distribution by AOL Time Warner of assets or property, 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 an equity security, if the holders of AOL Time Warner
series J preferred stock would be entitled to receive a similar
distribution upon conversion of the shares; and
. a pro rata repurchase by AOL Time Warner of shares of AOL Time Warner
common stock.
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 a transaction that
results in a change in the AOL Time Warner common stock, or if AOL Time
Warner sells all or substantially all of its property and assets to
another entity; 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,
then the conversion rate will be adjusted so that holders of AOL Time Warner
series J preferred stock will receive, upon conversion, for each share of AOL
Time Warner series J preferred stock they hold, the kind and amount of shares
of stock or other securities and property that would have been received by a
holder of the
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number of shares of AOL Time Warner common stock into which the shares of AOL
Time Warner series J preferred stock they hold could have been converted
immediately before the merger or consolidation.
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. On or after May 2, 2000 and 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 that time, AOL Time Warner will have the right to:
. redeem shares of AOL Time Warner series J preferred stock for a cash
redemption price per share equal to the liquidation value, plus any
accrued and unpaid dividends;
. exchange 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 an amount equal to the accrued and
unpaid dividends; or
. a combination of 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.
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.
Transfer Agent
The transfer agent and registrar for the AOL Time Warner common stock will
be [ ]. The transfer agent and registrar for the AOL Time Warner series LMCN-
V common stock and AOL Time Warner preferred stock will be an assistant
secretary of AOL Time Warner.
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-Number and Election of Directors,"
"Vacancies on the Board of Directors and Removal of Directors," "Amendments to
the Restated Certificate of Incorporation," "Amendments to Restated By-laws"
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
preferred stock;
. 3,100,000 shares have been designated as Time Warner series F
preferred stock;
. 7,000,000 shares have been designated as Time Warner series I
preferred stock; and
. 3,350,000 shares have been designated as Time Warner series J
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--Common Stock,"
"--Series Common Stock" and "--Preferred 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--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--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 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.
The America Online restated by-laws provide for directors to be elected by a
plurality of the votes cast by America Online stockholders entitled to vote in
the election of directors at a meeting at which a quorum is present.
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 13 members. It is
anticipated that two members of the Time Warner board of directors will resign
effective as of the annual meeting of Time Warner's stockholders for the year
2000, in accordance with Time Warner's retirement policy for directors.
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. The Time Warner restated certificate of
incorporation provides that any change in the size of the board of directors
requires the affirmative vote of members constituting at least a majority of
the entire board of directors.
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
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.
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 Chancery Court for the
State of Delaware may, upon application of any stockholder or stockholders
holding at least 10% of the total voting power of the capital stock of America
Online, order an election to be held to fill the vacancy or replace the
directors selected by the directors then in office.
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 a single class.
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 called for that purpose.
Delaware law provides that 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 called for that
purpose.
Delaware law provides that 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 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 80% or more 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 a single class,
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, repeal or adopt 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 certificate of incorporation
and 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 a single class, 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 restated certificate of incorporation and
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.
The Time Warner 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 a single class, is required to amend, alter or
repeal, or adopt a provisions inconsistent with, the provisions of AOL Time
Warner's restated certificate of incorporation relating to:
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. amendments to AOL Time Warner's restated certificate of incorporation
and restated by-laws;
. 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 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 provisions 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 outstanding shares of
capital stock entitled to vote in the election of directors, voting together as
a single class.
Time Warner. The Time Warner restated certificate of incorporation
authorizes the Time Warner board of directors to adopt, repeal, alter or amend
the Time Warner by-laws by a majority vote of the total number of authorized
directors.
The Time Warner 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 capital stock entitled to vote
generally in the election of directors, voting together as a single class, is
required for stockholders to adopt, amend, alter or repeal any provision of the
Time Warner 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 by-laws will provide that, until December 31,
2003, no bylaw 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 bylaw inconsistent therewith be adopted, without a
75% vote of the total number of authorized directors. Restated by-laws relating
to board committees, the scope of authority of the chairman of the board of
directors and the chief executive officer of AOL Time Warner and changes in the
size of the board of directors will require a 75% vote of the total number of
authorized directors.
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 a single class, will be required for stockholders to adopt,
amend, alter or repeal any provision of the AOL Time Warner restated by-laws.
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 at that time, regardless
of any vacancies, 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 at that time, regardless of any vacancies,
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 or special 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 made if delivered with in 10 days of the date on which public
announcement of the 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 annual meeting 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.
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.
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, Time
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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.
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 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 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.
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, 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;
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. 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 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 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 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 against expenses,
including attorney's fees, 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. In addition, 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 the director or
officer receiving the payment 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
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any manner, or who is threatened to be made involved in any manner, in any
pending or completed 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,
against all expenses actually and reasonably incurred, 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 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 or continuing 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 or continuing
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.
