<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICA ONLINE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7370 54-1322110
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
AMERICA ONLINE, INC.
22000 AOL WAY
DULLES, VIRGINIA 20166-9323
(703) 265-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SHEILA A. CLARK, ESQ.
ACTING GENERAL COUNSEL
AMERICA ONLINE, INC.
22000 AOL WAY
DULLES, VIRGINIA 20166-9323
(703) 265-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPIES TO:
<TABLE>
<S> <C>
LOUIS A. GOODMAN, ESQ. LARRY W. SONSINI, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP WILSON SONSINI GOODRICH & ROSATI
ONE BEACON STREET PROFESSIONAL CORPORATION
BOSTON, MASSACHUSETTS 02108-3194 650 PAGE MILL ROAD
(617) 573-4800 PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the Merger described herein (the "Merger").
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share...... 48,677,826 Not Applicable $6,767,299,502 $1,881,310
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the maximum number of shares of common stock ("America Online
Common Stock"), par value $0.01 per share, of America Online, Inc. that may
be issued pursuant to the Merger.
(2) Estimated solely for purposes of calculating the registration fee required
by Section of the Securities Act of 1933, as amended, and computed pursuant
to Rules 457(f) and (c) under the Securities Act based on (i) $62.56, the
average of the high and low per share prices of common stock ("Netscape
Common Stock"), par value $0.0001 per share, of Netscape Communications
Corporation on the Nasdaq National Market on February 10, 1999 and (ii) the
maximum number of shares of Netscape Common Stock to be acquired by America
Online pursuant to the Merger.
(3) Pursuant to Rule 457(b) under the Securities Act, $890,668 of the
registration fee is offset by the filing fee previously paid by Netscape in
connection with the filing of preliminary proxy materials on Schedule 14A on
December 14, 1998. Accordingly, a registration fee of $990,642 is being paid
herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
Netscape Logo
TO THE STOCKHOLDERS OF NETSCAPE COMMUNICATIONS CORPORATION
A MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT
Netscape's board of directors unanimously approved a merger agreement
between America Online and Netscape.
In the merger, each share of your Netscape common stock will be exchanged
for 0.45 of a share of America Online common stock, prior to adjustment for
America Online's two-for-one stock split which will be effected on February 22,
1999. Giving effect to America Online's two-for-one stock split, each share of
your Netscape common stock will be exchanged for 0.9 of a share of America
Online common stock. America Online common stock is listed on the New York Stock
Exchange under the trading symbol "AOL," and on February 16, 1999, America
Online common stock closed at $159.50 per share. The merger cannot be completed
unless the holders of a majority of Netscape common stock entitled to vote adopt
the merger agreement. Only stockholders who hold their shares of Netscape common
stock at the close of business on February 10, 1999, will be entitled to vote at
the special meeting.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY DETERMINED
THE MERGER TO BE FAIR TO YOU AND IN YOUR BEST INTERESTS AND DECLARED THE MERGER
ADVISABLE. NETSCAPE'S BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS ITS ADOPTION BY YOU.
This proxy statement-prospectus provides you with detailed information
concerning America Online and the merger. Please give all of the information
contained in the proxy statement-prospectus your careful attention.
IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION
ENTITLED "RISK FACTORS" ON PAGE 15 OF THIS PROXY STATEMENT-PROSPECTUS.
The date, time and place of the special meeting:
Wednesday, March 17, 1999
8:00 a.m., local time
Westin Santa Clara
5101 Great America Parkway
Santa Clara, California 95054
Please use this opportunity to take part in the affairs of Netscape by
voting on the adoption of the merger agreement. Whether or not you plan to
attend the meeting, please complete, sign, date and return the accompanying
proxy in the enclosed self-addressed stamped envelope. Returning the proxy does
NOT deprive you of your right to attend the meeting and to vote your shares in
person. YOUR VOTE IS VERY IMPORTANT.
We appreciate your interest in Netscape and consideration of this matter.
/s/ James L. Barksdale
JAMES L. BARKSDALE
Director, Chief Executive
Officer and President
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement-prospectus is dated February 17 and was first mailed
to stockholders on or about February 17.
<TABLE>
<S> <C> <C>
NETSCAPE 501 East Middlefield Road Telephone: 650.254.1900
COMMUNICATIONS Mountain View, CA 94043 Facsimile: 650.528.4124
CORPORATION
</TABLE>
<PAGE> 3
Netscape Logo
-------------------------
NOTICE OF SPECIAL MEETING OF NETSCAPE STOCKHOLDERS
-------------------------
WEDNESDAY, MARCH 17, 1999
AT 8:00 A.M.
