SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
Date of earliest event reported August 5, 1996
AMERICA ONLINE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-19836 54-1322110
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification
No.)
22000 AOL Way
Dulles, Virginia 20166
(Address of principal executive
offices including zip code)
(703) 265-2120
(Registrant's telephone number,including area code)
8619 Westwood Center Drive
Vienna, Virginia 22182
(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
(a) Effective August 5, 1996, the Registrant acquired (the "Acquisition") all of
the issued and outstanding capital stock of The ImagiNation Network, Inc., a
California corporation ("INN") and a wholly-owned subsidiary of AT&T Corp.
("AT&T"), pursuant to the terms of a Stock Purchase Agreement dated as of August
5, 1996 (the "Stock Purchase Agreement") among the Registrant, AT&T and INN.
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Stock Purchase Agreement.
The following description of the determination of the consideration paid by the
Registrant is qualified in its entirety by reference to the Stock Purchase
Agreement. The total consideration paid or payable by the Registrant for all of
the outstanding shares of capital stock of INN is equal to an aggregate number
of shares of common stock, $.01 par value, of the Registrant ("Registrant's
Common Stock") as is determined by dividing (a) the sum of (i) $14,500,000 plus
(ii) that amount (if any) as shall reflect interest on $2,700,000 calculated at
the rates and for the period specified in the Stock Purchase Agreement by (b)
the price per share of the Registrant's Common Stock to be determined subsequent
to the Closing of the Acquisition as provided in the Stock Purchase Agreement,
subject to adjustment following the Closing as provided therein. Under certain
circumstances as provided in the Stock Purchase Agreement, such consideration
may be payable by Registrant in cash and not in such shares of Registrant's
Common Stock (in which event the amount to be payable by Registrant shall
include interest on $14,500,000 at the rate of 7% per annum for the period from
the Closing until the date such cash amount is paid). At the Closing,
Registrant issued to AT&T 362,500 shares of Registrant's Common Stock as an
estimate of the purchase price for the Acquisition (which shares are to be held
in escrow pending the final determination of the purchase price).
(b) The assets of INN acquired indirectly by the Registrant by virtue of the
Acquisition were used in the exploitation of certain software technologies,
including, without limitation, INN's software for the development and operation
of multiplayer online games. The Registrant intends to continue such use of
INN's assets. The Stock Purchase Agreement is attached hereto as Exhibit 10 and
is the subject of a press release issued by INN on August 6, 1996, a copy of
which is attached hereto as Exhibit 99.
Item 7. Exhibits
(a) and (b). It is impracticable to provide any of the required financial
statements or pro forma financial information, which are not yet available. The
Registrant intends to file such financial statements and pro forma financial
information as an amendment hereto on or about, but in no event later than, 60
days after the date hereof.
(c) Exhibits.
1. Stock Purchase Agreement, dated as of August 5, 1996, among the Registrant,
AT&T and INN.
2. Press Release dated August 6, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
AMERICA ONLINE, INC.
(Registrant)
Dated: August 19, 1996 By: /s/ Stephen M. Case
Stephen M. Case
Chairman of the Board,
Chief Executive Officer
and President
EXHIBIT INDEX
Exhibit No.Description
10 Stock Purchase Agreement, dated as of August 5, 1996, among the
Registrant,
AT&T Corp. and The ImagiNation Network, Inc.
99 Press Release dated August 6, 1996
STOCK PURCHASE AGREEMENT
DATED AS OF
AUGUST 5, 1996,
AMONG
AMERICA ONLINE, INC.,
THE IMAGINATION NETWORK, INC.,
AND
AT&T CORP.
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE AND SALE OF CAPITAL STOCK 1
1.1. Purchase and Sale of Capital Stock 1
1.2. Purchase Price 2
(a)
2
(b)
Delivery of Company Common Stock 2
(c)
Payment of Purchase Price 3
(d) No Further Ownership Rights in Company Common Stock;
Company Equity Rights Extinguished 4
(e)
Waiver of Dividends 4
(f)
Certain Definitions 4
1.3. Closing
5
1.4. Post-Closing Adjustment for Working Capital 5
(a)
Preparation of Closing Balance Sheet and Final Working
Capital Statements 5
(b)
Review by the Parent 7
(c)
Adjustment 8
ARTICLE II REPRESENTATIONS AND WARRANTIES 9
2.1. Representations and Warranties of the Parent 9
(a)
Organization; Good Standing; Qualification and Power
9
(b)
Equity Investments 9
(c)
Capital Stock; Securities 9
(d)
Authority; No Consents 10
(e)
Financial Information 11
(f)
Absence of Undisclosed Liabilities 12
(g)
Absence of Changes 12
(h)
Tax Matters 14
(i) Title
to Assets, Properties and Rights and Related Matters
15
(j)
Intellectual Property 16
(k)
Company Software 17
(l)
Agreements, Etc. 18
(m) No
Defaults 19
(n)
Litigation, Etc. 19
(o)
Compliance; Governmental Authorizations 19
(p)
Labor Relations; Employees 20
(q)
Employee Benefit Plans and Contracts 20
(r)
Insurance 21
(s)
Bank Accounts; Powers of Attorney 21
(t)
Brokers 21
(u)
Minute Books 21
(v)
Company Not an Interested Parent or an Acquiring Person
21
(w)
Working Capital 21
(x) Annex
1.4 Amounts; Obligations. 22
(y)
Knowledge Definition 22
2.2. Additional Representations and Warranties of the
Parent 22
(a)
Title; Absence of Certain Agreements 22
(b)
Organization, Good Standing and Power 22
(c)
Authority - General 23
(d)
Investment Representations 24
(e)
Brokers 25
2.3. Representations and Warranties of AOL 25
(a)
Organization; Good Standing; Power 25
(b)
Capital Stock 25
(c)
Authority; No Consents 25
(d) SEC
Documents 27
(e)
Brokers 27
(f)
Investment Representations 27
ARTICLE III ACTIONS PRIOR TO OR AT CLOSING 29
3.1. Related Agreements 29
(a)
Sierra On-Line Content Provider Agreement 29
(b)
Escrow Agreement 29
(c)
Irrevocable Proxy 29
(d)
Termination Agreement 29
3.2. Working Capital 29
3.3. Company Equity Rights 29
3.4. Resignation of Directors and Officers 29
ARTICLE IV ADDITIONAL AGREEMENTS 30
4.1. Restrictions on Transfer 30
4.2. Shelf Registration 31
4.3. Arranged Sale 35
4.4. Cash-Out Right 35
4.5. Discharge of Certain Liabilities 36
4.6. Responsibility of Parent for Certain Matters 36
4.7. Confidential Information 38
4.8. Severance Payments. 40
4.9. Escrow For Working Capital Adjustment 40
ARTICLE V INDEMNIFICATION 40
5.1. Definitions 40
5.2. Indemnification Generally; Limitations. 42
5.3. Assertion of Claims 43
5.4. Notice and Defense of Third Party Claims 43
5.5. Survival of Representations, Warranties and
Covenants, Etc. 44
5.6. Tax Returns and Indemnity by the Parent;
Cooperation 44
ARTICLE VI MISCELLANEOUS 48
6.1. Expenses
48
6.2. Entire Agreement 48
6.3. Publicity
49
6.4. Descriptive Headings 49
6.5. Notices
49
6.6. Counterparts 51
6.7. Governing Law 51
6.8. Benefits of Agreement 51
6.9. Pronouns
51
6.10. Amendment, Modification and Waiver 51
6.11. Enforcement of the Agreement 52
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Irrevocable Proxy
Exhibit C Termination Agreement
GLOSSARY
The following terms used in this Agreement are defined in the
following Sections:
Section or
Term Other Location
Accountants' Determination 1.4.(b)(ii)
accredited investor 2.2.(d)(vii)
Acquisition Preamble
Acquisition Shares 1.2.(b)
Actions 2.1.(n)(i)
Affiliate 5.1.(a)
Scheduled Employees 1.4.(c)(iii)(A)
AOL Preamble
AOL 10-K 2.3.(d)(i)
AOL 10-Q 2.3.(b)
AOL Common Stock 1.2
AOL Event of Indemnification 5.1.(b)
AOL Indemnified Persons 5.1.(c)
AOL Indemnifying Persons 5.1(d)
AOL Notice 1.4.(b)(i)
AOL Rights 1.2.(a)
AOL Rights Agreement 1.2.(a)
AOL SEC Documents 2.3.(d)(i)
AOL's Accountants 1.4.(a)
Arbitrating Accountants 1.4.(b)(ii)
Arranged Sale 4.3
Audited Interim Balance Sheet 2.1.(e)(i)(A)
Audited Interim Financial Statements 2.1.(e)(i)(A)
Audited Year-End Balance Sheet 2.1.(e)(i)(B)
Basket Amount 5.2.(c)
best knowledge of the Parent 2.1.(y)
Big Six 1.4.(b)(ii)
blue-sky 2.2.(d)(ii)
business day 6.5.(c)
C&L 2.1.(e)(i)(A)
capped 1.4.(a)
Cash-Out Closing 4.4.(b)
Cash-Out Closing Date 4.4.(b)
Cash-Out Right 4.4.(a)
Closing 1.3
Closing Date 1.3
Commencement Date 2.1.(i)(iii)
Company Preamble
Company Common Stock 1.1
Company Equity Rights 1.1
Company Event of Indemnification 5.1.(f)
Company Financial Statements 2.1.(e)(i)
Company Indemnifying Persons 5.1.(e)
Company Returns 2.1.(h)(i)
consenting corporation 2.1.(h)(ii)
current assets 1.4.(a)
current liabilities 1.4.(a)
Cyberpark 1.4(a)(5)
Delivery Date 1.2.(f)(i)
Disclosure Schedule 2.1
employee benefit plan 2.1.(q)
employee pension benefit plan 2.1.(q)
Encumbrances 2.1.(i)
ERISA 2.1.(q)
Escrow Agent 1.2.(c)(i)
Escrow Agreement 1.2.(c)(i)
Estimated Payment 1.2.(c)(i)
Excess Amount 1.4.(c)(i)
Excess Shares 1.2.(c)(ii)(B)
Exchange Act 2.3.(c)
FAS No. 5 2.1.(f)(ii)
Final Determination Date 1.4.(b)(iii)
Final Payment 1.2.(c)(ii)
Final Working Capital 1.4.(b)(iii)
Final Working Capital Statement 1.4.(b)(iii)
First 10-Day Period 1.4.(b)(ii)
Fractional Share Interest 1.2.(a)
GAAP 1.4.(a)
Governmental Authority 2.1.(n)(i)
Indemnified Persons 5.1.(g)
Indemnified Tax Liability 5.6.(c)
Indemnifying Persons 5.1.(h)
Initial Share Certificate 1.2.(c)(i)
Initial Shares 1.2.(c)(i)
Intellectual Property Rights 2.1.(j)(v)
Intercompany Obligations 4.5
Interested Stockholder 2.1.(v)
Irrevocable Proxy 1.2.(c)(i)
Licensed Software 2.1.(k)(i)(B)
Liquidity Date 1.2.(f)(ii)
Losses 5.1.(i)
Material Adverse Change 2.1.(g)(i)
Material Adverse Effect 2.1.(d)
Measurement Period 1.4.(a)
Merrill Lynch 2.1.(t)
New Plan 4.6.(d)
New Sierra Agreement 3.1.(a)
Objection Notice 1.4.(b)(ii)
off-the-shelf 2.1.(k)(i)(B)
Old Plan 4.6.(d)
Other Intellectual Property Rights 2.1.(j)(i)
Other Shares 4.2.(a)(i)
Owned Software 2.1.(k)(i)(A)
Parent Preamble
Parent Event of Indemnification 5.1.(j)
Parent Indemnified Person 5.1.(k)
Parent Indemnifying Persons 5.1.(l)
Performance Accrual Bonus 1.4.(a)
personal holding company 2.1.(h)(ii)
pre-load 2.1.(k)(ii)
Primary Shares 4.2.(a)(ii)
Publishing Agreement 1.4.(a)
Purchase Price 1.2
Reduction-in-Force 1.4.(c)(iii)(A)
Registrable Shares 4.2.(a)(iii)
Related Agreements 3.1
Requisite Rights 2.1.(j)(i)
Restricted Securities 4.1.(a)
S-3 Effective Date 1.2.(f)(iii)
SEC 1.2.(a)
Second 10-Day Period 1.4.(b)(ii)
Section 4.6(d) Employee 4.6.(d)
Settlement Agreement 1.4.(b)(ii)
severance pay 2.1.(p)(ii)
Shelf Registration 4.2.(b)
Shelf Registration Statement 1.2.(f)(iii)
Shortfall Amount 1.4.(c)(ii)
Sierra 1.4.(a)
Software 2.1.(k)(i)(B)
Specified Intellectual Property 2.1.(j)(i)
Stipulated Person 2.1.(y)
Stipulated Price 1.2.(f)(iv)
Survival Date. 5.5
Tax(es) 2.1.(h)(ii)
Tax Reserves 5.6.(a)
Termination Agreement 3.1.(e)
Third Party Claim 5.4
Transaction Fee Shares 4.2.(g)
transferee 2.1.(h)(ii)
V2.4 Business 2.1.(a)
V2.4 Shut-Down 1.4.(c)(iii)(B)
Working Capital 1.4.(a)
Working Capital Statement 1.4.(a)
WorldNet Agreement 4.2(a)(iii)
WorldNet Service 4.2(a)(iii)
WorldNet Shares 4.2.(a)(iii)
STOCK PURCHASE
AGREEMENT dated as of August 5, 1996, among
AMERICA ONLINE, INC., a Delaware corporation
("AOL"), THE IMAGINATION NETWORK, INC., a
California corporation (the "Company"), and AT&T
CORP., a New York corporation (the "Parent").
The Company is a direct, wholly-owned subsidiary of the Parent. The
parties hereto desire that AOL purchase and acquire from the Parent, and the
Parent sell and assign to AOL, on the terms and subject to the conditions
hereinafter set forth, 100% of the issued and outstanding shares of capital
stock of the Company, all of which are owned beneficially and of record by the
Parent, in consideration of, and in exchange for, that number of shares of
common stock of AOL as is determined in accordance with this Agreement
(including the corresponding AOL Rights) (the "Acquisition").
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the representations, warranties, covenants, agreements,
conditions and promises contained herein, the parties hereby agree as follows:
PURCHASE AND SALE OF CAPITAL STOCK
Purchase and Sale of Capital Stock. Simultaneously with the execution
and delivery of this Agreement, the Parent is hereby selling, transferring,
conveying, assigning and delivering to AOL, and AOL is hereby purchasing and
acquiring from the Parent, for the consideration provided in Section 1.2 hereof,
all right, title and interest in and to 950,000 shares of common stock, $.001
par value, of the Company (the "Company Common Stock"), representing all of the
issued and outstanding shares of capital stock of the Company after giving
effect to the exercise, exchange or conversion of all outstanding securities,
rights, options, warrants, calls, commitments or agreements of any nature or
character (whether debt or equity) that are, directly or indirectly, exercisable
or exchangeable for, or convertible into or otherwise represent the right to
purchase or otherwise receive, directly or indirectly, any such capital stock,
or other arrangement to acquire at any time or under any circumstance, capital
stock of the Company or any such other securities of the Company (collectively,
the "Company Equity Rights"), and any and all rights and benefits incident to
the ownership thereof, in each case free and clear of all Encumbrances.