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 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,
against all expenses actually and reasonably incurred, 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 of control." The AOL Time Warner restated by-laws
will define "change of control" as the occurrence of:
. a merger or consolidation of AOL Time Warner in which AOL Time Warner is
not the surviving or continuing 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
or continuing 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
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. during any period of two consecutive years, individuals who at the
beginning of the two-year period constituted a majority of the AOL Time
Warner board of directors have ceased for any reason to constitute a
majority of the AOL 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.
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 antidilution adjustments in the
event of a stock split, stock dividend or similar transaction with respect to
America Online series A-1 preferred stock.
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 AOL common stock then
outstanding;
. ten days following the public disclosure of facts indicating 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
related transactions.
"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
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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 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;
. an acquiring 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 capital stock
with the greatest voting power 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:
. public disclosure 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, as described under "Rights Plan-
Exercisability of 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 or group 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 since America Online may redeem the America Online rights as and
since a
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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.
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 outstanding Time Warner common stock; and
. the close of business on the date following the commencement of, or the
announcement of an intention to commence, a tender offer or exchange
offer that would result in a person or group becoming the beneficial
owner of 15% or more of the outstanding Time Warner common stock.
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 the related
transactions.
"Flip In" Feature. In the event a person becomes the beneficial owner of 15%
or more of the outstanding Time Warner common stock, each holder of a Time
Warner right, except for such 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,
can 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 outstanding Time Warner common stock, 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 or group, for Time Warner
common
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stock at an exchange ratio of one share of Time Warner common stock per Time
Warner right, subject to adjustment, and cash instead of fractional shares, if
any. 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.
"Flip Over" Feature. In the event that, after a corporate entity acquires
15% or more of Time Warner common stock then outstanding:
. Time Warner consolidates with or merges into the acquiring entity;
. the acquiring entity merges into Time Warner; or
. Time Warner sells more than 50% of its assets or earning power,
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 capital stock with the
greatest voting power having a value 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 securities representing 15% or
more of the outstanding Time Warner common stock; 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 right 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 outstanding Time Warner common stock, 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 common stock, however,
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 final expiration
date.
Anti-Takeover Effects. The Time Warner rights have anti-takeover effects.
Once the Time Warner rights have become exercisable, the Time Warner rights
will cause substantial dilution to a person or group that attempts to acquire
or merge with Time Warner in most cases. 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 since
Time Warner may redeem the Time Warner rights as described above and since 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 as Time Warner series A
participating cumulative preferred stock.
The Time Warner series A preferred is attributed a formula number, referred
to as the "series A formula number," which is currently set at 2,000, is
subject to customary antidilution protections.
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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 became 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 restated 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. America Online has not adopted any provision in its restated
certificate of incorporation to "opt-out" of Section 203 and therefore, Section
203 applies to 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 votes entitled to be
cast by holders of outstanding shares of voting stock of America Online, voting
together as a single class, in addition to any other vote required by America
Online's 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 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 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"
(including mergers, sales of all or substantially all the assets, the adoption
of a plan of liquidation or similar extraordinary corporate transactions) with
any "interested stockholder" may not be completed without:
. the affirmative vote of the holders of at least 80% of the votes
entitled to be cast by holders of shares of stock of Time Warner; and
. the affirmative vote of the holders of a majority of the votes entitled
to be cast by holders of shares of 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;
. in the case of certain mergers or consolidations of Time Warner or
reclassification of securities of Time Warner, the business combination
will have been approved by a majority of the directors of Time Warner
who are not affiliated with the interested stockholder, the business
combination does not result in an increase of more than 10% in the
amount of equity securities of any class or series of Time Warner or any
subsidiary of Time Warner beneficially owned by an interested
stockholder at the time of the approval and the business combination is
not consummated within two years of the consummation of any other
business combination in which the proportionate share of equity
securities of any class or series of Time Warner or any subsidiary of
Time Warner beneficially owned by the interested stockholder was
increased;
. in the case of certain sales of assets by Time Warner or issuances or
transfers of securities by Time Warner, the business combination will
have been approved by a majority of the directors of Time Warner not
affiliated with the interested stockholder; or
. certain minimum price, form of consideration and procedural requirements
are met.
Time Warner's fair price provision defines an "interested stockholder" as
any person 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 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.
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 following
individuals to be directors of AOL Time Warner upon completion of the merger:
<TABLE>
<CAPTION>
Name Age Designee of:
---- --- ------------
<S> <C> <C>
Stephen M. Case, Chairman................................. 41 America Online
R. E. Turner, Vice Chairman............................... 61 Time Warner
Gerald M. Levin........................................... 60 Time Warner
Robert W. Pittman......................................... 46 America Online
Richard D. Parsons........................................ 51 Time Warner
</TABLE>
Six of the remaining directors are expected to be designated by America Online
from its existing board of directors. Five of the remaining directors are
expected to be designated by Time Warner from its existing board of directors.
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.
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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.
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.
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, LP 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.
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.
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.... 60 Chief Executive Officer
R.E. Turner........ 61 Vice Chairman
Robert W. Pittman.. 46 Co-Chief Operating Officer
Richard D.
Parsons........... 51 Co-Chief Operating Officer
J. Michael Kelly... 43 Executive Vice President and Chief Financial Officer
</TABLE>
Additional officers will be elected by the AOL Time Warner board
immediately prior to or after completion of the merger. 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.