To Netscape stockholders:
Notice is hereby given that a special meeting of stockholders of Netscape
Communications Corporation ("Netscape") will be held on Wednesday, March 17,
1999, at 8:00 a.m. local time at the Westin Santa Clara located at 5101 Great
America Parkway, Santa Clara, California 95054, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of November 23, 1998, by and among
America Online, Inc. ("America Online"), Apollo Acquisition Corp., a
wholly-owned subsidiary of America Online ("Apollo"), and Netscape, pursuant to
which Apollo will merge with and into Netscape (the "Merger") and Netscape will
survive the Merger as a wholly-owned subsidiary of America Online. In the
Merger, holders of outstanding shares of common stock, par value $.0001 per
share, of Netscape ("Netscape Common Stock") will receive 0.45 of a share of
common stock, par value $.01 per share, of America Online ("America Online
Common Stock") for each share of Netscape Common Stock held by them, prior to
adjustment for America Online's two-for-one stock split which will be effected
on February 22, 1999. Giving effect to America Online's two-for-one stock split,
holders of outstanding shares of Netscape Common Stock will receive 0.9 of a
share of America Online Common Stock for each share of Netscape Common Stock
held by them. Adoption of the Merger Agreement will also constitute approval of
the Merger and the other transactions contemplated by the Merger Agreement.
2. To transact such other business as may properly come before the special
meeting or any adjournment thereof.
These items of business are described in the attached proxy
statement-prospectus. Only holders of record of Netscape Common Stock at the
close of business on February 10, 1999, the record date, are entitled to vote on
the matters listed in this Notice of Special Meeting of Netscape Stockholders.
You may vote in person at the Netscape special meeting even if you have returned
a proxy.
By Order of the Board of Directors
of Netscape Communications Corporation
/s/ Roberta R. Katz
ROBERTA R. KATZ
SENIOR VICE PRESIDENT, GENERAL
COUNSEL AND SECRETARY
Mountain View, California
February 17, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE.
<PAGE> 4
[NETSCAPE LOGO] [AMERICA ONLINE LOGO]
PROXY STATEMENT PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of the Proxy Statement-Prospectus................... 1
The Companies............................................. 1
Questions and Answers About the Netscape/America Online
Merger................................................. 2
Summary of the Transaction................................ 3
Selected Historical and Pro Forma Financial Data.......... 9
Unaudited Comparative Per Share Information............... 13
Comparative Per Share Market Price Data................... 14
Risk Factors................................................ 15
You Will Receive 0.45 of a Share of America Online Common
Stock Despite Changes in Market Value of Netscape
Common Stock or America Online Common Stock............ 15
Although America Online and Netscape Expect that the
Merger Will Result in Benefits, Those Benefits May Not
be Realized............................................ 15
Netscape Officers and Directors Have Conflicts of Interest
That May Influence Them to Support or Approve the
Merger................................................. 15
If We Fail to Obtain All Required Consents and Waivers
Third Parties May Terminate or Alter Existing Contracts
with Netscape.......................................... 16
Failure to Complete the Merger Could Negatively Impact
Netscape's Stock Price and Future Business and
Operations............................................. 16
After the Merger We Will Face Competition for Subscription
Revenues and the Development and Sale of Electronic
Commerce Infrastructure and Applications............... 17
Year 2000 Problems May Have an Adverse Effect on America
Online's and Netscape's Operations and Ability to Offer
Products and Services Without Interruption............. 19
America Online's Anti-Takeover Defense Provisions May
Deter Potential Acquirors of America Online and May
Depress Its Stock Price................................ 22
The Special Meeting of Netscape Stockholders................ 23
Proxy Statement-Prospectus................................ 23
Date, Time and Place of the Special Meeting............... 23
Purpose of the Special Meeting............................ 23
Stockholder Record Date for the Special Meeting........... 23
Vote of Netscape Stockholders Required for Adoption of the
Merger Agreement...................................... 23
Proxies................................................... 24
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
The Merger.................................................. 26
Background of the Merger.................................. 26
Joint Reasons for the Merger.............................. 29
Netscape's Reasons for the Merger......................... 30
Recommendation of Netscape's Board of Directors........... 32
Opinion of Netscape's Financial Advisor................... 32
Interests of Certain Netscape Directors, Officers and
Affiliates in the Merger............................... 42
Completion and Effectiveness of the Merger................ 43
Structure of the Merger and Conversion of Netscape Common
Stock.................................................. 43
Exchange of Netscape Stock Certificates for America Online
Stock Certificates..................................... 43