Purchase Price. (a) The aggregate consideration payable by AOL for the
Company Common Stock (the "Purchase Price") shall be that number of shares of
common stock, $.01 par value, of AOL (the "AOL Common Stock"), as is determined
by dividing (a) the sum of (i) $14,500,000 plus (ii) that amount (if any) as
shall reflect interest on $2,700,000 calculated at the rate of 7.75% per annum
if the Delivery Date is on or before October 1, 1996, 8.5% per annum if the
Delivery Date is on or before October 31, 1996, 9.25% per annum if the Delivery
Date is on or before November 30, 1996 and 10% per annum if the Delivery Date is
after November 30, 1996 (in each case determined on the basis of a year of 365
days) during the period commencing with the date hereof and ending on the
Delivery Date by (b) the Stipulated Price (such aggregate number of shares of
AOL Common Stock being hereinafter referred to as the "Acquisition Shares"),
payable in the manner and at such time as is provided in Section 1.2(c) hereof;
provided that if the Cash-Out Closing shall occur pursuant to Section 4.4, the
Purchase Price shall (x) be payable in cash and (y) include interest on
$14,500,000 (rather than interest on $2,700,000 as provided in clause (ii)
above) calculated at the rate of 7% per annum (determined on the basis of a year
of 365 days) during the period commencing with the date hereof and ending on the
Cash-Out Date, as provided therein. Subject to the provisions of Sections 4.3
and 4.4, the Acquisition Shares shall be registered with the Securities and
Exchange Commission (the "SEC") in accordance with Section 4.2. No fractional
shares of AOL Common Stock shall be issued in connection with the Acquisition,
but in lieu thereof the Parent, in accordance with Section 1.2(c) hereof, shall
be entitled to receive from AOL, on the Delivery Date, an amount in cash
(without interest), rounded to the nearest cent, equal to the Stipulated Price
multiplied by the fraction of a share of AOL Common Stock otherwise issuable to
the Parent pursuant to this Section 1.2 (if any) (the "Fractional Share
Interest"). Each Acquisition Share to be issued in the Acquisition shall be
deemed to include the corresponding percentage of a right (the "AOL Rights") to
purchase shares of Series A Junior Participating Preferred Stock, $.01 par
value, of AOL pursuant to the Rights Agreement dated as of April 23, 1993, as
amended (the "AOL Rights Agreement"), between AOL and Security Trust Company,
N.A., as Rights Agent. Prior to the Distribution Date (as defined in the AOL
Rights Agreement), all references in this Agreement to Acquisition Shares shall
be deemed to include the AOL Rights corresponding thereto.
(b) Delivery of Company Common Stock. At the Closing, the
Parent is delivering to AOL one or more stock certificates, each registered in
the name of the Parent, duly endorsed in blank and in proper form for transfer
to AOL hereunder, representing in the aggregate all of the Company Common Stock.
Payment of Purchase Price. The Purchase Price shall be payable
as follows:
At the Closing, AOL is delivering to Merrill Lynch, as
escrow agent (Merrill Lynch, acting in its capacity as such escrow agent,
being herein referred to as the "Escrow Agent") acting pursuant to the
escrow agreement dated as of the date hereof and attached hereto as Exhibit
A (the "Escrow Agreement"), to hold and subsequently deliver in accordance
with the provisions of the Escrow Agreement, as an estimate of the Purchase
Price (the "Estimated Payment"), a stock certificate (the "Initial Share
Certificate"), registered in the name of the Parent, representing 362,500
shares of AOL Common Stock (such number of shares being sometimes
hereinafter referred to as the "Initial Shares"). The Estimated Payment
shall be adjusted as provided in Section 1.2(c)(ii). Simultaneously
herewith, the Parent is executing and delivering in favor of AOL an
irrevocable proxy in the form of Exhibit B (the "Irrevocable Proxy") with
respect to the Initial Shares.
On the Delivery Date, AOL and the Parent shall effect a
final adjustment (the "Final Payment") of the Estimated Payment, as
follows:
If the number of Acquisition Shares shall exceed
the number of Initial Shares, then (1) AOL shall deliver to the Parent
a stock certificate, registered in the name of the Parent,
representing that number of shares of AOL Common Stock (rounded to the
nearest whole number) equal to the number of shares by which the
number of Acquisition Shares exceeds the number of Initial Shares,
together with a check payable to the Parent in the amount determined
as provided in Section 1.2 in respect of the Fractional Share Interest
(if any), and (2) the Escrow Agent shall, in accordance with the
Escrow Agreement, release from escrow and deliver to the Parent the
Initial Share Certificate.
If the number of Initial Shares shall exceed the
number of Acquisition Shares, the Parent shall return and surrender
for cancellation to AOL, and is hereby deemed to waive and relinquish,
on its behalf and on behalf of its successors and assigns, all right,
title and interest in and to, the number of shares of AOL Common Stock
(rounded to the nearest whole number) equal to the number of shares by
which the number of Initial Shares exceeds the number of Acquisition
Shares (the "Excess Shares") and, in connection therewith, (1) the
Escrow Agent shall, in accordance with the Escrow Agreement, release
from escrow and deliver to AOL the Initial Share Certificate and AOL
shall be entitled to and shall retain the Excess Shares, (2) AOL shall
cause to be delivered to the Parent a new stock certificate registered
in the name of the Parent, representing that number of shares of AOL
Common Stock equal to the number of Acquisition Shares and (3) AOL
shall deliver to the Parent a check payable to the Parent in the
amount determined as provided in Section 1.2 in respect of the
Fractional Share Interest (if any).
In the event that the provisions of Section 4.4 are
applicable and the Cash-Out Closing shall have occurred in accordance
therewith, then the provisions of Section 1.2(c)(ii) shall be inapplicable
and, in connection with the Cash-Out Closing, among other things, the
Escrow Agent shall, in accordance with the Escrow Agreement and Section
4.4, release from escrow and deliver to AOL the Initial Share Certificate.
No Further Ownership Rights in Company Common Stock; Company
Equity Rights Extinguished. Effective upon the Closing, (i) any and all rights
of the Parent pertaining to, or liabilities or obligations of the Company in
respect of, the Company Common Stock (including, by way of example and not in
limitation thereof, the right to receive any accrued and unpaid dividends
thereon), shall be deemed to have been fully satisfied and discharged and (ii)
all Company Equity Rights not theretofore exercised, exchanged or converted by
the Parent shall be canceled and extinguished and of no force or effect.
Waiver of Dividends. The Parent hereby irrevocably waives,
for and on its behalf and on behalf of its successors and assigns, the right to
receive dividends and any other distributions payable on or with respect to the
Acquisition Shares (other than dividends or other distributions payable solely
in shares of capital stock or other securities of AOL), at any time on or after
the Closing through and including the Liquidity Date.
Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Delivery Date" shall mean the (A) business day
immediately preceding the S-3 Effective Date or (B) date of closing of the
Arranged Sale (if any).
"Liquidity Date" shall mean the earlier to occur of (A) the
Delivery Date or (B) the Cash-Out Closing Date.
"S-3 Effective Date" shall mean the date on which the
registration statement on Form S-3 referred to in Section 4.2(b) hereof
(the "Shelf Registration Statement") shall have first been declared
effective with the SEC.
"Stipulated Price" shall mean (A) the closing price per
share of AOL Common Stock on the over-the-counter market as reported on the
Nasdaq National Market System or on the principal national securities
exchange on which it is traded, as the case may be, on the close of
business on the day immediately preceding the S-3 Effective Date or (B) the
price per share of AOL Common Stock sold in the Arranged Sale.
Closing. The closing of the Acquisition (the "Closing") is taking
place simultaneously with the execution and delivery of this Agreement (the
"Closing Date") at the offices of Messrs. O'Sullivan Graev & Karabell, LLP, 30
Rockefeller Plaza, New York, New York 10112.
Post-Closing Adjustment for Working Capital.
Preparation of Closing Balance Sheet and Final Working Capital
Statements. As soon as practicable following the Closing but in any event no
later than December 1, 1996, AOL shall prepare, and cause its accountants, Ernst
& Young LLP ("AOL's Accountants"), to prepare a statement (the "Working Capital
Statement") setting forth (i) the current assets and the current liabilities of
the Company as of July 31, 1996 (except as hereinafter provided) and (ii) the
computation of the Working Capital derived therefrom, (A) which statement shall
be prepared in accordance with generally accepted accounting principles
("GAAP"), applied on a basis consistent with the preparation of the Audited
Interim Balance Sheet and with the methodologies utilized in the preparation of
the Audited Interim Balance Sheet (including the classification of items that
are included both in the Audited Interim Balance Sheet and in the Working
Capital Statement) and (B) which computation shall, subject to the accuracy of
the representation and warranty of the Parent set forth in Sections 2.1(e) and
2.1(f) with respect to the Audited Interim Balance Sheet, assume the accuracy of
the amounts reflected in the Audited Interim Balance Sheet for current assets
and current liabilities as of the date of the Audited Interim Balance Sheet.
For purposes of preparing the Working Capital Statement, (x) "Working Capital"
shall mean the amount by which the Company's current assets exceed the Company's
current liabilities as of July 31, 1996 (except as hereinafter provided) and (y)
the terms "current assets" and "current liabilities" shall have the meaning
given such terms under GAAP; provided, however, that notwithstanding GAAP or
that the Final Working Capital is to reflect current assets and current
liabilities as of July 31, 1996:
(A) current liabilities shall include, but shall
not be limited to, any obligations or liabilities, whether fixed or
contingent, matured or unmatured, relating to, and all costs and
expenses actually incurred and payments made, committed or agreed to
be made or required to be made by or on behalf of the Company from and
after July 31, 1996 through and including the date of delivery of the
Working Capital Statement (such period being herein referred to as the
"Measurement Period") in connection with:
(1) the Reduction-in-Force (including,
without limitation, any severance, vacation, holiday, bonus
or other payment, compensation or benefit made, committed or
agreed to be made or required to be made in connection
therewith), to be carried out in the manner and time frame
contemplated by, and reflecting severance, release bonuses
and outplacement costs in accordance with, Annex 1.4(a)(1);
provided, however, that no accrual of severance costs shall
be made with respect to any Scheduled Employee, who shall,
within six months after the Closing, have been rehired by
the Company as a full-time employee or engaged by the
Company on a full-time basis as a consultant or contractor;
(2) the V2.4 Shut-Down, to be carried out in
the manner contemplated by Annex 1.4(a)(2) and subject, in
the case of those items of cost identified as Annex
1.4(a)(2) as being "capped", to the dollar limitations
provided therein for such items of cost that are so
"capped";
(3) up to $90,000 for the costs and expenses
actually incurred by AOL for the AOL Accountants in
connection with their audit of the Company's three-year
historical financial statements;
(4) an accrual as a current liability for
purposes of computing Working Capital as of July 31, 1996
under this Section 1.4 or otherwise under this Agreement, of
$787,500 (relating to certain matters arising in connection
with the Publishing Agreement dated November 15, 1994 (the
"Publishing Agreement"), between the Parent and Sierra On-
Line, Inc. ("Sierra")); and
(5) an accrual as a current liability for
purposes of computing Working Capital as of July 31, 1996
under this Section 1.4 or otherwise under this Agreement, of
$500,000 (relating to certain performance completion bonus
arrangements with employees of the Company relating to the
Company's product known as "Cyberpark") (the "Performance
Bonus Accrual"); and
(B) current assets shall exclude:
(1) all accounts and notes receivable that
were outstanding on July 31, 1996 that have not been paid in
full as of the end of the Measurement Period;
(2) any development advance obligations or
deferred royalty obligations incurred in connection with the
Publishing Agreement and all other development agreements;
(3) any assets arising out of the Publishing
Agreement, if such assets are included on the Company's
balance sheet; and
(4) any royalty obligations owed to the
Company from any third party (including the Parent or any
other Affiliate of the Company or the Parent).
Review by the Parent. (i) Upon completion of the Working
Capital Statement, AOL shall promptly deliver the same to the Parent (the "AOL
Notice").
Following receipt of the AOL Notice, the Parent will be
afforded a period of ten (10) business days (the "First 10-Day Period") to
review the AOL Notice and a copy of the AOL Accountant's work papers supporting
the Working Capital Statement. At or before the end of the First 10-Day Period,
the Parent will either (A) accept the Working Capital (as set forth in the AOL
Notice) in its entirety, in which case the Working Capital will be as set forth
in the AOL Notice or (B) deliver to AOL a written notice (the "Objection
Notice") containing a sufficiently detailed written explanation of those items
in the Working Capital Statement (as set forth in the AOL Notice) which the
Parent disputes, in which case the items identified by the Parent shall be
deemed to be in dispute and the items not identified shall be deemed to be
accepted. The failure by the Parent to deliver the Objection Notice within the
First 10-Day Period shall constitute the Parent's acceptance of the Working
Capital as set forth in the AOL Notice. If the Parent delivers the Objection
Notice in a timely manner, then, within a further period of ten (10) business
days following the end of the First 10-Day Period (the "Second 10-Day Period"),
the parties and, if desired, their accountants will attempt to resolve in good
faith any disputed items and reach a written agreement (the "Settlement
Agreement") with respect thereto. In the event the parties are unable to
resolve all disputed items, the unresolved disputed items will be referred for
final binding resolution to an independent nationally-recognized "Big Six" firm
of certified public accountants, other than Ernst & Young, LLP and C&L, mutually
acceptable to AOL and the Parent (the "Arbitrating Accountants"). The Working
Capital will be deemed to be as determined by the Arbitrating Accountants. Such
determination (the "Accountants' Determination") shall be (A) in writing, (B)
furnished to AOL and the Parent as soon as practicable after the items in
dispute have been referred to the Arbitrating Accountants, (C) made in
accordance with Section 1.4(a) and (D) nonappealable and incontestable by AOL or
the Parent and not subject to collateral attack for any reason. Each of AOL and
the Parent shall pay one-half of the costs of the Arbitrating Accountants.
For purposes of this Agreement, (A) the "Final
Determination Date" shall mean the earliest to occur of (1) the eleventh (11th)
business day following the receipt by the Parent of the AOL Notice if the Parent
shall have failed to deliver the Objection Notice to AOL within the First 10-Day
Period, (2) the date on which either AOL or the Parent delivers to the other
party a written notice to the effect that such party has no objection to the
other party's determination of the Final Working Capital, (3) the date on which
AOL and the Parent execute and deliver a Settlement Agreement and (4) the date
as of which AOL and the Parent shall have received the Accountants'
Determination and (B) the "Final Working Capital" and the "Final Working Capital
Statement" shall mean the Working Capital and the Working Capital Statement,
respectively, as finally determined and/or accepted in accordance with this
Section 1.4(b). Notwithstanding the preceding sentence, if the Final
Determination Date as determined in the preceding sentence is more than three
business days prior to the anticipated Liquidity Date, then the Final
Determination Date shall be the date that is three business days prior to the
Liquidity Date.
Adjustment. (i) If the Final Working Capital is greater than
$7,700,000 (the amount of such excess over $7,700,000 being referred to herein
as the "Excess Amount"), then, on the Delivery Date or the Cash-Out Closing Date
(whichever is applicable), the Company shall pay, and AOL shall cause the
Company to pay, to the Parent an amount in cash equal to the Excess Amount.
If the Final Working Capital is less than $7,700,000 (the
amount of such shortfall being referred to herein as the "Shortfall Amount"),
then, on the Delivery Date or the Cash-Out Closing Date (whichever is
applicable), the Parent shall pay, or cause to be paid, to the Company an amount
in cash equal to the Shortfall Amount.