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 and commerce
relationships. These relationships have included:
. agreements between America Online and Warner Bros. for provision of
television programming content, 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. included in its Annual Report on
Form 10-K for the year ended June 30, 1999, as set forth in their report, which
is incorporated in this joint proxy statement-prospectus and elsewhere in the
registration statement. These consolidated financial statements are
incorporated by reference in reliance on Ernst & Young'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, 1998 as amended by Form 10-K/A dated June 28,
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'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.
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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 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 of December 2, 1999)
America Online's Current Report on Form 8-K dated December 21, 1999 (filing
date of January 3, 2000)
America Online's Current Report on Form 8-K dated January 10, 2000 (filing
date of January 14, 2000)
America Online's Current Report on Form 8-K dated January 19, 2000 (filing
date of January 20, 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 fiscal year ended December
31, 1998 (filing date March 26, 1999, as amended June 29, 1999)
Time Warner's Quarterly Report on Form 10-Q, for the quarterly period ended
March 31, 1999 (filing date May 12, 1999)
Time Warner's Quarterly Report on Form 10-Q, for the quarterly period ended
June 30, 1999 (filing date August 16, 1999)
Time Warner's Quarterly Report on Form 10-Q, for the quarterly period ended
September 30, 1999 (filing date November 15, 1999)
Time Warner's Current Report on Form 8-K dated July 12, 1999 (filing date
of July 15, 1999)
Time Warner's Current Report on Form 8-K dated August 3, 1999 (filing date
of September 17, 1999)
Time Warner's Current Report on Form 8-K dated January 10, 2000 (filing
date of January 14, 2000)
Time Warner's Current Report on Form 8-K dated January 23, 2000 (filing
date of January 28, 2000)
Time Warner's Current Report on Form 8-K dated February 2, 2000 (filing
date of February 10, 2000)
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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 [ ], 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: (703) 265-2741. 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].
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 (703) 265-2741 or Time Warner Investor Relations
at (212) 484-6971.
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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.
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 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 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.
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(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>
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
indemnify 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 or 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 Agreement and Plan of Merger, dated as of January 10, 2000, by and
between America Online, Inc. and Time Warner Inc., including the
Voting Agreement and the Stock Option Agreements.
</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).
*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 Proxy of Time Warner Inc.
99.5 Consent of Stephen M. Case to be named a director
99.6 Consent of R.E. Turner to be named a director.
99.7 Consent of Gerald M. Levin to be named a director.
99.8 Consent of Robert W. Pittman to be named a director.
99.9 Consent of Richard D. Parsons to be named a director.
</TABLE>
- --------
* To be filed by amendment.
II-2
<PAGE>
Item 22. Undertakings
The undersigned Registrant hereby undertakes:
(1) 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;
(2) 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;
(3) 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;
(4) 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; and
(5) 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on February 11, 2000.
AOL Time Warner Inc.
/s/ J. Michael Kelly
By: _________________________________
Name:J. Michael Kelly
Title:Executive Vice President
and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints J. Michael Kelly, Paul T. Cappuccio, Christopher
P. Bogart and Richard J. Bressler and each of them, his true and lawful
attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement and to file the same with all
exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. This power of attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald M. Levin Chief Executive Officer February 11, 2000
______________________________________ (principal executive
Gerald M. Levin officer)
/s/ J. Michael Kelly Chief Financial Officer, February 11, 2000
______________________________________ Executive Vice President
J. Michael Kelly (principal financial and
accounting officer) and
Director
/s/ Christopher P. Bogart Vice President and February 11, 2000
______________________________________ Director
Christopher P. Bogart
/s/ Richard J. Bressler Director February 11, 2000
______________________________________
Richard J. Bressler
/s/ Paul T. Cappuccio Vice President and February 11, 2000
______________________________________ Director
Paul T. Cappuccio
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
*2.1 Agreement and Plan of Merger, dated as of January 10, 2000, by and
between America Online, Inc. and Time Warner Inc., including the
Voting Agreement and the Stock Option Agreements.
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).
*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).
*99.3 Form of Proxy of America Online, Inc.
*99.4 Form of Proxy of Time Warner Inc.
99.5 Consent of Stephen M. Case to be named a director.
99.6 Consent of R.E. Turner to be named a director.
99.7 Consent of Gerald M. Levin to be named a director.
99.8 Consent of Robert W. Pittman to be named a director.
99.9 Consent of Richard D. Parsons to be named a director.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
AOL TIME WARNER INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and acts
amendatory thereof and supplemental thereto, and known, as identified, and
referred to as the "General Corporation Law of the State of Delaware"), hereby
------------------------------------------------
certifies that:
FIRST: The name of the corporation (hereinafter called the
------
"Corporation") is AOL Time Warner Inc.
- ------------
SECOND: The address of the registered office of the Corporation 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.
THIRD: 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.