Material United States Federal Income Tax Consequences of
the Merger............................................. 44
Accounting Treatment of the Merger........................ 46
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 46
Restrictions on Sales of Shares by Affiliates of Netscape
and America Online..................................... 47
Listing on the New York Stock Exchange of America Online
Common Stock to be Issued in the Merger................ 47
Dissenters' and Appraisal Rights.......................... 47
Delisting and Deregistration of Netscape Common Stock
After the Merger....................................... 47
The Merger Agreement...................................... 47
The Stock Option Agreement................................ 56
The Voting Agreement...................................... 57
Operations After the Merger............................... 58
America Online's Strategic Alliance With Sun Microsystems... 59
Comparative Per Share Market Price Data..................... 61
Unaudited Pro Forma Combined Financial Information.......... 63
Comparison of Rights of Holders of Netscape Common Stock and
America Online Common Stock............................... 71
Classes of Common Stock of Netscape and America Online.... 71
Classified Board of Directors............................. 71
Number of Directors....................................... 71
Removal of Directors...................................... 71
Filling Vacancies on the Board of Directors............... 72
Limits on Stockholder Action by Written Consent........... 72
Ability to Call Special Meetings.......................... 72
Advance Notice Provisions for Stockholder Nominations and
Proposals.............................................. 73
Preferred Stock........................................... 75
Amendment of Certificate of Incorporation................. 75
Amendment of Bylaws....................................... 76
State Anti-Takeover Statutes.............................. 76
Limitation of Liability of Directors...................... 76
Indemnification of Directors and Officers................. 76
Fair Price Provision...................................... 77
Stockholder Rights Plan................................... 78
</TABLE>
ii
<PAGE> 6
<TABLE>
<S> <C>
Share Ownership by Principal Stockholders, Management and
Directors of Netscape..................................... 81
Certain Legal Matters....................................... 83
Legal Opinion............................................... 83
Experts..................................................... 83
Stockholder Proposals for the 1999 Annual Meeting of
Netscape Stockholders if the Merger is Not Completed...... 83
Where You Can Find More Information......................... 84
Statements Regarding Forward-Looking Information............ 87
Annex A -- Agreement and Plan of Merger..................... A-1
Annex B -- Stock Option Agreement........................... B-1
Annex C -- Voting Agreement................................. C-1
Annex D -- Opinion of Morgan Stanley & Co. Incorporated..... D-1
</TABLE>
iii
<PAGE> 7
NETSCAPE LOGO
AMERICA ONLINE LOGO
SUMMARY OF THE PROXY STATEMENT-PROSPECTUS
This summary may not contain all of the information that is important to
you. You should carefully read this entire document and the other documents we
refer to for a more complete understanding of the merger. In particular, you
should read the documents attached to this proxy statement-prospectus, including
the merger agreement, the stock option agreement and the voting agreement, which
are attached as Annexes A, B and C, respectively. In addition, we incorporate by
reference important business and financial information about America Online and
Netscape into this proxy statement-prospectus. You may obtain the information
incorporated by reference into this proxy statement-prospectus without charge by
following the instructions in the section entitled "Where You Can Find More
Information" on page 84 of this proxy statement-prospectus.
THE COMPANIES
NETSCAPE COMMUNICATIONS CORPORATION
501 East Middlefield Road
Mountain View, California 94043-4042
(650) 254-1900
http://home.netscape.com
Netscape offers software, services and Website resources to businesses and
consumers using the Internet.
Netscape is a leading provider of software and services for businesses that
want to transform the way they create and keep customers in the emerging
Internet economy. Netscape provides its customers with end-to-end electronic
commerce solutions. Netscape develops, markets and supports a broad suite of
enterprise software, which consists of electronic commerce infrastructure and
electronic commerce applications targeted primarily at corporate intranets and
extranets, as well as the Internet. Netscape's software allows users to share
information, manage networks and facilitate electronic commerce.
Complementing and building upon its software and services offerings,
Netscape first launched its Netcenter Website, an Internet portal, in September
1997. In June 1998, Netscape redesigned its Netcenter Website to use an
industry-standard, channel-based format, including business, entertainment and
other channels. The new channel-based format offers consumers an improved
interface and lets advertisers more effectively target consumers.
AMERICA ONLINE, INC.
22000 AOL Way
Dulles, Virginia 20166-9323
(703) 265-1000
http://www.aol.com
America Online is the world's leader in branded interactive services and
content.