As used herein, the following terms shall have the
following respective meanings:
"Reduction-in-Force" shall mean the termination of
those employees of the Company identified on Annex 1.4(c)(iii)(A) (the
"Scheduled Employees") in accordance with Annex 1.4(a)(1).
"V2.4 Shut-Down" shall mean the cessation of the
business and operations of the Company relating to the V2.4 Business
in accordance with Annex 1.4(a)(2).
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of the Parent. The Parent hereby
represents and warrants to AOL that, except as disclosed in the disclosure
schedule dated the date hereof and delivered to AOL simultaneously herewith (the
"Disclosure Schedule"), on and as of the date hereof:
Organization; Good Standing; Qualification and Power. The
Company (i) is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, (ii) has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as now being conducted, to enter into this
Agreement and the Related Agreements to which the Company is a party, to perform
its obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby and (iii) is duly qualified and in good standing
to do business in each jurisdiction listed in Schedule 2.1(a) of the Disclosure
Schedule. The Company does not maintain any offices or other facilities, sell
products (other than the sale of subscriptions of the Company's DOS-based,
multiplayer, online game network (the "V2.4 Business")) or employ any persons in
any jurisdiction other than those jurisdictions listed in Schedule 2.1(a) of the
Disclosure Schedule. The Company has delivered to AOL true and complete copies
of the Articles of Incorporation and By-laws of the Company, in each case as
amended through the date hereof.
Equity Investments. The Company does not have any subsidiaries
nor does it own any capital stock or other ownership interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture
or other entity.
Capital Stock; Securities. The authorized capital stock of
the Company consists of 6,000,000 shares of Company Common Stock, of which
950,000 shares are outstanding as of the date hereof and all of which are owned
beneficially and of record by the Parent. All outstanding shares of Company
Common Stock are validly issued and outstanding, fully paid and non-assessable
and not subject to preemptive rights. There exist no Company Equity Rights that
have not either been exercised or canceled and extinguished as of the Closing.
There are no voting trusts, voting agreements, proxies, first refusal rights,
first offer rights, co-sale rights, options, transfer restrictions or other
agreements, instruments or understandings (whether written or oral, formal or
informal) with respect to the voting, transfer or disposition of Company Common
Stock to which the Parent or the Company is a party or by which it is bound.
There are no outstanding obligations or liabilities of the Company (if any)
under any agreements, instruments or documentation relating to the issuance and
sale of securities (whether debt or equity) or Company Equity Rights by the
Company.
Authority; No Consents. The execution, delivery and performance
by the Company of this Agreement and the Related Agreements (other than the New
Sierra Agreement) to which it is a party and the consummation of the
transactions contemplated hereby and thereby (other than the New Sierra
Agreement) have been duly and validly authorized by all necessary corporate
action on the part of the Company; and this Agreement and the Related Agreements
to which it is a party have been duly and validly executed and delivered by the
Company, and this Agreement and the Related Agreements (other than the New
Sierra Agreement) to which it is a party are the valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms. Neither the execution, delivery and performance of this
Agreement or the Related Agreements (other than the New Sierra Agreement) to
which it is a party nor the consummation by the Company of the transactions
contemplated hereby or thereby nor compliance by the Company with any provision
hereof or thereof will (A) conflict with, (B) breach, (C) result in any
violations of, (D) cause a default under (with or without due notice, lapse of
time or both), (E) give rise to any right of termination, amendment,
cancellation or acceleration of any obligation contained in or the loss of any
material benefit (except for the loss of rights or benefits and services
(including, without limitation, legal, financial, human resources, public
relations, technical advice and administrative services, which services will not
be available to the Company after the Closing) currently available to the
Company that are solely attributable to the Company being an Affiliate of the
Parent, which loss would not reasonably be expected to materially impair the
conduct or operation of its business as currently conducted and operated) under
or (F) result in the creation of any Encumbrance upon or against any assets,
rights or property of the Company under any term, condition or provision of (x)
to the best knowledge of the Parent, any instrument or agreement to which the
Company is a party, or by which the Company or any of its properties, assets or
rights may be bound, (y) any law, statute, rule, regulation, order, writ,
injunction, decree, permit, concession, license or franchise of any Governmental
Authority applicable to the Company or any of its properties, assets or rights
or (z) the Company's Articles of Incorporation or By-laws, in each case as
amended through the date hereof except, in the case of clauses (x) and (y)
above, for such conflicts, breaches, violations, defaults, terminations,
amendments, cancellations, accelerations or Encumbrances as would not reasonably
be expected to have a Material Adverse Effect on the Company or materially
impair the ability of the Company to perform its obligations under this
Agreement or any Related Agreement (other than the New Sierra Agreement) to
which the Company is a party. No permit, authorization, consent or approval of
or by, or any notification of or filing with, any Governmental Authority or
other person is required in connection with the execution, delivery and
performance by the Company of this Agreement or the Related Agreements (other
than the New Sierra Agreement) to which it is a party or the consummation of the
transactions contemplated hereby or thereby, except for such permits,
authorizations, consents or approvals which the failure to obtain would not
reasonably be expected to have a Material Adverse Effect on the Company or
materially impair the ability of the Company to perform its obligations under
this Agreement or the Related Agreements (other than the New Sierra Agreement)
to which it is a party. As used in this Agreement, the term "Material Adverse
Effect" on a party shall mean as to such party a material adverse effect on the
business, properties, liabilities, assets, operations, results of operations or
financial condition of such party.
Financial Information. (i) Attached hereto as Schedule
2.1(e) of the Disclosure Schedule are the following financial statements of the
Company (collectively, the "Company Financial Statements"):
the audited balance sheet of the Company as at May
31, 1996 (the "Audited Interim Balance Sheet"), and the related
audited statements of income, cash flow and stockholders' equity for
the five-month period then ended, certified by Coopers & Lybrand, the
independent certified public accountants for the Company ("C&L") (the
"Audited Interim Financial Statements"); and
the audited balance sheet of the Company as at
December 31, 1995 (the "Audited Year-End Balance Sheet"), and the
related audited statements of income, cash flow and stockholders'
equity for the year then ended, certified by C&L.
The Company Financial Statements (A) are in accordance
with the books and records of the Company, (B) fairly present the financial
condition of the Company as at the respective dates indicated and the
results of operations of the Company for the respective periods indicated
and (C) have been prepared in accordance with GAAP, except, in the case of
the Audited Interim Financial Statements, for changes resulting from normal
year-end audit adjustments, which adjustments shall not individually or in
the aggregate be material.
Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2.1(f) of the Disclosure Schedule, at December 31, 1995, with respect
to the Audited Year-End Balance Sheet, and at May 31, 1996, with respect to the
Audited Interim Balance Sheet, respectively, (i) the Company had no liability or
obligation of any nature (whether known or unknown, matured or unmatured, fixed
or contingent, secured or unsecured, accrued, absolute or otherwise) required to
be set forth on the Audited Year-End Balance Sheet or the Audited Interim
Balance Sheet, respectively, in order for the Audited Year-End Balance Sheet and
the Audited Interim Balance Sheet, respectively, to fairly present the financial
condition of the Company at the respective dates thereof in accordance with
GAAP, which was not provided for or disclosed thereon, and (ii) all liability
reserves established by the Company and set forth thereon were adequate under
GAAP for all such liabilities or obligations at the respective dates thereof.
There were no material loss contingencies (as such term is used in Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March, 1975 ("FAS No. 5")) which were not adequately provided
for on the Audited Year-End Balance Sheet and the Audited Interim Balance Sheet,
respectively, as required by FAS No. 5.
Absence of Changes. Since May 31, 1996, the Company has been
operated in the ordinary course, and except as set forth on Schedule 2.1(g) of
the Disclosure Schedule, there has not been:
any material adverse change in the business, assets,
properties, liabilities, operations, results of operations or financial
condition of the Company (a "Material Adverse Change");
any damage, destruction or loss, whether or not covered by
insurance, having a Material Adverse Effect on the Company;
any new liability assumed or guaranteed or, to the best
knowledge of the Parent, created or incurred, or any transaction, contract
or commitment entered into, by the Company, other than any liability,
transaction, contract or commitment that (A) involves obligations of or
payments by or to the Company or otherwise has a value of less than $25,000
individually or $100,000 in the aggregate other than accounts payable
incurred by the Company in the ordinary course of business consistent with
past practice, (B) is fully reserved against or properly accrued for as a
current liability on the books of the Company as of the Closing or (C) is
no longer outstanding;
any payment, discharge or satisfaction of any material
Encumbrance or liability or obligation by the Company or any cancellation
by the Company of any material debts or claims or any amendment or
termination of any material agreement or written waiver of any rights of
material value to the Company;
any declaration, setting aside or payment of any dividend
or other distribution of any assets of any kind whatsoever with respect to
any shares of the capital stock of the Company, or any direct or indirect
redemption, purchase or other acquisition of any such shares of the capital
stock of the Company;
any license, sale, transfer, pledge, mortgage or other
disposition of any material tangible or intangible asset (including any
Intellectual Property Rights) of the Company, other than in the ordinary
course of business;
any termination of, or written indication of an intention
to terminate or not renew, any contract, license, commitment or other
agreement between the Company and any other person that would reasonably be
expected to have a Material Adverse Effect on the Company;
any material write-down or write-up on the books of the
Company of the value of any asset of the Company, or any material write-off
of any accounts receivable or notes receivable of the Company or any
portion thereof other than in the ordinary course of business;
any increase in or modification of compensation payable by
the Company or to become payable by the Company to (A) any director,
officer or employee of the Company or (B) any consultant or agent of the
Company other than in the ordinary course of business, or the Company
entering into of any employment contract with any officer or employee of
the Company;
any increase in or modification or acceleration of any
benefits payable by the Company or to become payable by the Company under
any bonus, pension, severance, insurance or other benefit plan, payment or
arrangement (including, but not limited to, the granting of stock options
other than routine stock option grants consistent with past practice,
restricted stock awards or stock appreciation rights) made to, for or with
any director, officer, employee, consultant or agent of the Company;
the Company making of any loan, advance or capital
contribution to or investment in any person or the engagement by the
Company in any transaction with (A) any employee, officer or director of
the Company (other than routine advances for travel and entertainment
expenses in the ordinary course of business) or (B) the stockholder of the
Company other than in the ordinary course of business;
any change in the accounting methods or practices followed
by the Company or any change in depreciation or amortization policies or
rates theretofore adopted; or
any agreement, understanding or authorization, whether in
writing or otherwise, for the Company to take any of the actions specified
in items (i) through (xii) above.
Tax Matters. The Company has for all periods ending on or before
the Closing Date (i) filed, either separately or as a member of an affiliated
group of corporations, on a timely basis and in accordance with applicable laws,
all Federal, state and local Tax returns and Tax reports required to be filed by
the Company (the "Company Returns") with the appropriate governmental agencies
in all jurisdictions in which Company Returns are required to be filed and have
paid or will pay all amounts shown thereon to be due; and (ii) paid all Taxes
required to have been paid on or before the Closing Date. All Taxes
attributable to all taxable periods ending on or before the Closing Date, to the
extent not required to have been previously paid, have been adequately provided
for on the Audited Interim Balance Sheet. Except as disclosed in Schedule
2.1(h) of the Disclosure Schedule, the Company has not been notified by the
Internal Revenue Service or any state, local or foreign taxing authority that
any issues have been raised (and are currently pending) in connection with any
Company Return. Except as set forth in Schedule 2.1(h) of the Disclosure
Schedule, none of the Parent, the Company nor any Affiliate of any thereof has
given or been requested to give any extensions or waivers of statutes of
limitations with respect to the payment of Taxes for which the Company may be
liable. Except as contested in good faith by appropriate proceedings and
disclosed in Schedule 2.1(h) of the Disclosure Schedule, any deficiencies
asserted or assessments (including interest and penalties) made as a result of
any examination by the Internal Revenue Service or by any other taxing
authorities of any Company Returns have been fully paid or are adequately
provided for on the Audited Interim Balance Sheet and no proposed additional
Taxes have been asserted. The Company (i) has not made an election to be
treated as a "consenting corporation" under Section 341(f) of the IRC nor (ii)
is it a "personal holding company" within the meaning of Section 542 of the IRC.
The Company has not agreed to, nor is it required to make any adjustment under
Section 481(a) of the IRC by reason of a change in accounting method or
otherwise. Except as disclosed in Schedule 2.1(h) of the Disclosure Schedule,
the Company will not incur a Tax liability resulting from the Company ceasing to
be a member of a consolidated or combined group that had previously filed
consolidated, combined or unitary Tax returns. Except as disclosed in Schedule
2.1(h) of the Disclosure Schedule, the Company is not a party to any tax-sharing
agreement. As used in this Agreement, "Tax" means any of the Taxes and "Taxes"
means, with respect to any entity, (A) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such entity and (B) any
liability for the payment of any amount of the type described in the immediately
preceding clause (A) as a result of being a "transferee" (within the meaning of
Section 6901 of the IRC or any other applicable law) of another entity, a member
of an affiliated or combined group, a contract or otherwise.
Title to Assets, Properties and Rights and Related Matters. The
Company has good and valid title to, or a valid leasehold interest in, those
assets, properties and interests in properties, real, personal or mixed,
reflected on the Audited Interim Balance Sheet or acquired after the date
thereof except (a) inventory or other property sold or otherwise disposed of
since May 31, 1996 in the ordinary course of business, (b) accounts receivable
and notes receivable paid in full subsequent to May 31, 1996, (c) Requisite
Rights and (d) Software, free and clear of all of the following: security
interests, liens, pledges, restrictions of use (in the case of owned assets
only), guarantees, escrows, options, rights of first refusal, rights of first
offer, mortgages, easements, indentures and security agreements (collectively,
the "Encumbrances"), except for (i) those Encumbrances set forth in Schedule
2.1(i) of the Disclosure Schedule or reflected on the Company Financial
Statements, (ii) restrictions on use, if any, contained in any lease agreement
identified on Schedule 2.1(i) of the Disclosure Schedule and (iii) liens for
current taxes not yet due and payable. The representation and warranty
contained in the preceding sentence is being made (A) without qualification as
to Encumbrances created by the Company or the Parent from and after December 16,
1994 (the "Commencement Date") and (B) to the best knowledge of the Parent as to
Encumbrances created prior to the Commencement Date or otherwise not encompassed
within clause (A) of this sentence. There are no tangible assets (excluding the
Software as to which representations and warranties are being made under Section
2.1(k)) currently being used in the conduct or operation of the Company that are
material to the business or operations of the Company as currently conducted and
operated that are not reflected on the Audited Interim Balance Sheet or
otherwise owned by or leased or licensed to the Company by third parties other
than the Parent, other than items of equipment currently on loan to the Company
and being utilized by the Company solely for evaluation purposes. The assets
currently in use in the operation of the Company's business taken as a whole are
in generally good operating condition and repair (ordinary wear and tear
excepted). Except as set forth in Schedule 2.1(i) of the Disclosure Schedule,
there has been no transfer, assignment or conveyance of any of the Company's
assets, rights or properties that are material to the business or operation of
the Company as currently conducted or operated from the Company to the Parent or
any Affiliate thereof in anticipation of the transactions contemplated hereby or
otherwise.
Intellectual Property.