FOURTH: The total number of shares of stock which the Corporation
-------
shall have authority to issue is 100, with a par value of $0.01 per share. All
such shares are of one class and are shares of common stock, designated "Common
Stock".
FIFTH: The name and the mailing address of the incorporator are as
------
follows:
Caroline M. Gentile
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
SIXTH: The Corporation is to have perpetual existence.
------
SEVENTH: For the management of the business and for the conduct of
--------
the affairs of the Corporation, and in
<PAGE>
2
further definition, limitation, and regulation of the powers of the Corporation
and of its directors and of its stockholders or any class thereof, as the case
may be, it is further provided:
1. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
fixed by, or in the manner provided in, the By-laws of the Corporation (the
"By-laws"). The phrase "whole Board" and the phrase "total number of
------- ----------- ---------------
directors" shall be deemed to have the same meaning, to wit, the total
---------
number of directors which the Corporation would have if there were no
vacancies. No election of directors need be by written ballot.
2. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors of the
Corporation is expressly authorized to adopt, make, alter and repeal the
By-laws, subject to the power of the stockholders of the Corporation to
alter or repeal any by-law whether adopted by them or otherwise.
EIGHTH: A director of the Corporation shall not be liable to the
-------
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except to the extent such exemption from liability or
limitation thereof is not permitted under the General Corporation Law of the
State of Delaware as the same exists or may hereafter by amended. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the Corporation hereunder in
respect of any act or omission occurring prior to the time of such amendment,
modification or repeal
NINTH: From time to time any of the provisions of this Certificate of
------
Incorporation may be amended, altered or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article Ninth.
<PAGE>
3
THE UNDERSIGNED, the sole incorporator of the Corporation, hereby
certifies under the penalty of perjury that the facts stated in this certificate
of incorporation are true as of this 4th day of February, 2000.
/s/ Caroline M. Gentile
------------------------
Caroline M. Gentile
Sole Incorporator
<PAGE>
EXHIBIT 3.9
BY-LAWS
of
AOL TIME WARNER INC.
(A Delaware Corporation)
ARTICLE I
Stockholders
------------
SECTION 1.01. Place of Meetings. Meetings of the stockholders of AOL
------------------
Time Warner Inc., a corporation formed pursuant to the General Corporation Law
of the State of Delaware (the "Corporation"), shall be held at such time and
-----------
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors of the Corporation (the "Board of
--------
Directors") and stated in the notice of the meeting or in a duly executed waiver
- ---------
of notice thereof.
SECTION 1.02. Annual Meetings. Each annual meeting of the
----------------
stockholders of the Corporation shall be held on such date and at such time and
place as shall be designated from time to time by the Board of Directors and
stated in the notice of such meeting, at which meeting the stockholders shall
elect the directors of the Corporation and transact such other business as may
be properly brought before such meeting. Written notice of each annual meeting
stating the date, hour and place of such meeting shall be given to each
stockholder entitled to vote at such meeting not less than 10 days nor more than
60 days before the date of such meeting.
SECTION 1.03. Special Meetings. Unless otherwise provided by law or
-----------------
by the Certificate of Incorporation of the Corporation, special meetings of the
stockholders of the Corporation, for any purpose or purposes, may be called at
any time by the Board of Directors. Written notice of a special meeting stating
date, hour and place of such meeting and the purpose or purposes for which such
meeting is called shall be given not less than 10 days nor more than 60 days
before the date of the meeting to each stockholder entitled to vote at such
meeting.
SECTION 1.04. Quorum. Except as otherwise provided by law or by the
-------
Certificate of Incorporation of the Corporation, the holders of a majority of
the capital
<PAGE>
2
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders of the Corporation for the transaction of business. If, however,
such quorum shall not be present or represented at any meeting of the
stockholders of the Corporation, the stockholders of the Corporation entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted that might have been transacted at the meeting as originally noticed.
If the adjournment is for more than 30 days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of the Corporation entitled to vote
at the meeting.
SECTION 1.05. Voting. Unless otherwise provided by law, the
-------
Certificate of Incorporation of the Corporation or these By-Laws, any question
brought before any meeting of the stockholders of the Corporation shall be
decided by the vote of the holders of a majority of the shares represented and
entitled to vote thereat. Each stockholder of the Corporation represented at
any meeting of the stockholders of the Corporation shall be entitled to cast one
vote for each share of capital stock issued and outstanding and entitled to vote
thereat held by such stockholder. Such votes may be cast in person or by proxy,
but no proxy shall be voted on or after three years from its date, unless such
proxy provides for a longer period. The Board of Directors, in its discretion,
or the officer of the Corporation presiding at any meeting of the stockholders
of the Corporation, in his or her discretion, may require that any votes cast at
such meeting be cast by written ballot.