America Online operates two worldwide Internet online services: the AOL
service, with more than 16 million members; and CompuServe, with approximately 2
million members. America Online also operates AOL Studios, a leading builder of
Internet brands for new market segments.
Other branded Internet services and features operated by America Online
include: AOL.COM, the world's most accessed Website from home; Digital City,
Inc., the No. 1 branded local content network and community guide on the AOL
service and the Internet; AOL NetFind, America Online's comprehensive guide to
the Internet; and ICQ, an instant communication and chat technology on the
Internet.
1
<PAGE> 8
- --------------------------------------------------------------------------------
QUESTIONS AND ANSWERS ABOUT THE NETSCAPE/AMERICA ONLINE MERGER
Q: WHY ARE WE PROPOSING TO MERGE? (SEE PAGE 29)
A: The merger allows America Online and Netscape to significantly extend their
leadership in interactive services, provide access to new markets and
technologies, further capitalize on the economic benefits of their
respective infrastructures and add potentially strong value for the
shareholders of the combined company. In particular, this combination will
enable America Online and Netscape to (1) advance a multiple brand strategy
by adding one of the Internet's best known brands to America Online's
family of brands, (2) join the complementary Web audiences of the America
Online services and products and Netscape Netcenter services and products
and (3) enhance our ability to sell and capitalize on electronic commerce
opportunities and solutions.
Q: WHAT WILL I RECEIVE IN THE MERGER?
(SEE PAGE 43)
A: If the merger is completed, you will receive 0.45 of a share of America
Online common stock for each share of Netscape common stock you own, prior
to adjustment for America Online's two-for-one stock split which will be
effected on February 22, 1999. Giving effect to America Online's
two-for-one stock split, you will receive 0.9 of a share of America Online
common stock for each share of Netscape common stock you own. America
Online will not issue fractional shares of common stock. You will receive
cash based on the market price of America Online common stock instead of
any fractional share.
The number of shares of America Online common stock to be issued for each
share of Netscape common stock is fixed and will not be adjusted based upon
changes in the value of these shares. As a result, the value of the shares
you receive in the merger will not be known at the time you vote on the
merger and may go up or down as the market price of America Online common
stock goes up or down. Netscape is not permitted to "walk away" from the
merger or resolicit the vote of its stockholders based solely on changes in
the value of America Online common stock.
Based on the number of Netscape and America Online shares outstanding as of
November 23, 1998, the former stockholders of Netscape will own
approximately 8.9% of America Online.
- --------------------------------------------------------------------------------
2
<PAGE> 9
- --------------------------------------------------------------------------------
SUMMARY OF THE TRANSACTION
STRUCTURE OF THE TRANSACTION
(SEE PAGE 43)
Netscape will merge with a subsidiary of America Online and become a
wholly-owned subsidiary of America Online. Following the merger, as a
stockholder of America Online, you will have an equity stake in Netscape's
parent company.
STOCKHOLDER APPROVAL
(SEE PAGE 23)
The holders of a majority of the outstanding shares of Netscape common
stock must adopt the merger agreement. America Online stockholders are not
required to adopt the merger agreement and will not vote on the merger.
You are entitled to cast one vote per share of Netscape common stock you
owned as of February 10, 1999, the record date.
RECOMMENDATION OF NETSCAPE'S BOARD OF DIRECTORS (SEE PAGE 32)
After careful consideration, your board of directors unanimously determined
the merger to be fair to you and in your best interests and declared the merger
advisable. Netscape's board of directors approved the merger agreement and
unanimously recommends its adoption by you.
OPINION OF NETSCAPE'S FINANCIAL ADVISOR (SEE PAGE 32)
Morgan Stanley & Co. Incorporated, Netscape's financial advisor, delivered
an opinion to Netscape's board of directors that, subject to the considerations
described in its opinion, the exchange ratio in the merger agreement is fair
from a financial point of view to Netscape stockholders. The complete opinion of
Morgan Stanley is attached as Annex D. We urge you to read it in its entirety.
PROCEDURE FOR CASTING YOUR VOTE (SEE PAGE 24)
Please mail your signed proxy card in the enclosed return envelope as soon
as possible so that your shares of Netscape common stock may be represented at
the special meeting. If you do not include instructions on how to vote your
properly executed proxy, your shares will be voted FOR adoption of the merger
agreement.