The Company (A) owns the patents, registered copyrights,
registered trademarks and registered service marks identified on Schedule
2.1(j) of the Disclosure Schedule (the "Specified Intellectual Property")
(it being understood that no representation or warranty is being made in
this Section 2.1(j) by the Parent as to (x) registrability, enforceability
or right to use of any such registered trademarks, trademark applications,
registered service marks or service mark applications or (y) any matter in
respect of common law trademarks or service marks used by the Company (if
any)) and (B) owns or has the right to use, as currently being used by the
Company, all other Intellectual Property Rights currently being used by the
Company other than Software (as to which the representations and warranties
contained in Section 2.1(k) are applicable) (collectively, the "Other
Intellectual Property Rights") subject only to such Encumbrances and other
exceptions (if any) as are identified on Schedule 2.1(j) of the Disclosure
Schedule. The Specified Intellectual Property and the Other Intellectual
Property Rights are sometimes hereinafter collectively referred to as the
"Requisite Rights". The Requisite Rights and the Software constitute all
of the Intellectual Property Rights of the Company currently being used by
the Company.
To the best knowledge of Parent, Schedule 2.1(j) of the
Disclosure Schedule sets forth a list of all common-law trademarks and
common-law service marks currently being used by the Company; provided,
however, anything contained herein to the contrary notwithstanding, no
other representation or warranty is being made by the Parent with respect
to such common-law trademarks and common-law service marks, including,
without limitation, no representations with respect to the ownership,
title, registrability, enforceability or right to use any such common law
trademarks or common law service marks.
The execution, delivery and performance of this Agreement
and the consummation of the Acquisition and the other transactions
contemplated hereby, will not breach, violate or conflict with any
instrument or agreement governing any of the Requisite Rights or the
Software, will not cause the forfeiture or termination or give rise to a
right of forfeiture or termination of any of the Requisite Rights (except
for the loss of any rights or benefits currently available to the Company
that are solely attributable to the Company being an Affiliate of the
Parent, which loss would not reasonably be expected to materially impair
the conduct or operation of its business as currently conducted and
operated) or the Software or impair the right of the Company to use, sell,
license or dispose of any of the Requisite Rights or the Software.
Except as set forth on Schedule 2.1(j) of the Disclosure
Schedule, no royalties, honoraria or fees are payable by the Company to
other persons by reason of the ownership or current use of the Requisite
Rights and the Software.
Except as set forth on Schedule 2.1(j) of the Disclosure
Schedule, no product, Software, Requisite Rights, service or process
currently manufactured, developed, marketed, sold or used by the Company
violates or infringes any copyrights or trade secrets of any third party
and neither the Company nor the Parent has received written notice or, to
the actual knowledge of the Stipulated Persons, oral notice of any claim
from any third party alleging that any product, Software, service or
process manufactured, developed, marketed, sold or used by the Company
violates any license or infringes any Intellectual Property Rights, common-
law trademarks or common-law service marks of any third party, or violates
any moral rights, rights of privacy or rights of celebrity of any third
party or constitutes unfair competition or defamation. Except as set forth
in Schedule 2.1(j) of the Disclosure Schedule, no Action has been
instituted against the Company contesting the validity of or the Company's
right to use any of the foregoing products, services or processes, or
Software or Requisite Rights, nor has the Company received any written
notice that any of the Requisite Rights or Software or the operation of the
Company's business conflicts with the asserted rights of others.
As used herein, the term "Intellectual Property Rights" means patents, patent
applications, patent rights, registered trademarks, trademark applications,
registered service marks, service mark applications, copyrights, copyright
registrations, trade secrets, Software, and the following to the extent they
constitute a trade secret: know-how, proprietary processes, computer programs
and other computer software, technology and formulae.
Company Software.
Schedule 2.1(k) of the Disclosure Schedule sets forth a
list and description of the software programs, systems and applications (A)
owned by the Company (the "Owned Software") (which term shall be deemed to
include any other Software that is owned by the Company that may
inadvertently not be included on such Schedule 2.1(k)) or (B) licensed by
the Company from any third party (other than "off-the-shelf" software) (the
"Licensed Software"), in each case that are manufactured, developed or
currently used by the Company in the operation of its business or
integrated into the Owned Software or marketed, licensed or sold by the
Company to third parties (collectively, the "Software"), and, to the best
knowledge of the Parent, no material Software is in the public domain.
The Company owns all right, title and interest in and to
the Owned Software, subject only to those Encumbrances and license
restrictions (if any) and other exceptions identified on Schedule 2.1(k) of
the Disclosure Schedule and, except as set forth on Schedule 2.1(k) of the
Disclosure Schedule, has not sold, assigned, licensed, distributed or in
any other way disposed of the Owned Software other than, with respect to
the V2.4 Business, so-called "pre-load" agreements identified on Attachment
B to Schedule 2.1(g) of the Disclosure Schedule with computer manufacturers
entered into in the ordinary course of business or agreements with end-
users entered into in the ordinary course of business with respect to terms
of service normally imposed by the Company for end-use.
To the best knowledge of the Parent, the Company is in
compliance with the material terms and conditions of each license with
respect to the Licensed Software (each of which licenses is identified on
Schedule 2.1(k) of the Disclosure Schedule), and neither the Company nor
the Parent has received any written notice that the Company is in breach of
any such license.
Except as disclosed on Schedule 2.1(k) of the Disclosure
Schedule, the Company either owns or has the right to use, in the manner it
is currently being used or developed, all Software either under development
(in its current form) or currently being used by the Company, including,
without limitation, the Software identified on Schedule 2.1(k) of the
Disclosure Schedule.
Agreements, Etc. Schedule 2.1(l) of the Disclosure Schedule sets
forth a true and complete list of all contracts, agreements, instruments,
binding understandings or binding commitments, whether written or oral, to which
the Company is a party or by which it is bound (i) that involve liabilities or
obligations of, or payments by or to the Company or otherwise have a value, in
excess of $25,000, (ii) that involve the license to or from the Company of any
Requisite Rights or Software other than, with respect to the V2.4 Business, so-
called "pre-load" agreements identified on Attachment B to Schedule 2.1(g) of
the Disclosure Schedule with computer manufacturers entered into in the ordinary
course of business or agreements with end-users entered into in the ordinary
course of business with respect to terms of service normally imposed by the
Company for end-use, (iii) between (A) the Company and the Parent or any
Affiliate thereof or (B) the Company and any of the Company's officers,
directors, employees, consultants or Affiliates of any thereof or (iv) that
restricts the Company from engaging in any aspect of its business or competing
in any line of business in any geographic area. The Company has furnished to
AOL true and complete copies of all such written agreements (and, in the case of
oral agreements, summary descriptions thereof) listed in Schedule 2.1(l) of the
Disclosure Schedule.
No Defaults. To the best knowledge of the Parent, the Company
has in all material respects performed all the obligations required to be
performed by it to date and is not in material default and has not been notified
in writing that it is in material default under (i) its Articles of
Incorporation or By-laws, in each case as amended through the date hereof, or
(ii) to the best knowledge of the Parent, any material agreement, lease,
contract or obligation to which the Company is a party or by which any of its
properties, assets or rights are or may be bound or affected, and to the best
knowledge of the Parent, there exists no event, condition or occurrence which,
with or without due notice or lapse of time, or both, would constitute such a
default by it of any of the foregoing.
Litigation, Etc. Except as set forth on Schedule 2.1(n) of the
Disclosure Schedule, no (i) actions, suits, claims, investigations or legal or
administrative or arbitration proceedings (collectively, "Actions") have been
instituted against the Company with respect to which the Company has received
written notice nor, to the best knowledge of the Parent, has any Action been
instituted or threatened in writing, whether at law or in equity, or before or
by any Federal, state or municipal, or other governmental court, department,
commission, authority, board, bureau, agency or instrumentality ("Governmental
Authority"), (ii) judgments, decrees, injunctions or orders of any Governmental
Authority or arbitrator have been entered against and served upon the Company or
(iii) to the best knowledge of the Parent, the Company has not received written
notice of any disputes with customers or vendors or any current or previous
employee or consultant. The Company has delivered to AOL all material documents
and correspondence relating to such matters referred to in Schedule 2.1(n) of
the Disclosure Schedule.
Compliance; Governmental Authorizations. Neither the Company nor
the Parent has received any written notice that the Company has not complied or
is presently not in compliance in all material respects with all material
Federal, state and local laws, ordinances, regulations and orders applicable to
it or its business. To the best knowledge of the Parent, (i) the Company has
all material Federal, state and local, and other governmental authorizations,
consents, approvals, licenses and permits necessary to conduct its business as
presently conducted, (ii) such authorizations, consents, approvals, licenses and
permits are in full force and effect, (iii) neither the Company nor the Parent
has received any written notice of any violation in respect of any thereof and
(iv) no proceeding is pending with respect to which the Company has received
written notice or, to the best knowledge of the Parent, threatened to revoke or
limit any thereof. Schedule 2.1(o) of the Disclosure Schedule contains a true
and complete list of all governmental licenses, authorizations, consents,
approvals, permits, orders, decrees and other compliance agreements under which
the Company is operating or bound which if revoked or canceled could reasonably
be expected to have a Material Adverse Effect on the Company, and, to the best
knowledge of the Parent, the Company is not in default under any thereof (the
Company having furnished to AOL true and complete copies thereof). To the best
knowledge of the Parent, none of such authorizations, consents, approvals,
licenses and permits shall be affected in any material respect by the
Acquisition or the transactions contemplated hereby.
Labor Relations; Employees. The Company employs a total of
approximately 125 employees. Except as set forth in Schedule 2.1(p) of the
Disclosure Schedule, (i) the Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to date or amounts required to
be reimbursed to such employees (such representation and warranty being made to
the best knowledge of the Parent as to all periods prior to the Commencement
Date), (ii) to the best knowledge of the Parent, upon termination of the
employment of any such employees, except as reflected on Annex 1.4(a)(i),
neither the Company nor AOL will by reason of anything done prior to the Closing
be liable to any of such employees for so-called "severance pay" or any other
payments, (iii) there is no labor strike, dispute, slowdown or stoppage actually
pending or, to the best knowledge of the Parent, threatened against or involving
the Company, (iv) to the best knowledge of the Parent, no labor union has taken
any action with respect to organizing the employees of the Company, and (v) to
the best knowledge of the Parent, no current employee has informed the Company
in writing that such employee will terminate his or her employment or engagement
with the Company.
Employee Benefit Plans and Contracts. Except as set forth on
Schedule 2.1(q) of the Disclosure Schedule, the Company does not have any
employment agreements nor does it maintain or contribute to any plan or group
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation, or other forms of incentive compensation, insurance or benefits,
including, without limitation, any "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"),
or any "employee pension benefit plan," as defined in Section 3(2) of ERISA.
Insurance. The Company currently has in effect the policies of
insurance identified on Schedule 2.1(r) of the Disclosure Schedule, which
policies are in full force and effect. All premiums with respect thereto that
are currently due have been paid or are properly accrued as a current liability
on the books of the Company as of the Closing. To the best knowledge of the
Parent, the Company has not, since the Commencement Date, been denied or had
revoked or rescinded any policy of insurance.
Bank Accounts; Powers of Attorney. Schedule 2.1(s) of the
Disclosure Schedule sets forth a true and complete list of (i) all bank accounts
and safe deposit boxes of the Company and all persons who are signatories
thereunder or who have access thereto and (ii) the names of all persons, firms,
associations, corporations or business organizations holding general or special
powers of attorney from the Company and a summary of the terms thereof.
Brokers. The Company has not, nor have any of its officers,
directors, stockholders or employees on behalf of the Company, employed any
broker or finder or incurred any liability on behalf of the Company, for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby. It is understood by the parties that the Parent, on its
behalf, has employed Merrill, Lynch, Pierce, Fenner & Smith, Inc. ("Merrill
Lynch") as its broker in connection with the Acquisition. Neither the Company
nor AOL shall have any liability to Merrill Lynch for any brokerage fees,
commissions or finder fees due to Merrill Lynch as a result of the Acquisition.
Minute Books. The minute books of the Company made
available to AOL for review contain a complete summary of all meetings of and
actions by directors and stockholders of the Company from and after the
Commencement Date, and reflect all actions referred to in such minutes
accurately in all material respects.
Company Not an Interested Parent or an Acquiring Person. As of
the date of this Agreement, neither the Company nor, to the best knowledge of
the Company, the Parent or any of its Affiliates is an "Interested Stockholder"
of AOL as such term is defined in Section 203 of the Delaware General
Corporation Law.
Working Capital. Immediately prior to the Closing, the Company
has cash-on-hand of approximately $7,000,000.
Annex 1.4 Amounts; Obligations. The amounts set forth on (i)
Annex 1.4(a)(1) with respect to costs of severance and outplacement services in
connection with the Reduction-in-Force and (ii) Annex 1.4(a)(2) with respect to
items of cost anticipated to be incurred with respect to the V2.4 Shut-Down, in
each case represent good faith estimates of the projected costs and expenses
anticipated to be incurred by the Company with respect thereto.
Knowledge Definition. As used in this Section 2.1, the term
"best knowledge of the Parent" and like phrases shall mean actual and
constructive knowledge of each of the persons identified on Schedule 2.1(y) of
the Disclosure Schedule (each, a "Stipulated Person") after having made
reasonable inquiry of each employee to whom and in a manner that a prudent
businessperson would inquire under similar circumstances. In connection
therewith, the knowledge (both actual and constructive) of each Stipulated
Person shall be imputed to be the knowledge of the Parent.
Additional Representations and Warranties of the Parent. The Parent
additionally represents and warrants to AOL with respect to itself, as follows:
Title; Absence of Certain Agreements. The Parent is the
lawful and record and beneficial owner of, and has good and marketable title to
all of the issued and outstanding shares of Company Common Stock, with the full
power and authority to vote such shares of Company Common Stock and transfer and
otherwise dispose of such shares of Company Common Stock, free and clear of all
Encumbrances, and there are no agreements or understandings between the Parent
and the Company and the Parent and any other person with respect to the voting,
sale or other disposition of any shares of Company Common Stock or any other
matter relating to the shares of Company Common Stock. Following the Closing,
the Parent will not hold, nor will it otherwise be entitled to exercise, at any
time or under any circumstance, any Company Equity Rights. The delivery to AOL
by the Parent of the shares of Company Common Stock held by the Parent at the
Closing will (i) pass good and marketable title to all of the issued and
outstanding shares of Company Common Stock to AOL, free and clear of all
Encumbrances, and (ii) convey, free and clear of all Encumbrances, any and all
rights and benefits incident to the ownership thereof.
Organization, Good Standing and Power. The Parent (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York and (ii) has all requisite corporate power and
authority to enter into this Agreement and any Related Agreements to which it is
a party, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby or thereby.