SECTION 1.06. Consent of Stockholders in lieu of Meeting. Unless
-------------------------------------------
otherwise provided in the Certificate of Incorporation of the Corporation, any
action required or permitted to be taken at any annual or special meeting of the
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, in a consent in writing, setting forth the action so
taken, signed by the holders of outstanding shares entitled to vote thereon
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
<PAGE>
3
SECTION 1.07. List of Stockholders Entitled to Vote. The officer of
--------------------------------------
the Corporation who has charge of the transfer books for shares of the
Corporation shall prepare and make, at least 10 days before every meeting of the
stockholders of the Corporation, a complete list of the stockholders of the
Corporation entitled to vote at the meeting, arranged in alphabetical order, and
showing the address of each such stockholder and the number of shares registered
in the name of such stockholder. Such list shall be produced and kept open to
the examination of any stockholder of the Corporation for any purpose germane to
the meeting, as required by law.
SECTION 1.08. Stock Ledger. The stock ledger, or a duplicate thereof
-------------
kept in the State of Delaware, shall be prima facie evidence as to who are the
----- -----
stockholders of the Corporation entitled to examine the stock ledger or the list
of stockholders prepared pursuant to Section 1.07 or to vote in person or by
proxy at any meeting of the stockholders of the Corporation.
ARTICLE II
Directors
---------
SECTION 2.01. Number and Election of Directors. Unless otherwise
---------------------------------
provided by law, the number of members constituting the Board of Directors shall
be determined from time to time by resolutions adopted by a majority of the
entire Board of Directors. Directors need not be stockholders of the
Corporation or citizens or residents of the United States of America. Each of
the directors of the Corporation shall hold office until the next annual meeting
of the stockholders of the Corporation and until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
SECTION 2.02. Resignations. Any director may resign at any time.
-------------
Such resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time be specified, at the time of its receipt by
the Corporation. The acceptance of a resignation shall not be necessary to make
it effective.
SECTION 2.03. Removal. Except as hereinafter provided, any director
-------
of the Corporation or the directors of the Corporation may be removed from
office either for or without cause at any time by the affirmative vote of the
holders of a majority of the capital stock issued and outstanding and entitled
to vote for the election of
<PAGE>
4
directors of the Corporation, at an annual meeting or a special meeting called
for that purpose, and the vacancy thus created may be filled, at such meeting,
by the affirmative vote of holders of a majority of all shares of capital stock
issued and outstanding and entitled to vote thereon.
SECTION 2.04 Vacancies. Vacancies and newly created directorships
----------
resulting from any increase in the number of directors may be filled by a
majority vote of the directors then in office, though less than a quorum, or by
a sole remaining director, and each director so chosen shall hold office for the
balance of the unexpired term or until his or her earlier death, resignation or
removal as herein provided.
SECTION 2.05. Duties and Powers. All corporate powers shall be
------------------
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed by or under the direction of, the Board of
Directors, 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 of Incorporation
of the Corporation or by these By-Laws conferred upon or reserved to the
stockholders of the Corporation.
SECTION 2.06. Meetings. The Board of Directors may hold meetings,
---------
both annual and special, either within or without the State of Delaware. Annual
meetings of the Board of Directors may be held without notice at such time and
place as may from time to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by any director of the
Corporation. Notice thereof stating the date, hour and place of the meeting
shall be given to each director by mail, telephone, telegram or telecopy not
less than two days before the time of the meeting, or on such shorter notice as
the person or persons calling such meeting may deem necessary or appropriate in
the circumstances.
SECTION 2.07 Quorum. Unless otherwise provided by law, the
-------
Certificate of Incorporation of the Corporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
then in office shall constitute a quorum for the transaction of business, and
the act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present thereat
may adjourn the meeting from time to time, without
<PAGE>
5
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 2.08. Actions of Board. Unless otherwise provided by the
-----------------
Certificate of Incorporation of the Corporation or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or such committee consent thereto in writing, and such
writing is filed with the minutes of proceedings of the Board of Directors or
such committee, as the case may be.
SECTION 2.09. Meeting by Means of Conference Telephone. Unless
-----------------------------------------
otherwise provided by the Certificate of Incorporation of the Corporation or
these By-Laws, members of the Board of Directors may participate in a meeting of
the Board of Directors by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting are able to hear each other, and participation in a meeting pursuant to
this Section 2.09 shall constitute presence in person at such meeting.
SECTION 2.10. Compensation. The directors who are officers or
------------
employees of the Corporation or of an affiliate of the Corporation shall serve
on the Board of Directors without compensation. The compensation of any other
director shall be set by resolution adopted by the Board of Directors. Nothing
contained in this Section 2.10, however, shall be construed to preclude any
director from serving the Corporation in any other capacity as an officer, agent
or otherwise, and receiving compensation therefor.
SECTION 2.11. Interested Directors. No contract or transaction
---------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because any such director's or officer's
votes are counted for such purpose if (i) the material facts as to the
director's or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or such
committee, and the Board of Directors or committee in good faith authorizes the
contract or
<PAGE>
6
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; (ii)
the material facts as to the director's or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders of the Corporation entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of those
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders of the Corporation. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or committee thereof that authorizes the contract or
transaction.