PROCEDURE FOR CASTING YOUR VOTE IF YOUR SHARES ARE HELD BY YOUR BROKER IN STREET
NAME (SEE PAGE 24)
Your broker will vote your shares only if you provide instructions on how
to vote by following the information provided to you by your broker. If you do
not provide your broker with voting instructions, your shares will not be voted
at the Netscape special meeting and it will have the same effect as voting
against adoption of the merger agreement.
PROCEDURE FOR CHANGING YOUR VOTE (SEE PAGE 24)
If you want to change your vote, just send the Secretary of Netscape a
later-dated, signed proxy card before the special meeting or attend the special
meeting in person. You may also revoke your proxy by sending written notice to
the Secretary of Netscape before the special meeting.
PROCEDURE FOR EXCHANGING YOUR STOCK CERTIFICATES (SEE PAGE 43)
After the merger is completed, we will send you written instructions for
exchanging your Netscape stock certificates for America Online stock
certificates. Do not send your Netscape stock certificates now.
COMPLETION AND EFFECTIVENESS OF THE MERGER (SEE PAGE 43)
We will complete the merger when all of the conditions to completion of the
merger are satisfied or waived. The merger will become effective when we file a
certificate of merger with the State of Delaware.
We are working toward completing the merger as quickly as possible. We hope
to complete the merger during the spring of 1999.
- --------------------------------------------------------------------------------
3
<PAGE> 10
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 52)
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of conditions. If either America Online or Netscape
waives any conditions, Netscape will consider the facts and circumstances at
that time and make a determination as to whether a resolicitation of proxies
from Netscape stockholders is appropriate. The conditions that must be satisfied
or waived before the completion of the merger include the following:
- the merger agreement must be adopted by Netscape stockholders
- the applicable waiting periods under antitrust laws must expire or be
terminated
- no injunction or order preventing the completion of the merger may be in
effect
- our respective representations and warranties in the merger agreement
must be true and correct, including the absence of material adverse
changes in our respective businesses
- we must have complied with our respective agreements in the merger
agreement
- Netscape must obtain any required consents from third parties relating to
the merger
- we must each receive an opinion of tax counsel to the effect that the
merger will qualify as a tax-free reorganization
- America Online must be advised by Ernst & Young LLP, independent
auditors, that they concur with America Online's conclusion that the
merger can properly be accounted for as a "pooling of interests" business
combination
- the shares of America Online common stock to be issued to Netscape
stockholders in the merger must have been approved for listing on the New
York Stock Exchange
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 54)
The merger agreement may be terminated under certain circumstances at any
time before the completion of the merger, as summarized below.
The merger agreement may be terminated by our mutual consent.
The merger agreement may also be terminated by either of us if the
conditions to completion of the merger would not be satisfied because of a
material breach of an agreement in the merger agreement by the other or a
representation or warranty of the other in the merger agreement becomes untrue,
either of which is uncurable through reasonable efforts.
In addition, the merger agreement may be terminated by either of us under
any of the following circumstances:
- if the merger is not completed by June 30, 1999
- if a final court order prohibiting the merger is issued and is not
appealable
- if the Netscape stockholders do not adopt the merger agreement at the
special meeting
Furthermore, the merger agreement may be terminated by America Online if
Netscape's board of directors takes any of the following actions:
- fails to recommend that Netscape stockholders adopt the merger agreement,
or resolves to do so
- makes, or resolves to make, any recommendation to Netscape stockholders,
other than a recommendation to reject, with respect to an extraordinary
transaction of the nature specified in the merger agreement, such as a
merger or a sale of significant assets, involving Netscape and a party
other than America Online
- takes, or resolves to take, any action with respect to an extraordinary
transaction of the nature specified in the merger agreement, such as a
merger or a sale of significant assets, involving Netscape and a party
other than
4
<PAGE> 11
America Online which is prohibited by the merger agreement, including
soliciting, initiating or knowingly encouraging a party to propose an
extraordinary transaction or engaging in discussions with a party
regarding an extraordinary transaction
- materially breaches the stock option agreement, or resolves to do so
PAYMENT OF TERMINATION FEE
(SEE PAGE 55)
Netscape has agreed to pay America Online a termination fee of $100 million
if the merger agreement is terminated in either of the following circumstances:
- if the merger agreement is terminated by America Online because
Netscape's board of directors takes any of the actions described in the
last paragraph under "Termination of the Merger Agreement" above
- if the merger agreement is terminated because Netscape's stockholders do