Authority - General. The execution, delivery and
performance by the Parent of this Agreement and each Related Agreement to which
the Parent is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Parent; and this Agreement and each Related Agreement to
which the Parent is a party has been duly executed and delivered by the Parent,
and is the valid and binding obligation of the Parent, enforceable against the
Parent in accordance with its terms. Neither the execution, delivery and
performance of this Agreement and each Related Agreement to which the Parent is
a party by the Parent, nor the consummation of the transactions contemplated
hereby or thereby nor compliance with any of the provisions hereof or thereof
will (A) conflict with, (B) breach, (C) result in any violations of, (D) cause a
default under (with or without due notice, lapse of time or both), (E) give rise
to any right of termination, amendment, cancellation or acceleration of any
obligation contained in or the loss of any material benefit currently being
utilized by the Company as such benefit is currently being utilized by the
Company, the loss of which would reasonably be expected to have a Material
Adverse Effect on the Company (other than the loss of any rights or benefits and
services (including, without limitation, legal, financial, human resources,
public relations, technical advice and administrative services, which services
will not be available to the Company after the Closing) currently available to
the Company that are solely attributable to the Company being an Affiliate of
the Parent, which loss would not reasonably be expected to materially impair the
conduct or operation of its business as currently conducted and operated) under
or (F) result in the creation of any Encumbrance upon or against any shares of
Company Common Stock under any term, condition or provision of (x) any agreement
or instrument to which the Parent is a party, or by which the Parent may be
bound, (y) any law, statute, rule, regulation, order, writ, injunction, decree,
permit, concession, license or franchise of any Governmental Authority
applicable to the Parent or any of its properties, assets or rights or (z) the
Parent's Certificate of Incorporation or By-laws, in each case as amended
through the date hereof, except, in the case of clauses (x) and (y) above, for
such conflicts, breaches, defaults, terminations, violations, amendments,
cancellations, accelerations or Encumbrances as would not reasonably be expected
to have a Material Adverse Effect on the Parent or materially impair the ability
of the Parent to perform its obligations under this Agreement or any Related
Agreement to which the Parent is a party. No permit, authorization, consent or
approval of or by, or any notification of or filing with, any Governmental
Authority or other person is required by the Parent in connection with the
execution, delivery and performance by the Parent of this Agreement, each
Related Agreement to which the Parent is a party or the consummation by the
Parent of the transactions contemplated hereby or thereby except for such
permits, authorizations, consents or approvals which the failure to obtain would
not reasonably be expected to have a Material Adverse Effect on the Parent or
materially impair the ability of the Parent to perform its obligations under
this Agreement or the Related Agreements to which it is a party.
Investment Representations. The Parent:
is acquiring the Acquisition Shares to be issued hereunder
for the Parent's own account and not as a nominee or agent for any other
person and with no present intention of distributing or reselling such
shares or any part thereof in any transactions except pursuant to (A) an
effective registration statement under the Securities Act and registration
or qualification under any applicable state securities or blue sky laws or
(B) a transaction that does not require registration or qualification under
the Securities Act or applicable state securities or blue sky laws or is
otherwise exempted therefrom, it being understood that the Parent presently
intends to resell the Acquisition Shares as promptly as possible following
the Closing pursuant to the Shelf Registration in accordance with Section
4.2 hereof;
understands (A) that the Acquisition Shares issued or to
be issued to it have not been registered for sale under the Securities Act
or any state securities or "blue-sky" laws in reliance upon exemptions
therefrom, in the case of the Securities Act or any state securities or
"blue-sky" laws, (B) that the Acquisition Shares shall not be sold,
transferred, assigned, pledged, encumbered or otherwise disposed of except
pursuant to (x) an effective registration statement under the Securities
Act and registration or qualification under any applicable state securities
or blue sky laws or (y) a transaction that does not require registration or
qualification under the Securities Act or applicable state securities or
blue sky laws or is otherwise exempted therefrom and (C) that the
certificates evidencing the Acquisition Shares will be imprinted with a
legend in the form set forth in Section 4.1(b) that prohibits the transfer
of such shares, except as provided in Section 4.1;
has been furnished with, and has had the opportunity to
read and review, the AOL SEC Documents, has had an opportunity to ask
questions of the officers of AOL or persons acting on AOL's behalf
concerning AOL and the terms and conditions of an investment in AOL Common
Stock; provided that the foregoing shall not in any respect diminish or
derogate from the representations and warranties of AOL contained in
Section 2.3, the indemnification rights of the Parent under Article V or
the right of the Parent to rely on such representations, warranties and
indemnification rights;
has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
acquiring and holding shares of AOL Common Stock;
has acquired sufficient information about AOL to reach an
informed and knowledgeable decision to acquire the Acquisition Shares to be
issued to it hereunder;
can afford to suffer a complete loss of its investment in
the Acquisition Shares; and
is an "accredited investor" as such term is defined in
Rule 501 of Regulation D promulgated under the Securities Act.
Brokers. Except for Merrill Lynch, neither the Parent nor
any of its officers, directors or employees, on its behalf and/or on behalf of
the Company, employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
Representations and Warranties of AOL. AOL represents and warrants to
the Parent as follows:
Organization; Good Standing; Power. AOL (i) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and (ii) has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted, to enter into this Agreement and the
Related Agreements to which it is a party, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. AOL has delivered to the Company true and complete copies of the
Charter and by-laws of AOL, in each case as amended through the date hereof.
Capital Stock. AOL's Form 10-Q filed with the SEC with
respect to the fiscal quarter ended March 30, 1996 (the "AOL 10-Q"), sets forth
a true and complete description of the authorized and outstanding shares of
capital stock of AOL as of such date. All outstanding shares of AOL Common
Stock are validly issued and outstanding, fully paid and non-assessable and not
subject to preemptive rights (other than any AOL Rights that may be issued). AOL
has duly authorized and reserved for issuance the Acquisition Shares, and, when
issued in accordance with the terms of Article I hereof, the Acquisition Shares
will be validly issued, fully paid and non-assessable and not subject to
preemptive rights (other than any AOL Rights that may be issued).
Authority; No Consents. The execution, delivery and performance
by AOL of this Agreement and the Related Agreements to which it is a party, and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of AOL; and this
Agreement and the Related Agreements to which it is a party have been duly and
validly executed and delivered by AOL, and are the valid and binding obligations
of AOL, enforceable against AOL in accordance with their respective terms.
Neither the execution, delivery and performance by AOL of this Agreement or the
Related Agreements to which it is a party, nor the consummation of the
transactions contemplated hereby and thereby, nor compliance by AOL with any of
the provisions hereof and thereof will (A) conflict with, (B) breach, (C) result
in any violations of, (D) cause a default under (with or without due notice,
lapse of time or both), (E) give rise to any right of termination, amendment,
cancellation or acceleration of any obligation contained in or the loss of any
material benefit under or (F) result in the creation of any Encumbrance upon or
against any assets, rights or property of AOL under any term, condition or
provision of (x) any instrument or agreement to which AOL is a party, or by
which AOL or any of its properties, assets or rights may be bound, (y) any law,
statute, rule, regulation, order, writ, injunction, decree, permit, concession,
license or franchise of any Governmental Authority applicable to AOL or any of
its properties, assets or rights or (z) AOL's Charter or by-laws, in each case
as amended through the date hereof, respectively, except, in the case of the
clauses (x) and (y) above, for such conflicts, breaches, defaults, terminations,
violations, amendments, cancellations, accelerations or Encumbrances as would
not reasonably be expected to have a Material Adverse Effect on AOL or
materially impair the ability of AOL to perform its obligations under this
Agreement or any Related Agreement to which AOL is a party. No permit,
authorization, consent or approval of or by, or any notification of or filing
with, any Governmental Authority or other person is required in connection with
the execution, delivery and performance by AOL of this Agreement or the Related
Agreements to which AOL is a party or the consummation of the transactions
contemplated hereby or thereby, other than (i) the filing with the SEC of such
forms, reports and information under the Securities Act and/or the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated by the SEC thereunder, as may be required in connection
with this Agreement and the transactions contemplated hereby or thereby, (ii)
the filing of such documents with, and the obtaining of such orders from,
various state securities and blue-sky authorities as are required in connection
with the transactions contemplated hereby or thereby and (iii) such other
consents, waivers, authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect on AOL or
materially impair the ability of AOL to perform its obligations under this
Agreement or the Related Agreements to which it is a party.
SEC Documents.
AOL has furnished or made available to the Company and the
Parent a correct and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by AOL with the SEC on or
after the date of filing with the SEC of AOL's Annual Report on Form 10-K
for the fiscal year ended June 30, 1995 (the "AOL 10-K") through the
Closing Date (collectively, the "AOL SEC Documents"). As of their
respective filing dates, or in the case of registration statements, their
respective effective dates, none of the AOL SEC Documents (including all
exhibits and schedules thereto and documents incorporated by reference
therein) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading, and the AOL SEC Documents complied when
filed, or in the case of registration statements, as of their respective
effective dates, in all material respects with the then applicable
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations promulgated by the SEC thereunder.
The financial statements (including the notes thereto) of
AOL included in the AOL 10-K and AOL 10-Q (subject, in the case of the AOL
10-Q, to year-end audit adjustments), complied as to form in all material
respects with the then applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with GAAP during the periods involved (except as may have been
indicated in the notes thereto) and fairly present the financial condition
of AOL as at the dates thereof and the results of their operations,
stockholders' equity and cash flows for the periods then ended.
Brokers. Neither AOL nor any of its respective officers,
directors or employees have employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
Investment Representations. AOL:
is acquiring the Company Shares being sold and transferred
for investment and for AOL's own account and not as a nominee or agent for
any other person and with no present intention of distributing or reselling
such shares or any part thereof in transactions except pursuant to (A) an
effective registration statement under the Securities Act and registration
or qualification under any applicable state securities or blue sky laws or
(B) a transaction that does not require registration or qualification under
the Securities Act or applicable state securities or blue sky laws or is
otherwise exempted therefrom;
understands (A) that the Company Shares to be transferred
to it have not been registered for sale under the Securities Act or any
state securities or "blue-sky" laws in reliance upon exemptions therefrom,
in the case of the Securities Act or any state securities or "blue-sky"
laws and (B) that the Company Shares shall not be sold, transferred,
assigned, pledged, Encumbered or otherwise disposed of except pursuant to
(A) an effective registration statement under the Securities Act and
registration or qualification under any applicable state securities or blue
sky laws or (B) a transaction that does not require registration or
qualification under the Securities Act or applicable state securities or
blue sky laws or is otherwise exempted therefrom;
has been furnished with, and has had the opportunity to
read and review Company documents, has had an opportunity to ask questions
of the officers of Company or persons acting on Company's behalf concerning
Company and the terms and conditions of an investment in Company's Common
Stock, provided that the foregoing shall not in any respect diminish or
derogate from the representations and warranties of the Parent contained in
Sections 2.1 or 2.2 hereof, the indemnification rights of AOL under Article
V hereof or the right of AOL to rely on such representations, warranties
and indemnification rights;
has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of
acquiring and holding shares of Company Common Stock indefinitely;
has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Company Shares
to be transferred to it hereunder;
can afford to suffer a complete loss of its investment in
the Company Shares; and
is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Securities Act.
ACTIONS PRIOR TO OR AT CLOSING
Prior to or simultaneously with the execution and delivery of this
Agreement, the following actions have been or are being taken:
Related Agreements. The following agreements (such agreements being
herein collectively referred to as the "Related Agreements") are being executed
and delivered by the respective parties thereto:
Sierra On-Line Content Provider Agreement. A Content Provider
Agreement (the "New Sierra Agreement"), effective as of the Closing Date,
between Sierra or its successor-in-interest ("Sierra") and the Company.
Escrow Agreement. The Escrow Agreement, in the form of Exhibit A
hereto.
Irrevocable Proxy. The Irrevocable Proxy, in the form of
Exhibit B hereto.
Termination Agreement. A Termination Agreement, dated the
date hereof (the "Termination Agreement"), between the Parent and Sierra,
terminating the Publishing Agreement, in the form of Exhibit C hereto.
Working Capital. Immediately prior to the Closing, the Parent shall
have used its reasonable best efforts to cause the Company to have net working
capital (defined and calculated (to the extent practicable) assuming the
anticipated obligations of the Company in respect of the Reduction-in-Force and
the V2.4 Shut-Down have been fully accrued as current liabilities as provided in
Annexes 1.4(a)(1) and 1.4(a)(2) and otherwise (to the extent practicable)
consistent with the definition of Working Capital under Section 1.4) equal to
$2,700,000.
Company Equity Rights. Immediately prior to the execution and
delivery of this Agreement, all Company Equity Rights not exercised, converted
or exchanged by the Parent in accordance with the terms thereof prior to the
Closing, were canceled and terminated and of no force or effect, without the
exercise, exchange or conversion thereof.
Resignation of Directors and Officers. Each of the directors and
officers of the Company is resigning or being removed from their respective
positions with the Company effective as of the Closing.
ADDITIONAL AGREEMENTS
Restrictions on Transfer. (a) The Acquisition Shares to be issued to
the Parent pursuant to this Agreement and any shares of capital stock or other
securities received with respect thereto (collectively, the "Restricted
Securities") shall not be sold, transferred, assigned, pledged, encumbered or
otherwise disposed of except pursuant to (A) an effective registration statement
under the Securities Act and registration or qualification under any applicable
state securities or blue sky laws or (B) a transaction that does not require
registration or qualification under the Securities Act or applicable state
securities or blue sky laws or is otherwise exempted therefrom.
Each certificate representing Restricted Securities issued
to the Parent and each certificate for such securities issued to subsequent
transferees of any such certificate shall be stamped or otherwise imprinted with
a legend in substantially the following form:
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND REGISTRATION OR QUALIFICATION UNDER ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS OR (B) A TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES ACT OR APPLICABLE
STATE SECURITIES OR BLUE SKY LAWS OR IS OTHERWISE EXEMPTED THEREFROM."
In addition, from and after the date hereof until the Liquidity Date, the
Initial Share Certificate shall bear the following additional legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
ESCROW AGREEMENT DATED AS OF AUGUST 5, 1996 AMONG AT&T CORP., AMERICA
ONLINE, INC. AND MERRILL LYNCH PIERCE FENNER & SMITH, INC., COPIES OF
WHICH MAY BE OBTAINED AT NO COST UPON WRITTEN REQUEST ADDRESSED TO THE
SECRETARY OF AT&T CORP."
The Parent understands and agrees that when a Transfer is
prohibited by law or by this Section 4.1, AOL may cause stop transfer orders to
be placed with its transfer agent with respect to certificates for Restricted
Securities owned by the Parent.
From and after the date hereof until the Liquidity Date, the
Parent shall not offer to sell, contract to sell, sell, distribute, grant any
option to purchase, pledge, hypothecate or otherwise dispose of, directly or
indirectly, any Initial Shares, without the prior written consent of AOL.
Shelf Registration.
Definitions. As used in this Section 6.2, the following terms
shall have the following meanings:
"Other Shares" shall mean at any time those shares of AOL
Common Stock that do not constitute Primary Shares or Registrable Shares.
"Primary Shares" shall mean at any time the authorized but
unissued shares of AOL Common Stock or shares of AOL Common Stock held in
treasury.
"Registrable Shares" shall mean (A) the Acquisition Shares
that constitute Restricted Securities, (B) the Transaction Fee Shares and
(C) the shares of AOL Common Stock issued to the Parent under the Agreement
dated as of August 5, 1996 (the "WorldNet Agreement"), between the Parent
and AOL with respect to the Parent's "WorldNet Service" (the "WorldNet
Shares") or issuable by AOL under the WorldNet Agreement to the Parent, in
each case that are held by or issuable to the Parent and that have not
theretofore been sold to the public pursuant to the Shelf Registration.