ARTICLE III
Officers
--------
SECTION 3.01. General. The officers of the Corporation shall be
--------
chosen by the Board of Directors and shall be a Chief Executive Officer, a Chief
Financial Officer, one or more Vice Presidents and one or more Assistant
Secretaries. Any two or more offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation of the Corporation
or these By-Laws. The officers of the Corporation need not be stockholders of
the Corporation nor need such officers be directors of the Corporation.
SECTION 3.02. Election. The Board of Directors shall elect the
---------
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are elected and qualified, or until
their earlier death, resignation or removal. Any officer of the Corporation
elected by the Board of Directors may be removed at any time for or without
cause by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. Nothing contained in this Section 3.02, however, shall be
construed to preclude any officer from serving the Corporation in any other
capacity and receiving compensation therefor.
SECTION 3.03. Voting Securities Owned by the Corporation. Powers of
-------------------------------------------
attorney, proxies, waivers of notice
<PAGE>
7
of meetings, consents and other instruments relating to securities owned by the
Corporation may be executed in the name of and on behalf of the Corporation by
any officer of the Corporation, and any such officer may, in the name of and on
behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and powers incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present, in each case subject
to having obtained the requisite approvals of the Board of Directors and the
stockholders of the Corporation with respect to any such matter. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
SECTION 3.04. Chief Executive Officer. The Chief Executive Officer of
------------------------
the Corporation, subject to the control of the Board of Directors and the
stockholders of the Corporation, shall exercise general and active supervision
over business and affairs of the Corporation and shall authorize other officers
of the Corporation to exercise such powers as he or she, in his or her
discretion, may deem to be in the best interests of the Corporation. The Chief
Executive Officer of the Corporation shall preside at meetings of the Board of
Directors and of the stockholders of the Corporation. The Chief Executive
Officer of the Corporation shall, in general, perform all duties incident to the
office of Chief Executive Officer and shall have such other duties as these By-
laws or the Board of Directors may from time to time prescribe.
SECTION 3.05. Chief Financial Officer. The Chief Financial Officer
------------------------
of the Corporation shall have the custody of the funds and securities of the
Corporation and shall keep full and accurate account of all receipts and
disbursements in respect thereof in books belonging to the Corporation. He or
she shall deposit all moneys and other valuables in the name of and to the
credit of the Corporation in such depositaries as may be designated by the Board
of Directors. He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, or the Chief Executive Officer of the
Corporation, taking proper vouchers for such disbursements. He or she shall
render to the Board of Directors, the Chief Executive Officer of the Corporation
and the stockholders of the Corporation at each annual meeting of the Board of
Directors and the stockholders of the Corporation, or whenever any of the
foregoing may request it, an account of all his or her
<PAGE>
8
transactions as Chief Financial Officer and of the financial condition of the
Corporation.
SECTION 3.06. Vice President. The Vice President of the Corporation,
---------------
or Vice Presidents of the Corporation, shall have such duties as these By-laws,
the Board of Directors or the Chief Executive Officer of the Corporation may
from time to time prescribe.
SECTION 3.07. Assistant Secretary. The Assistant Secretary of the
--------------------
Corporation, or any of the Assistant Secretaries of the Corporation if there be
more than one, shall give, or cause to be given, notice of all meetings of the
Board of Directors and the stockholders of the Corporation and all other notices
required by law or by these By-Laws, and in case of his or her absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chief Executive Officer of the Corporation, any
director of the Corporation or any stockholder of the Corporation upon whose
request the meeting is called as provided in these By-Laws. The Assistant
Secretary, or any of the Assistant Secretaries if there be more than one, shall
record all the proceedings of the meetings of the Board of Directors, any
committees thereof and the stockholders of the Corporation in a book to be kept
for that purpose. Each Assistant Secretary shall perform any other duties as
may be assigned by these By-laws, the Board of Directors or the Chief Executive
Officer of the Corporation.
ARTICLE IV
Share Certificates
------------------
SECTION 4.01. Form of Certificates. Every stockholder of the
---------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation by (i) a Vice President of the Corporation and (ii) an Assistant
Secretary of the Corporation, certifying the number and class of shares owned by
him or her in the Corporation.
SECTION 4.02. Signatures. Where a certificate is countersigned by
-----------
(i) a transfer agent other than the Corporation or its employee or (ii) a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may be
<PAGE>
9
issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
SECTION 4.03. Lost Certificates. The Board of Directors may direct a
------------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate to be lost,
stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his or her legal representative, to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4.04. Transfers. Shares of stock of the Corporation shall be
----------
transferable in the manner provided by law and in these By-Laws. Transfers of
shares of stock of the Corporation shall be made on the books of the Corporation
only by the person named in the certificate or by his or her attorney lawfully
constituted in writing and upon the surrender of the certificate therefor, which
shall be canceled before a new certificate shall be issued.
SECTION 4.05. Record Date. In order that the Corporation may
------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of 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 of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date: (i) in the case of determination of stockholders entitled to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than sixty nor less than ten days before
the date of the meeting, (ii) in the case of determination of stockholders
entitled to express consent to corporate action in writing without a meeting,
shall not be more than ten days from the date upon which the resolution fixing
the record date is adopted by the Board of Directors and (iii) in the case of
any other action, shall not be more than sixty days prior to such other actions.