Shelf Registration. AOL shall prepare, file and use
commercially reasonable efforts to cause to be declared effective by the SEC by
February 15, 1997 (provided that the effective date thereof shall not be on a
Monday), a registration statement on Form S-3 for an offering of all Registrable
Shares to be made on a continuous basis pursuant to Rule 415 promulgated under
the Securities Act (the "Shelf Registration"). AOL shall keep the Shelf
Registration continuously effective for a period of thirty days from the date
the Shelf Registration becomes effective under the Securities Act, or such (i)
shorter period that shall terminate when all Registrable Shares covered by the
Shelf Registration have been sold pursuant thereto or (ii) longer period as AOL
may determine in its sole discretion. The following provisions shall apply in
connection with the Shelf Registration:
AOL may include in the Shelf Registration any Primary
Shares or Other Shares; provided, however, that if the Shelf Registration
is to be underwritten and the managing underwriter advises AOL that the
inclusion of all Registrable Shares, Primary Shares and Other Shares
proposed to be included in such registration would interfere with the
successful marketing (including pricing) of the Registrable Shares proposed
to be included in such registration, then the number of Registrable Shares,
Primary Shares and Other Shares proposed to be included in such registra
tion shall be included in the following order:
first, the Registrable Shares;
second, the Primary Shares; and
third, the Other Shares.
In connection with the Shelf Registration pursuant to this
Section 4.2, the Parent shall consent to customary conditions of a
reasonable nature that may be imposed by AOL, including, but not limited
to, the following:
conditions prohibiting the sale of Registrable Shares
by the Parent until the Shelf Registration is effective;
conditions requiring the Parent to comply with all
applicable provisions of the Securities Act and the Exchange Act
including, but not limited to, the prospectus delivery requirements of
the Securities Act; and
conditions prohibiting the Parent upon receipt of
telegraphic or written notice from AOL that it is required by law to
correct or update the registration statement or prospectus from
effecting sales of the Registrable Shares until AOL has completed the
necessary correction or updating.
Subject to Section 1.2 hereof, in connection with the
Shelf Registration, AOL shall in its sole discretion determine the terms
and conditions of such registration, including, without limitation, the
timing thereof (within the applicable period provided for in this Section
4.2); the scope of the offering contemplated thereby (i.e., the number of
shares to be offered and whether the offering shall be a combined primary
offering and a secondary offering or limited only to a secondary offering);
the manner of distribution of Registrable Shares; the period of
effectiveness of registration for permissible sales of Registrable Shares
thereunder consistent with the plan of distribution agreed upon by AOL and
the Parent; and all other material aspects of the Shelf Registration and
the registration process. In connection therewith, AOL may require that
any such registration be underwritten, in which event (A) the managing
underwriter shall be selected by AOL and (B) the inclusion of Registrable
Shares in such registration shall be conditioned upon the Parent entering
into an underwriting agreement in customary form with such underwriters
participating in such registration.
Anything contained herein to the contrary notwithstanding, all obligations of
AOL under this Section 4.2(b) shall cease and terminate in the event, and upon
the earlier to occur of, the (i) closing of the Arranged Sale (if any) or
(ii) Cash-Out Closing.
(i) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, AOL shall indemnify
and hold harmless the Parent, each director of the Parent, each officer of the
Parent, each underwriter, broker or other person acting on behalf of the Parent
and each person who controls any of the foregoing persons within the meaning of
the Securities Act against any losses, claims, damages or liabilities, joint or
several (or actions in respect thereof), to which the Parent may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in the
registration statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein or otherwise filed with the SEC, any amendment or supplement thereto or
any document incident to registration or qualification of any Registrable
Shares, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein in light of the circumstances under
which they were made not misleading, or any violation by AOL of the Securities
Act or state securities or "blue-sky" laws applicable to AOL and relating to
action or inaction required of AOL in connection with such registration or
qualification under state securities or "blue-sky" laws; provided, however, that
AOL shall not be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document incident to registration or qualification of
any Registrable Shares in reliance upon and in conformity with written
information furnished to AOL or such underwriter by the Parent if the relevant
text included in such registration statement, preliminary prospectus, amendment,
supplement or document incident to such registration or qualification was
previously reviewed and approved by the Parent for inclusion therein, provided
that if specific text has been approved for inclusion in any of the aforesaid
documents, the Parent shall be deemed to have approved such text for subsequent
inclusion in the identical context in all such documents.
In connection with any registration of Registrable
Shares under the Securities Act pursuant to this Agreement, the Parent
shall indemnify and hold harmless (in the same manner and to the same
extent as set forth in the preceding paragraph of this Section 4.2(c)) AOL,
each director of AOL, each officer of AOL who shall sign such registration
statement, each underwriter, broker or other person acting on behalf of AOL
and each person who controls any of the foregoing persons within the
meaning of the Securities Act with respect to any statement or omission
from such registration statement, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the SEC, any amendment
or supplement thereto or any document incident to registration or
qualification of any Registrable Share, if such statement or omission was
made in reliance upon and in conformity with written information furnished
to AOL or such underwriter by the Parent and if the relevant text included
in such registration statement, preliminary prospectus, amendment,
supplement or document incident to such registration or qualification was
previously reviewed and approved by the Parent for inclusion therein,
provided that if specific text has been approved for inclusion in any of
the aforesaid documents, the Parent shall be deemed to have approved such
text for subsequent inclusion in the identical context in all such
documents.
The Parent shall furnish to AOL such written information
regarding the Parent as shall be required under the Securities Act in connection
with any registration, qualification or compliance contemplated by this Section
4.2.
The Parent may not assign its rights under this Section 4.2
to any purchaser or transferee of Restricted Securities without the prior
written consent of AOL; provided, however, that any such purchaser or transferee
shall, as a condition to the effectiveness of such assignment if consented to by
AOL, be required to execute a counterpart to this Agreement agreeing to be
treated as the Parent hereunder solely for purposes of this Section 4.2,
whereupon such purchaser or transferee shall have the benefits of, and shall be
subject to the restrictions contained in, this Section 4.2.
All expenses incurred by AOL in complying with this Section
4.2, including, without limitation, all registration and filing fees (including
all expenses incident to filing with the NASD), fees and expenses of complying
with securities and "blue-sky" laws, printing expenses and fees and expenses of
AOL's counsel and accountants, shall be borne by AOL; provided, however, that
the fees and expenses of counsel to the Parent and any other professionals
retained by the Parent and all underwriting discounts, taxes and selling
commissions applicable to the Registrable Shares shall not be borne by AOL but
shall be borne solely by the Parent.
On the business day immediately preceding the date of
effectiveness of the Shelf Registration, AOL shall reimburse or shall cause the
Company to reimburse the Parent for up to an aggregate of $170,000 either for
(i) transaction fees payable by Parent to Merrill Lynch or (ii) underwriting
discounts, in either case in connection with the sale of Registrable Shares
under the Shelf Registration, such reimbursement to be payable by AOL in shares
of AOL Common Stock at the Stipulated Price per share (the "Transaction Fee
Shares") it being understood that neither AOL nor the Company shall have any
such obligation to reimburse the Parent in respect of any such transaction fees
in the event of an Arranged Sale.
Arranged Sale. It is understood and agreed by the Parent that AOL
may, but shall be under no obligation to, at any time during the period
commencing upon the Closing and ending on the earlier to occur of (i) the
initial filing with the SEC of the Shelf Registration Statement or (ii) the Cash
- - -Out Closing Date, arrange for the sale by the Parent to AOL and/or one or more
third parties of all of the Acquisition Shares (and the WorldNet Shares if then
issued and outstanding and held by the Parent or issuable by AOL under the
WorldNet Agreement to the Parent) in one transaction or a series of related
transactions that are in compliance with applicable Federal and state securities
laws (the "Arranged Sale"). In the event that AOL shall, during the period
referred to above, notify the Parent in writing of a proposed Arranged Sale,
then Parent shall participate in, and cooperate in all reasonable respects to
effectuate, the Arranged Sale, upon the terms and subject to the reasonable
conditions described in such written notice. In the event that AOL can arrange
a sale of a portion of the Acquisition Shares (and/or the WorldNet Shares if
then issued and outstanding and held by the Parent or issuable by AOL under the
WorldNet Agreement to the Parent), it shall consult with the Parent with respect
to, and the Parent will consider in good faith, the feasibility thereof and, if
the Parent determines to proceed with such partial sale, the parties will
cooperate in all reasonable respects to appropriately modify the provisions of
this Agreement and/or the WorldNet Agreement that may be affected thereby. Each
of AOL and the Parent shall indemnify and hold the other harmless from and
against any and all losses, claims, damages or liabilities to which such party
may become subject in connection with the Arranged Sale that are attributable to
information furnished, or actions taken, by the other party in connection
therewith.
Cash-Out Right.
If by February 15, 1997, either (i) AOL does not cause to be
effective a Shelf Registration (other than by reason of the Parent's failure to
comply with its obligations under Section 4.2 with respect to the Shelf
Registration) or (ii) an Arranged Sale is not consummated (other than by reason
of the Parent's failure to comply with its obligations under Section 4.3 with
respect to an Arranged Sale), then AOL shall on such date purchase all of the
Acquisition Shares at an aggregate purchase price of $14,500,000 plus that
amount as shall reflect interest on $14,500,000 calculated at a rate of 7% per
annum (determined on the basis of a year of 365 days) from the Closing Date
until the Cash-Out Closing Date (the "Cash-Out Right").
The closing (the "Cash-Out Closing") of the purchase of
Acquisition Shares pursuant to the Cash-Out Right shall take place February 15,
1997, at the principal office of AOL, or at such other location as the parties
may mutually determine (the date of the Cash-Out Closing being herein referred
to as the "Cash-Out Closing Date"). At the Cash-Out Closing, AOL shall pay to
Parent in cash the aggregate purchase price for the Acquisition Shares to be
purchased pursuant to the Cash-Out Right and Parent shall sell, transfer, convey
and assign to AOL all of the Acquisition Shares free and clear of Encumbrances,
in connection with which the Escrow Agent shall deliver to AOL the Initial Share
Certificate. Upon consummation of the Cash-Out Closing, all obligations of AOL
pursuant to Section 4.2 with respect to the Shelf Registration shall cease and
terminate.
Discharge of Certain Liabilities. Effective upon the Closing, except
as set forth on Schedule 4.5 of the Disclosure Schedule, all intercompany
liabilities or obligations of the Company to the Parent (other than the
obligations of the Company to the Parent under this Agreement and the Related
Agreements that by their terms survive the Closing) or any Affiliate thereof are
hereby extinguished by the Parent on its behalf and on behalf of any Affiliate
thereof, without any payment thereof by, or liability to, the Company, and the
Parent, on its behalf and on behalf of any Affiliate thereof, hereby irrevocably
waives any right thereto and releases any claim it may have, have had or could
have in the future against the Company with respect thereto based upon any facts
or events existing at or prior to the Closing.
Responsibility of Parent for Certain Matters.
The Parent shall be solely responsible for and shall timely
pay, discharge and satisfy, all liabilities, obligations, damages, costs,
expense or payments of any nature whatsoever, whether fixed or contingent or
matured or unmatured (except to the extent specifically accrued as a current
liability on the books of the Company as of the Closing and on the Final Working
Capital Statement), relating to or arising under or in connection with:
the Reduction-in-Force (including, without limitation, any
liabilities or obligations in respect of severance, vacation, holiday,
bonus or any other compensation or benefits, or any liabilities or
obligations under ERISA or in the nature of a claim for damages for
wrongful termination, breach of contract or otherwise to or in connection
with the termination of any Scheduled Employee), provided the Reduction-in-
Force is carried out in accordance with Annex 1.4(a)(1);
the V2.4 Shut-Down, provided it is carried out in
accordance with Annex 1.4(a)(2), subject, in the case of those items of
cost identified on Annex 1.4(a)(2) as being "capped", to the limitation
provided therein for such items of cost that are so "capped";
the obligations of the Company with respect to long-term
incentive compensation and bonuses under the following employment offer
letters:
employment offer letter dated April 17, 1995,
between the Company and Hans Bukow;
employment offer letter dated April 19, 1995,
between the Company and Don Griffin;
employment offer letter dated June 10, 1994,
between the Company and Mindy Rosenbaum; and
employment offer letter dated December 14, 1995,
between the Company and David Neylon; and
all obligations and liabilities under the employment
offer letter dated December 22, 1994, between the Parent and Dean A.
DeBiase.
In connection with the foregoing obligations under Section
4.6(a) hereof, the Parent shall, as soon as practicable (but in no event more
than 14 days in each instance in which the aggregate amount requested for
reimbursement equals or exceeds $50,000 or more than 30 days in each instance in
which the aggregate amount requested for reimbursement is less than $50,000)
after receipt of written notice from the Company specifying any of the
liabilities, obligations, damages, costs or payments then due or theretofore
paid by or on behalf of the Company, reimburse the Company for and pay, in cash,
the amount(s) of such liabilities, obligations, damages, costs or payments as
set forth in such written notice(s); provided, however, that in the event of a
good faith dispute with respect to non-"capped" or contingent costs as provided
on Annex 1.4(a)(2) with respect to the V2.4 Shut-Down or amounts in respect of
those matters reflected in clauses (iii) or (iv) of Section 4.6(a), in each case
requested to be reimbursed to the Company, the Parent may withhold payment of
such disputed amounts until such dispute is resolved, provided that the parties
shall attempt to diligently and in good faith resolve such dispute and such
reimbursement shall be made immediately upon resolution of such dispute.
Notwithstanding the foregoing, the Parent shall not be
obligated to pay, discharge or satisfy any such liability, obligation, damage,
cost or payment under this Section 4.6 if and to the extent that the same was
specifically accrued for or reserved against as a current liability on the books
of the Company in accordance with GAAP as of the Closing or as may subsequently
be accrued or reserved against on the Final Working Capital Statement.
It is currently anticipated that the Company will, following
the Closing, establish a new employee compensation and incentive plan, program
or arrangement, either separately or as a component of a comprehensive plan,
program or arrangement or otherwise (any such new plan, program or arrangement,
to the extent it relates to the performance completion bonus that is replacing
the performance completion bonus under the Old Plan (as hereinafter defined), is
herein referred to as the "New Plan"), that will replace the performance
completion bonus plan previously established by the Company relating to the
development of the Company's product known as "Cyberpark" (the "Old Plan"), and
the Company intends to utilize the Performance Bonus Accrual to fund the New
Plan. In connection therewith, the Company will endeavor to have those of its
employees previously eligible for participation in the Old Plan acknowledge that
the New Plan will replace the Old Plan. In the event that any of such employees
of the Company do not provide such acknowledgment and/or a waiver and release
and/or such other documentation with respect thereto as in each case may be
required by, and be satisfactory to, AOL and the Company in their respective
sole discretion (each, a "Section 4.6(d) Employee"), the Company hereby agrees
with the Parent that it will not permit any such Section 4.6(d) Employee to
participate in the New Plan. The Company shall give reasonably prompt written
notice to the Parent identifying those employees of the Company who became
Section 4.6(d) Employees (if any). The Parent shall indemnify the Company and
AOL, and their respective successors and assigns, and hold each harmless from
and against any and all liabilities, obligations, damages, costs, expenses or
payments of any nature whatsoever, whether fixed or contingent or matured or
unmatured, relating to or arising under or in connection with the Old Plan with
respect to each such Section 4.6(d) Employee. The Company and AOL shall
severally, and not jointly, indemnify the Parent and its successors and assigns,
and hold each harmless from and against any and all liabilities, obligations,
damages, costs, expenses and payments of any nature whatsoever, whether fixed or
contingent or matured or unmatured, relating to or arising under or in
connection with the Old Plan with respect to each current employee of the
Company, other than a Section 4.6 Employee, who participates in the New Plan.
Anything contained herein to the contrary notwithstanding, no employee of the
Company shall be a third party beneficiary of this Section 4.6.
Confidential Information.
From and after the date hereof, the Parent shall not
directly or indirectly use or disclose any Software, Requisite Rights, Other
Intellectual Property Rights of the Company and any other confidential or
proprietary information of or relating to the Company that could reasonably be
expected to confer a competitive advantage upon the Company (except such
categories of information (if any) that are not currently used in the conduct or
operation of the Company's business and that are specifically identified on
Exhibit F hereto) to any person, firm, corporation, association or other entity,
nor shall the Parent make use of such Software, Requisite Rights, Other
Intellectual Property Rights, and any such confidential or proprietary
information for its own purpose or for the benefit of any person, firm,
corporation or other entity except the Company or any subsidiary or Affiliate
thereof. Subject to the foregoing obligations, nothing herein shall be
interpreted as precluding the right of the Parent to independently develop
information or pursue areas of interest that may directly or indirectly resemble
or be similar to the information or business interests of the Company, nor shall
the Parent be restricted in any way from pursuing any areas of business that it
may wish to pursue.
From and after the date hereof, the Company shall not
directly or indirectly use or disclose any confidential or proprietary
information of or relating to the Parent to which the Company had access while
it was a subsidiary of the Parent that could reasonably be expected to confer a
competitive advantage upon the Parent (except such categories of information (if
any) that are not used in the conduct or operation of the Parent's business and
that are specifically identified on Exhibit G hereto) to any person, firm,
corporation, association or other entity, nor shall the Company make use of any
such confidential or proprietary information for its own purpose or for the
benefit of any person, firm, corporation or other entity except the Parent or
any subsidiary or Affiliate thereof. Subject to the foregoing obligations,
nothing herein shall be interpreted as precluding the right of the Company to
independently develop information or pursue areas of interest that may directly
or indirectly resemble or be similar to the information or business interests of
the Parent, nor shall the Company be restricted in any way from pursuing any
areas of business that it may wish to pursue.
Anything contained herein to the contrary notwithstanding,
for purposes of Sections 4.7(a) and (b), confidential or proprietary information
shall not be deemed to include information that: (i) through no act or failure
to act on the part of such party is now, or hereafter becomes, generally known
or available to the public; (ii) is received by such party from a third party
without restriction on disclosure; (iii) is known to such party at the time of
receiving such confidential or proprietary information; or (iv) is independently
developed by such party; and notwithstanding Section 4.7(a) or (b), each of the
Parent and the Company, respectively, may disclose such confidential or
proprietary information as is required to be disclosed pursuant to governmental
order or decree or legal process.
It is the desire and intent of the parties hereto that the
foregoing provisions of this Section 4.7 shall be enforced to the fullest extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Section shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such deletion to apply only with respect to the
operation of such provision of this Section 4.7 in the particular jurisdiction
in which such adjudication is made. In addition, in the event of a breach or
threatened breach by the Parent or the Company (as the case may be) of the
provisions of this Section 4.7, the party entitled to performance thereof shall,
in the event of irreparable harm be entitled to an injunction restraining it,
from such breach. Nothing herein contained shall be construed as prohibiting
either party from pursuing any other remedies available for such breach or
threatened breach by the other party.
Severance Payments. The Company shall pay the severance payments to
the Scheduled Employees, in connection with a Reduction-in-Force, as
contemplated by and in accordance with Annex 1.4(a)(2) on a timely basis;
provided that the obligations with respect thereto were fully funded as of the
Closing by the Parent or the amounts to be so paid have otherwise been
previously paid over to the Company by the Parent as contemplated by Section
4.6.
Escrow For Working Capital Adjustment. Anything contained in Sections
4.2, 4.3 or 4.4 hereof to the contrary notwithstanding, in the event that the
Liquidity Date shall occur prior to the Final Determination Date, then the
Parent and AOL shall, in connection with the payment of cash proceeds to the
Parent contemplated under Sections 4.2, 4.3 or 4.4 (as applicable) effectuate a
mutually satisfactory escrow arrangement that shall provide for the escrow for
the benefit of AOL of funds reasonably sufficient to satisfy anticipated
obligations of the Parent under Section 1.4(c).
INDEMNIFICATION
Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Affiliate" as to any person, means any entity, directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with such person.
"AOL Event of Indemnification" shall mean:
(i) the untruth, inaccuracy or breach of any representation
or warranty of the Parent contained in Section 2.1 or 2.2 (or any facts or
circumstances constituting any such untruth, inaccuracy or breach); and
(ii) the breach of any covenant or agreement of the Parent
in this Agreement.
"AOL Indemnified Persons" shall mean AOL and the Company, and
in each case their respective Affiliates, successors and assigns and their
respective officers, directors and stockholders.
"AOL Indemnifying Persons" shall mean AOL and its successors-in
- - -interest.
"Company Indemnifying Persons" shall mean the Company and its
successors-in-interest.
"Company Event of Indemnification" shall mean the breach by the
Company of its obligations under Sections 4.6(d), 4.7, 4.8 or 5.6.
"Indemnified Persons" shall mean the AOL Indemnified Persons,
or the Parent Indemnified Persons, as the context requires, and in each case
their respective Affiliates, successors and assigns and their respective
officers, directors and stockholders.
"Indemnifying Persons" shall mean the AOL Indemnifying Persons,
the Parent Indemnifying Persons or the Company Indemnifying Persons, as the
context requires, and in each case their respective successors-in-interest.
"Losses" shall mean any and all losses, claims, shortages,
damages, liabilities, fines, penalties, expenses (including reasonable
attorneys' and accountants' fees), assessments, Taxes (including interest or
penalties thereon) sustained, suffered or incurred by any Indemnified Person
arising from or in connection with any matter that is the subject of
indemnification under Section 5.2 hereof.
"Parent Event of Indemnification" shall mean the breach of any
covenant or agreement of AOL in this Agreement.
"Parent Indemnified Person" shall mean the Parent and its
Affiliates, successors and assigns and their respective officers, directors and
stockholders.
"Parent Indemnifying Persons" shall mean the Parent and its
successors-in-interest.
Indemnification Generally; Limitations.
V.22.(bbbb) Subject to the further provisions of this Section
5.2, V.22.(lxii) the Parent Indemnifying Persons shall indemnify the AOL
Indemnified Persons for, and hold the AOL Indemnified Persons harmless from and
against, any and all Losses arising from or in connection with any AOL Event of
Indemnification, V.22.(lxiii) the AOL Indemnifying Persons shall indemnify the
Parent Indemnified Persons for and hold the Parent Indemnified Persons harmless
from and against, any and all Losses arising from or in connection with any
Parent Event of Indemnification and V.22.(lxiv) the Company Indemnifying Persons
shall indemnify the Parent Indemnified Persons for and hold the Parent
Indemnified Persons harmless from and against any and all Losses arising from
any Company Event of Indemnification.
The maximum aggregate liability of the Parent for
indemnification hereunder for an AOL Event of Indemnification under Section
5.1(b)(i) shall (i) not exceed $3,000,000 in the case of the representations and
warranties of the Parent contained in Sections 2.1 and 2.2 other than those
specified in clause (ii) of this Section 5.2(b) and (ii) not be limited in
amount for the representations and warranties of the Parent contained in
Sections 2.1(c), 2.1(h), 2.1(w), 2.1(x) and 2.2(a).
The Parent Indemnifying Persons shall not be obligated to
indemnify the AOL Indemnified Persons pursuant to this Article V with respect to
Losses arising from or in connection with an AOL Event of Indemnification under
Section 5.1(b)(i) until the aggregate amount of such Losses is equal to $500,000
(the "Basket Amount"), whereupon the Parent Indemnifying Persons shall be
obligated to indemnify the AOL Indemnified Persons for all Losses arising from
or in connection with any such AOL Event of Indemnification in excess of the
Basket Amount, subject to such maximum liability amounts (if any) as are
specified in Section 5.2(b); provided, however, that the Basket Amount set forth
in this Section 5.2(c) shall under no circumstances be applicable to an AOL
Event of Indemnification under Section 5.1(b)(i) with respect to the
representations and warranties of the Parent contained in Sections 2.1(c),
2.1(h), 2.1(w), 2.1(x) and 2.2(a).
The rights of the Indemnified Persons to indemnification
under this Article V for Losses arising from or in connection with an Event of
Indemnification (other than as to any matter arising with respect to the
representation and warranty of the Parent contained in Section 2.1(h), in which
case the AOL Indemnified Persons may proceed at their option under this Section
5.2 and/or under Section 5.6; provided that the AOL Indemnified Persons may only
recover once for the same Loss) shall constitute the sole and exclusive contract
right and remedy of the Indemnified Persons in connection with any claim,
demand, liability or obligation arising from or in connection therewith,
provided, however, that nothing contained in this Section 5.2(d) shall in any
way limit, impair, modify or otherwise affect the rights of the Indemnified
Persons (including rights available under the Securities Act or the Securities
Exchange Act of 1934, as amended) (i) to bring any claim, demand, suit or cause
of action otherwise available to the Indemnified Persons based upon an
allegation or allegations that the Parent, on the one hand, or AOL on the other
hand, had an intent to defraud or made a willful misrepresentation or otherwise
violated the anti-fraud provisions of applicable securities law in connection
with this Agreement or the Related Agreements and/or the transactions
contemplated hereby or thereby or (ii) to enforce any judgment of a court of
competent jurisdiction which finds or determines that the Parent or the Company
on the one hand, or AOL on the other hand, had an intent to defraud or made a
willful misrepresentation or otherwise violated the anti-fraud provisions of
applicable securities law in connection with this Agreement or the Related
Agreements and the transactions contemplated hereby or thereby.
Assertion of Claims. No claim shall be brought under Section 5.2
hereof unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date, give the Indemnifying Persons (a) written notice of
the existence of any such claim, specifying the nature and basis of such claim
and the amount thereof, to the extent known or (b) written notice pursuant to
Section 5.4 of any third party claim, the existence of which might give rise to
such a claim. Upon the giving of such written notice as aforesaid, the
Indemnified Persons, or any of them, shall have the right to commence legal
proceedings either prior or subsequent to the Survival Date for the enforcement
of their rights under this Article V.
Notice and Defense of Third Party Claims. The obligations and
liabilities of the Indemnifying Persons with respect to Losses resulting from
the assertion of liability by third parties (each, a "Third Party Claim") shall
be subject to the following terms and conditions:
The Indemnified Persons shall promptly (and, in any event,
within five Business Days) give written notice to the Indemnifying Persons of
any Third Party Claim that might give rise to any Loss by the Indemnified
Persons, stating the nature and basis of such Third Party Claim, and the amount
thereof to the extent known. Such notice shall be accompanied by copies of all
relevant documentation with respect to such Third Party Claim, including,
without limitation, any summons, complaint or other pleading which may have been
served, any written demand or any other document or instrument.
Except as may otherwise be provided in Section 5.6(c), the
Indemnified Persons shall assume the defense of any Third Party Claims with
counsel of their own choosing, which counsel shall be reasonably satisfactory to
the Indemnifying Persons and shall act reasonably and in accordance with their
good faith business judgment in handling such Third Party Claims and shall not
effect any settlement without the consent of the Indemnifying Persons, which
consent shall not unreasonably be withheld or delayed. The Indemnified Persons
shall have the right to participate in any such defense with counsel of their
own choosing at their expense. The Indemnifying Persons and the Indemnified
Persons shall make available to each other and their counsel and accountants all
books and records and information reasonably relating to any Third Party Claims
(subject to reasonable conditions of confidentiality), keep each other fully
apprised as to the details and progress of all proceedings relating thereto and
render to each other such assistance as may be reasonably required to ensure the
proper and adequate defense of any and all Third Party Claims.
Survival of Representations, Warranties and Covenants, Etc. The
representations and warranties of the Parent hereunder shall survive the Closing
until December 31, 1997; provided, however, that the representations and
warranties of the Parent contained in Sections 2.1(c), 2.1(h), 2.1(n) and 2.2(a)
shall survive the Closing until the applicable statute of limitations shall have
expired with respect to all matters referenced therein. The representations and
warranties of AOL contained in Section 2.3 shall survive the Closing until
December 31, 1997.
All covenants and agreements of the parties contained herein shall
survive in accordance with their respective terms except that all covenants and
agreements of the Company (other than the covenants and agreements contained in
Sections 4.6(d), 4.7, 4.8 and 5.6 or under the Escrow Agreement, which shall
survive in accordance with their respective terms) shall cease and terminate and
be of no further force or effect upon the Closing. For convenience of
reference, the date upon which any representation, warranty, covenant or
agreement contained herein shall terminate is referred to herein as the
"Survival Date." Anything contained herein to the contrary notwithstanding, no
Parent Indemnifying Person shall have any right of contribution against the
Company or its successors or assigns with respect to any matter that is subject
to or results in indemnification under this Article V as a result of the
untruth, inaccuracy or breach of any representation or warranty of the Parent
under Sections 2.1 or 2.2 or any facts or circumstances constituting such
untruth, inaccuracy or breach, or under Sections 4.5, 4.6 and 5.6.
Tax Returns and Indemnity by the Parent; Cooperation. Notwithstanding
any other provision of this Agreement to the contrary:
The Parent will timely file, or cause to be timely filed,
all Company Returns that will be required to be filed after the Closing Date by
or with respect to the Company, either separately or as a member of an
affiliated or combined group of corporations, for all taxable periods ending on
or before the Closing Date. Such Company Returns will be prepared consistently
with prior years and practices, unless it is reasonably determined by counsel to
the Parent that such practices were in violation of applicable laws, and will be
filed in accordance with applicable laws with the appropriate governmental
agencies in all jurisdictions in which Company Returns are required to be filed.
All Taxes that may later become due and payable with respect to any taxable
period ending on or before the Closing Date for the Company, or any affiliated
or combined group of corporations that included the Company, will be paid by the
Parent but only to the extent any such Tax liability exceeds the reserves for
such Taxes set forth on the books of the Company as a current liability in
accordance with GAAP as of the Closing or as may subsequently be accrued or
reserved against on the Final Working Capital Statement (the "Tax Reserves").
(i) The Parent shall pay, indemnify and hold harmless AOL
and the Company from and against all Losses attributable to Taxes (including any
liability for Taxes due to the Company being a member of an affiliated or
combined group of Corporations) of the Company attributable to taxable periods
ending on or before the Closing Date. As soon as possible following the Closing
Date, the independent certified public accountants for the Company and the
Parent shall determine the amount, if any, of Taxes properly accruable for any
taxable period that ends after the Closing Date. Such Taxes shall be allocated
as follows: (i) in the case of any such Taxes not based upon or related to
income or receipts, such allocation to the pre-Closing period shall be equal to
the amount of such Taxes for the entire taxable period multiplied by a fraction,
the numerator of which is the number of days in the period ending on the Closing
Date, and the denominator of which is the number of days in the entire taxable
period, and (ii) in the case of any such Taxes based upon or related to income
or receipts, such allocation shall be determined on the basis of an interim
closing of the books at the close of business on the Closing Date. For purposes
of (ii) above, a liability for Tax with respect to a taxable period ending on or
before the Closing Date shall be the product of (A) the Tax for the entire
taxable period multiplied by (B) a fraction, the numerator of which is the
hypothetical Tax for the pre-Closing period (determined on the basis of an
interim closing of the books, without annualization) and the denominator of
which is the sum of such numerator plus the hypothetical Tax for the balance of
the taxable period (determined on the basis of such interim closing, without
annualization). The hypothetical Tax for any period shall in no case be less
than zero. The Parent and AOL shall each bear its own costs in determining any
amount due under this Section 5.6(b). For purposes of this Section 5.6(b) and
the calculation of any indemnity due hereunder, interest, penalties or additions
to tax accruing after the Closing Date with respect to a liability for Taxes for
which the Parent is required to indemnify AOL and the Company shall be deemed to
be attributable to a taxable period ending on or before the Closing Date.