If no record
<PAGE>
10
date is fixed: (i) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice 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, (ii) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action of the Board of Directors is required by law, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in accordance with
applicable law, or, if prior action by the Board of Directors is required by
law, shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action and (iii) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however that the Board of Directors may fix a new record date
-------- -------
for the adjourned meeting.
SECTION 4.06. Beneficial Owners. The Corporation shall be entitled
------------------
(i) to recognize the exclusive right of a person registered on its books as the
owner of shares to vote as such owner and to receive dividends and (ii) to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by law.
ARTICLE V
Notices
-------
SECTION 5.01. Notices. Whenever notice is required by law, the
--------
Certificate of Incorporation or these By-Laws to be given to any director or
stockholder of the Corporation, such notice may be given by mail, addressed to
such director or stockholder, at his or her address as it appears on the records
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice may also be given personally, by telegram, by telecopy or
as otherwise permitted by law.
<PAGE>
11
SECTION 5.02. Waivers of Notice. Whenever any notice of a meeting is
------------------
required by law, the Certificate of Incorporation or these By-Laws to be given
to any director or stockholder of the Corporation, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time for such meeting stated therein, shall be deemed equivalent thereto.
Attendance of a director or a stockholder of the Corporation in person or by
proxy at such a meeting shall constitute a waiver of notice to such director or
stockholder of such meeting, except when such director or stockholder attends
such meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
ARTICLE VI
General Provisions
------------------
SECTION 6.01. Dividends. Subject to the provisions of the
----------
Certificate of Incorporation of the Corporation, if any, dividends upon the
capital stock of the Corporation may be declared by the Board of Directors at
any annual or special meeting and may be paid in cash, in property or in shares
of the Corporation's capital stock. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time, in its absolute discretion,
deems proper as a reserve or reserves for equalizing dividends, meeting
contingencies, maintaining or repairing any property of the Corporation or any
proper purpose, and the Board of Directors may modify or abolish any such
reserve.
SECTION 6.02. Disbursements. All checks or demands for money and
--------------
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
SECTION 6.03. Fiscal Year. The fiscal year of the Corporation shall
------------
be the calendar year or such other period as may be adopted by resolution of the
Board of Directors.
SECTION 6.04. Corporate Seal. The corporate seal shall have
---------------
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The corporate seal may be used by causing
it or
<PAGE>
12
a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VII
Indemnification
---------------
SECTION 7.01. Right to Indemnification. The Corporation, to the
-------------------------
fullest extent permitted or required by Delaware General Corporation Law 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 7.04(e) of this Article
VII). Any director or officer of the Corporation entitled to indemnification as
provided in this Section 7.01 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 VII.
SECTION 7.02. Insurance, Contracts and Funding. The Corporation may
---------------------------------
purchase and maintain insurance to
<PAGE>
13
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 7.01 of this Article VII or incurred by
any such director, officer, employee or agent in connection with any Proceeding
referred to in Section 7.01 of this Article VII, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law. 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 VII 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 VII.
SECTION 7.03. Indemnification Not Exclusive Right. The right of
------------------------------------
indemnification provided in this Article VII shall not be exclusive of any other
rights to which an Indemnitee may otherwise be entitled, and the provisions of
this Article VII shall inure to the benefit of the heirs and legal
representatives of any Indemnitee under this Article VII and shall be applicable
to Proceedings commenced or continuing after the adoption of this Article VII,
whether arising from acts or omissions occurring before or after such adoption.
SECTION 7.04. Advancement of Expenses; Procedures; Presumptions and
-----------------------------------------------------
Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation
- ----------------------------------------
of the foregoing provisions, the following procedures, presumptions and remedies
shall apply with respect to advancement of expenses and the right to
indemnification under this Article VII:
(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
<PAGE>
14
it should be determined that the Indemnitee is not entitled to be
indemnified against such expenses pursuant to this Article VII.
(b) Procedure for Determination of Entitlement to Indemnification.
--------------------------------------------------------------
(i) To obtain indemnification under this Article VII, an Indemnitee shall
submit to an Assistant Secretary of the Corporation 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. Each Assistant Secretary of the Corporation
shall, promptly upon receipt of such a request for indemnification, advise
the Board of Directors in writing that the Indemnitee has requested
indemnification.
(ii) The Indemnitee's entitlement to indemnification under this
Article VII shall be determined in one of the following ways: (A) by a
majority vote of the Disinterested Directors (as hereinafter defined in
Section 7.04(e) of this Article VII), whether or not they constitute a
quorum of the Board of Directors, 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 7.04(e) of this Article VII) if (x) a Change in Control (as
hereinafter defined in Section 7.04(e) of this Article VII) 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 7.04(c)
of this Article VII.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section
7.04(b)(ii) of this Article VII, 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
<PAGE>
15
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 VII, if a Change in Control
shall have occurred, the Indemnitee shall be presumed to be entitled to
indemnification under this Article VII (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 7.04(b)(i) of this Article VII, 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 7.04(b) of this Article VII 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 7.01 of this Article
VII, 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 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 7.04(b) of this Article VII that the Indemnitee
is not entitled to indemnification under this Article VII, (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
<PAGE>
16
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 VII (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 7.04(b) or (c) of this Article VII, 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 7.04(a) of this Article VII
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 7.04(b) or (c) of this Article VII, 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
7.04(d) that the procedures and presumptions of this Article VII 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 VII.