The Parent shall be entitled to any refund of any Taxes
attributable to the Company with respect to losses or other deductions
generated in taxable periods ending on or before the Closing Date,
including any interest thereon. If any such refund is paid to AOL, the
Company or any of their Affiliates, AOL or the Company, as the case may be,
shall, or shall cause such Affiliate to, promptly pay such refund
(including any interest actually received thereon) to the Parent. The
Parent shall have the sole right to determine whether any claim for refund
for Taxes shall be made pursuant to this Section 5.6(b)(ii). If the Parent
elects to make such a claim for refund, it shall do so at its own expense
and AOL, the Company and their Affiliates shall cooperate reasonably in
connection therewith. AOL agrees that it shall make, or cause the Company
or an Affiliate of AOL to make, as the case may be, any election (or
exercise any option) then available under any Federal, state, local or
foreign law to forego the carryback of any net operating loss, net capital
loss, foreign tax credit or other Tax benefit to a taxable period of the
Company ending on or prior to the Closing Date.
The Company shall promptly notify the Parent in writing upon
receipt by the Company or any Affiliate thereof of each written or oral
communication with respect to any pending or threatened audit of, assessment
against or court or other proceeding against the Company for any taxable period
which could give rise to a claim for indemnity under Section 5.6(b)(i) or under
Section 5.1(b)(i) by reason of a breach of the representation or warranty of the
Parent set forth in Section 2.1(h) (an "Indemnified Tax Liability"). It is
understood and agreed that with respect to any Indemnified Tax Liability, the
provisions of this Section 5.6(c) shall apply and not the provisions of Section
5.4(b). In the case of any written communication received by the Company or any
Affiliate thereof with respect to any such audit, assessment or proceeding,
shall include with the notice to the Parent a true, correct and complete copy of
the communication received. The Parent shall have the sole right to represent
the interests of the Company with respect to such portion of any audit,
administrative, court or other proceeding that relates to an Indemnified Tax
Liability, to employ counsel or other representatives of its choice and to
otherwise control the conduct of such portion of such audit or proceeding in
such manner as it deems fit in its sole discretion including, without
limitation, to contest, and litigate, any adjustment or assessment made or
proposed therein; provided, however, that AOL and the Company shall have the
right, at their own expense, to monitor any such contest proceedings and the
Parent will provide AOL and the Company with access thereto, provided, further,
that the Parent shall not settle any proposed adjustment or assessment without
the prior written consent of AOL and the Company, which consent shall not be
unreasonably withheld. AOL and the Company agree that they will cooperate with
the Parent and its counsel or other representatives in the defense against or
compromise of any adjustment or assessment made or proposed in any such audit or
proceeding. In cases of an assessment for Taxes for which the Company is
required to indemnify the Parent under this Section 5.6, the Company shall have
the above-enumerated rights ascribed to the Parent, and the Parent shall
cooperate with the Company as described above.
The Parent or any Affiliate of the Parent shall file or cause
to be filed, at the Parent's expense, any amended Tax return that may affect the
liability for Taxes of the Company or any group of Affiliated corporations of
which the Company was a member for any period ending on or prior to the Closing
Date; provided, however, that the Parent shall indemnify AOL and the Company for
any additional Taxes incurred or to be incurred by the Company for all taxable
periods following the Closing Date as a result of such amended return. If the
Parent would incur any liability for the payment of additional Taxes, AOL and
the Company agree not to file any amended return after the Closing with respect
to any taxable period ending on or before the Closing Date without the prior
written consent of the Parent, which consent shall not be unreasonably withheld
or delayed.
The Company agrees to indemnify, defend and hold harmless the
Parent from and against all Taxes that are attributable to taxable periods of
the Company ending after the Closing Date.
AOL, the Company or their Affiliates, as the case may be, shall
prepare and file, or cause to be prepared and filed, all Company Returns for
taxable periods ending after the Closing Date.
AOL agrees that the Parent shall be entitled to make the
election under Treasury Regulation Section 1.150220(g)(1) to reattribute the net
operating loss carryovers and net capital loss carryovers of the Company set
forth on Annex 5.6(g) to this Agreement to the Parent. The Parent shall make
such election in a separate statement and in the time and manner set forth in
Treasury Regulation Section 1.1502-20(g)(5)(i). AOL or the Company, as the case
may be, shall attach a copy of such statement to its income tax return as
required pursuant to Treasury Regulation Section 1.1502-20(g)(5)(ii).
The Parent and AOL shall cooperate with each other with respect
to tax matters as follows:
After the Closing Date, the Company shall give the Parent,
and the Parent's authorized representatives, reasonable access to the
Company's books and records (and permit the Parent to make copies thereof,
subject to reasonable conditions of confidentiality) to the extent relating
to periods prior to or including the Closing Date as the Parent may
reasonably request for purposes of preparing Tax returns and conducting
proceedings relating to Taxes. Similarly, the Parent shall give the
Company's authorized representatives reasonable access to books and records
relating to the Company (subject to reasonable conditions of
confidentiality).
Each of the Company and the Parent and their Affiliates
will provide the other with such assistance as may be reasonably requested
by any of them in connection with the preparation of any Company Return,
any audit or other examination by any governmental authority relating to
Taxes of the Company, any judicial or administrative proceeding relating to
liability for Taxes or any other claim arising under this Agreement, and
each will retain and provide the others, upon reasonable request, with any
records or information that may be relevant to any such Company Return,
audit, examination, proceeding or claim (subject to reasonable conditions
of confidentiality). Such assistance shall include making employees
available on a mutually convenient basis to provide additional information
and explanation of any material provided hereunder and shall include
providing copies of any relevant Company Returns and supporting work
schedules. The party requesting assistance hereunder shall reimburse the
other parties for reasonable expenses incurred in providing such
assistance.
Any tax allocation or sharing agreement or arrangement
which, prior to the Closing Date, may have been entered into by Parent on
the one hand and the Company on the other hand is hereby terminated as of
the Closing Date and of no force or effect for all periods subsequent to
the Closing Date.
MISCELLANEOUS
Expenses. Except as may be expressly provided herein, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses;
provided, however, that the Parent shall pay all of the expenses incurred by the
Company on or prior to the Closing Date by the Company in connection with this
Agreement, the Acquisition and the transactions contemplated hereby.
Entire Agreement. This Agreement (including the Disclosure Schedule,
the Annexes and the Exhibits attached hereto, all of which are incorporated
herein by reference and made a part hereof as if set forth herein in their
entirety) and the Related Agreements contain the entire agreement among the
parties hereto with respect to the transactions contemplated hereby and
supersede all prior agreements or understandings, written or oral, among the
parties with respect thereto, including, without limitation, the Nonbinding Term
Sheet dated as of May 10, 1996, between AOL and the Parent and the No-Shop
Agreement dated as of May 7, 1996, among AOL, Pate's Realm, Inc., the Parent and
the Company.
Publicity. The parties hereto agree that, to the maximum extent
feasible but subject to the public disclosure obligations of AOL and the Parent
and to all other legal, regulatory or accounting obligations to which each may
be subject, they will advise and confer with each other prior to the issuance of
any press release announcing, or other public announcement of, the Acquisition,
provided that, subject to the foregoing obligations, neither AOL and the Parent
shall disclose the precise dollar value of the purchase price of the Acquisition
in the press release that announces the Acquisition.
Descriptive Headings. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by internationally-recognized overnight courier or by registered or
certified mail, postage prepaid, return receipt requested or by telecopier with
confirmation and followed by a hard copy, with confirmation as provided above
addressed as follows:
if to AOL, to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: Miles R. Gilburne,
Senior Vice President,
Corporate Development
Telecopier: (703) 265-1103;
with copies to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: General Counsel
Telecopier: (703) 265-2208;
- and -
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Martin H. Levenglick, Esq.
Telecopier: (212) 408-2420;
if to the Company, to:
The ImagiNation Network, Inc.
577 Airport Boulevard
Suite 300
Burlingame, California 94010
Attention: President
Telecopier: (415) 548-0211
with a copy to:
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Attention: Miles R. Gilburne,
Senior Vice President,
Corporate Development
Telecopier: (703) 265-1103;
if to the Parent, to:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Attention: James C. Allison,
Vice President -
Corporate Development
Telecopier: (908) 221-2615; and
with a copy to:
AT&T Corp.
400 Interpace Parkway
Parsippany, New Jersey
Attention: Sanford Tannebaum, Esq.
General Attorney
Telecopier: (201) 331-4615;
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such
notices or communications shall be deemed to be delivered and received (a) in
the case of personal delivery or telecopy, on the next business day after the
date of such delivery, (b) in the case of nationally-recognized overnight
courier, on the Business Day following dispatch and (c) in the case of mailing,
on the third business day following the date on which the piece of mail
containing such communication was posted. As used in this Section 6.5, "business
day" shall mean any day other than a day on which banking institutions in all
states in the United States are legally closed for business.
Counterparts. This Agreement may be executed in any number of
counterparts by original or facsimile signature, each such counterpart shall be
an original instrument, and all such counterparts together shall constitute one
and the same agreement.
Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein (without reference to any principles of
conflicts of laws).
Benefits of Agreement. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, permitted assigns, legal representatives, heirs and
estate, as the case may be. This Agreement shall not be assignable by any party
hereto without the consent of the other parties hereto; provided, however, that
anything contained herein to the contrary notwithstanding, AOL may assign and
delegate any or all of its rights and obligations hereunder (other than the
obligation to issue Acquisition Shares) to (i) any Affiliate, (ii) any person or
entity that is or becomes a stockholder of the Company, (iii) the Company's
parent (if any) or (iv) the respective successors-in-interest of any of the
foregoing; provided further, however, that AOL shall remain primarily liable for
all of its obligations hereunder in the event of any such assignment and such
assignment shall not increase the Parent's obligations hereunder; provided
further, however, that the Parent may assign this Agreement or its rights
hereunder to any Affiliate thereof, provided that the Parent shall remain
primarily liable for all of its obligations under this Agreement and such
assignment shall not increase AOL's obligations under this Agreement.
Pronouns. As used herein, all pronouns shall include the masculine,
feminine, neuter, singular and plural thereof whenever the context and facts
require such construction.
Amendment, Modification and Waiver. This Agreement shall not be
altered or otherwise amended except pursuant to an instrument in writing signed
by AOL, the Company and the Parent; provided, however, that any party to this
Agreement may waive in writing any obligation owed to it by any other party
under this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
Enforcement of the Agreement. (a) Each party agrees that irreparable
damage may occur in the event that any of the provisions of this Agreement
(including, by way of example but not in limitation thereof, the provisions set
forth in Sections 4.7) were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that in the event of
irreparable harm, the parties shall be entitled to an injunction or injunctions
to prevent such breaches of this Agreement and to enforce specifically the terms
and provisions herein in any Federal or state court, this being in addition to
any other remedy to which they are entitled at law or in equity.
It is the desire and intent of the parties that the provisions
of this Agreement be enforced to the fullest extent permissible under that laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
to be invalid or unenforceable, such provision shall be deemed amended to delete
therefrom the portion thus adjudicated to be invalid or unenforceable, such
deletion to apply only with respect to the operation of such provision of this
Agreement in the particular jurisdiction in which such adjudication is made.
IN WITNESS WHEREOF, each of the parties hereto has caused this Stock
Purchase Agreement to be executed on its behalf as of the day and year first
above written.
AMERICA ONLINE, INC.
By:___________________________
Name:
Title:
THE IMAGINATION NETWORK, INC.
By:___________________________
Name:
Title:
AT&T CORP.
By:___________________________
Name:
Title:
PRESS RELEASE
AMERICA ONLINE ACQUIRES IMAGINATION NETWORK
Deal creates strategic partnership with multiplayer games innovator; expands
games offerings to AOL's more than 6 million members
Dulles, VA Aug.6, 1996 -- America Online, Inc. today announced the acquisition
of multiplayer games innovator The ImagiNation Network, Inc. (INN) from AT&T for
an undisclosed sum. The move will dramatically expand AOL's online games
offerings and strategically position AOL and INN in the effort to establish an
industry-leading platform for multiplayer games. INN, which launched the first
dedicated online games service in 1991, has been a wholly-owned subsidiary of
AT&T since 1994.
INN will become a primary partner for AOL's expanded Games Channel, beginning
with the premiere of CyberPark(tm), INN's new 3-D virtual community with
multiplayer games of all genres. In addition, AOL will work with INN to
establish INN's next-generation game platform as the richest and most highly-
scaleable host-server platform for delivering games on AOL and the Internet.
INN's advanced Software Development Kit (SDK) will provide development tools and
support for developers creating multiplayer games for online and Internet
service providers.
"The addition of INN will further extend our offerings in the multiplayer game
arena," said Steve Case, Chairman and CEO of America Online. " INN has done a
great job of delivering fun and easy-to-use multiplayer games and interactive
environments which appeal to a wide range of users -- from families to
experienced gamers. This is just one more example of how AOL is embracing the
best technologies to make the world's most exciting interactive experience even
better."
Following the acquisition, INN will operate as a wholly-owned subsidiary of AOL,
developing and licensing its community-based game and entertainment environments
to online and Internet service providers worldwide. INN will shift current
users to the AOL Games Channel while it phases out support for its legacy DOS-
based games service and prepares to launch CyberPark.
"For the past year, INN has been moving from a proprietary network to our new
Internet platform, developing new tools and technology to deliver exciting 3-D
games to consumers through a variety of online channels," explains Dean DeBiase,
INN president and CEO. "With more than 6 million members and a commitment to
quality programming, AOL is a tremendous mainstream partner and an excellent
service on which to debut CyberPark and other Internet offerings."
CyberPark is a graphically-rich online environment that allows players to
personalize their own 3-D avatar to communicate, socialize and launch any of the
it's multiplayer Windows 95 games. It utilizes the company's new, highly-
scaleable Universal Access Platform (UAP) technology, allowing thousands of
consumers to interact and play games over the Internet and online services
simultaneously. Cyberpark will launch with nearly two dozen games; new games
will be added on a continuous basis. It will premiere on AOL later this year.
America Online, Inc. (NASDAQ: AMER), based in Dulles, Virginia, is the largest
and fastest growing provider of online services in the world, with more than 6
million members worldwide. AOL offers its subscribers a wide variety of
services including electronic mail, conferencing, software, computing support,
interactive magazines and newspapers, and online classes, as well as easy and
affordable access to services of the Internet. Founded in 1985, AOL today has a
global workforce of more than 5,000 people. Personal computer owners can obtain
America Online Software at major retailers and bookstores or by calling 800/827-
6364.
The AOL Games Channel is the world's foremost provider of online games, with an
ever-increasing selection of multi-player strategy, simulation, sports, role-
playing, trivia, card and board games. AOL Games' twenty-plus partners include
virtually every major developer of online game content.
Founded in 1991, The ImagiNation Network (INN) was the first online network
dedicated to interactive computer games. The company is the premiere provider
of interactive online games and entertainment, providing the environment,
content, technology and delivery systems to build and support online communities
of interest. To learn more about INN, visit the Web site at
http://www.inngames.com. The ImagiNation Network is headquartered in
Burlingame, Calif.
Transmitted: 8/6/96 1:06 PM (inn)