<PAGE>
17
(iv) In the event that the Indemnitee, pursuant to this Section
7.04(d), seeks a judicial adjudication of or an award in arbitration to
enforce rights under, or to recover damages for breach of, this Article
VII, 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 7.04:
------------
(i) "Authorized Officer" means any one of the Chief Executive
------------------
Officer, the Chief Financial Officer, any Vice President or any Assistant
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 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) during any
period of two consecutive years, individuals who at the beginning of such
period who shall have constituted the entire Board of Directors shall have
ceased for any reason to constitute a majority thereof unless the election,
or the nomination for election by the Corporation's stockholders, of each
new director shall have been approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of
the period.
<PAGE>
18
(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 VII.
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 VII.
ARTICLE VIII
Amendments
----------
The Board of Directors shall have the power to adopt, amend or repeal
these By-Laws. The By-Laws adopted by the Board of Directors may be repealed or
changed, and new By-Laws made, by the stockholders of the Corporation.
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of AOL Time Warner
Inc. for the registration of its common and preferred stocks and to the
incorporation by reference therein of our reports dated February 3, 1999, 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, 1998,
as amended by Form 10-K/A dated June 28, 1999, filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
New York, New York
February 9, 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 our report dated July 21, 1999, with respect to the consolidated
financial statements of America Online, Inc. included in its Annual Report on
Form 10-K for the year ended June 30, 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 the Registration Statement (Form S-4 No. 333- ) of AOL Time Warner
Inc. for the registration of its common and preferred stocks.
/s/ Ernst & Young LLP
McLean, Virginia
February 9, 2000
<PAGE>
EXHIBIT 23.5
------------
CONSENT OF SALOMON SMITH BARNEY INC.
We hereby consent to the use of our name and to the description of our
opinion letter, dated January 9, 2000, under the caption "Opinion of America
Online's Financial Advisor" in, and to the inclusion of such opinion letter as
Annex E to, the Joint Proxy Statement-Prospectus which is part of the
Registration Statement on Form S-4 of AOL Time Warner Inc. By giving such
consent we do not thereby admit that we are experts with respect to any part of
such Registration Statement within the meaning of the term "expert" as used in,
or that we come within the category of persons whose consent is required under,
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Dated: February 11, 2000
SALOMON SMITH BARNEY INC.
By: /s/ Salomon Smith Barney
<PAGE>
Exhibit 23.6
[Letterhead of Morgan Stanley & Co. Incorporated]
We hereby consent to the use in the Registration Statement of AOL Time Warner
Inc. on Form S-4 and in the Proxy Statement/Prospectus of America Online, Inc.
and Time Warner Inc., which is part of the Registration Statement, of our
opinion dated January 9, 2000 appearing as Annex F to such Proxy
Statement/Prospectus, to the description therein of such opinion and to the
references therein to our name. In giving the foregoing consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended (the "Securities Act"), or
the rules and regulations promulgated thereunder, nor do we admit that we are
experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act or the rules and
regulations promulgated thereunder.
MORGAN STANLEY & CO.
INCORPORATED
By: /s/ Ji-Yeun Lee
--------------------
Ji-Yeun Lee
Principal
New York, New York
February 7, 2000
<PAGE>
Exhibit 99.5
Consent of Person Named
as About to Become a Director
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: February 9, 2000
/s/ Stephen M. Case
---------------------------
Stephen M. Case
<PAGE>
Exhibit 99.6
Consent of Person Named
as About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I,
R.E. Turner, 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., dated February 11, 2000, and any amendments thereto.
Dated: February 9, 2000
/s/ R.E. Turner
---------------------------
R.E. Turner
<PAGE>
EXHIBIT 99.7
Consent of Person Named
as About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I,
Gerald M. Levin, 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., dated February 11, 2000, and any amendments thereto.
Dated: February 11, 2000
/s/ Gerald M. Levin
---------------------------
Gerald M. Levin
<PAGE>
Exhibit 99.8
Consent of Person Named
as About to Become a Director
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 Securities Act of 1933).
Dated: February 9, 2000
/s/ Robert W. Pittman
---------------------------
Robert W. Pittman
<PAGE>
Exhibit 99.9
Consent of Person Named
as About to Become a Director
Pursuant to Rule 438 promulgated under the Securities Act of 1933, I,
Richard D. Parsons, hereby consent to be named as a person about to become a
director of AOL Time Warner Inc. in the Registration Statement on From S-4 of
AOL Time Warner Inc., dated February 11, 2000, and any amendments thereto.
Dated: February 9, 2000
/s/ Richard D. Parsons
---------------------------
Richard D. Parsons