not adopt the merger agreement and
-- an extraordinary transaction of the nature specified in the merger
agreement, such as a merger or a sale of significant assets,
involving Netscape and a party other than America Online is
publicly proposed before the special meeting and
-- Netscape enters into an agreement for or completes an extraordinary
transaction of the nature specified in the merger agreement, such
as a merger or a sale of significant assets, within six months
following termination of the merger agreement
NO OTHER NEGOTIATIONS INVOLVING NETSCAPE (SEE PAGE 50)
Until the merger is completed or the merger agreement is terminated,
Netscape has agreed not to directly or indirectly take any of the following
actions:
- solicit, initiate or knowingly encourage an extraordinary transaction of
the nature specified in the merger agreement, such as a merger or a sale
of significant assets, involving Netscape and a party other than America
Online
- with respect to any person, entity or group that is pursuing an
extraordinary transaction, such as a merger or a sale of significant
assets:
-- engage in discussions
-- disclose any non-public information relating to Netscape
However, Netscape may engage in these acts, other than solicitation,
initiation or knowing encouragement, if both of the following occur:
- Netscape's board of directors believes in good faith that a particular
proposal concerning an extraordinary transaction of the nature specified
in the merger agreement, such as a merger or a sale of significant
assets, will result in a transaction providing aggregate value greater
than the merger and that the transaction is reasonably capable of being
financed
- Netscape's board of directors determines in good faith that the failure
to engage in the prohibited negotiations or discussions or provide
non-public information is a breach of the board's fiduciary duties under
applicable law
AMERICA ONLINE REQUIRED NETSCAPE TO ENTER INTO A STOCK OPTION AGREEMENT WHICH
MAY DISCOURAGE THIRD PARTIES WHO ARE INTERESTED IN ACQUIRING A STAKE IN NETSCAPE
(SEE PAGE 56)
Netscape entered into a stock option agreement with America Online which
grants America Online the option to buy up to 19,887,317 shares of Netscape
common stock, which represents approximately 19.9% of the shares of Netscape
common stock outstanding on November 23, 1998, or
5
<PAGE> 12
approximately 16.6% after issuance of the shares of Netscape common stock
subject to the option. The exercise price of the option is $33.94 per share,
which is the average of the closing prices for a share of America Online common
stock for the 10 trading days through November 20, 1998, times 0.45, the
exchange ratio prior to adjustment for America Online's two-for-one stock split
which will be effected on February 22, 1999.
America Online required Netscape to grant the option as a prerequisite to
entering into the merger agreement. The option may discourage third parties who
are interested in acquiring a significant stake in Netscape and is intended by
America Online to increase the likelihood that the merger will be completed.
The option is not currently exercisable and America Online may only
exercise the option if the merger agreement is terminated in circumstances
similar to those in which the termination fee is payable. If the merger
agreement is terminated under circumstances in which the termination fee is not
payable, the option will terminate and may not be exercised by America Online.
You are urged to read the stock option agreement in its entirety.
SOME NETSCAPE STOCKHOLDERS HAVE ENTERED INTO A VOTING AGREEMENT
(SEE PAGE 57)
Netscape stockholders James L. Barksdale, Marc L. Andreessen and James H.
Clark entered into a voting agreement with America Online. The voting agreement
requires these Netscape stockholders to vote all shares of Netscape common stock
beneficially owned by them in favor of adoption of the merger agreement. These
Netscape stockholders were not paid additional consideration in connection with
the voting agreement.
The Netscape stockholders who entered into the voting agreement
collectively held approximately 19.4% of the outstanding Netscape common stock
as of the record date.
You are urged to read the voting agreement in its entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 42)
When considering the recommendation of Netscape's board of directors, you
should be aware that certain Netscape directors and officers have interests in
the merger that are different from, or are in addition to, yours.
In particular, James L. Barksdale, Peter Currie, Roberta Katz and Noreen
Bergin have agreements with Netscape entitling them to continued vesting of
their stock options and restricted stock after the merger. The number of shares
of Netscape common stock subject to unvested options held by those officers or
held by them as restricted stock totaled 977,219, as of November 23, 1998.
In addition, unvested stock options granted under Netscape's 1995 Director
Option Plan to L. John Doerr, William V. Campbell and Eric A. Benhamou, each an
outside director of Netscape, will vest upon completion of the merger. The
number of shares of Netscape common stock subject to unvested options held by
these outside directors that will vest upon completion of the merger totaled
84,499 as of November 23, 1998.
Furthermore, Marc L. Andreessen, Netscape's Executive Vice
President-Products, will join America Online following the merger in the new
position of Chief Technology Officer.
As of the record date, directors and executive officers of Netscape and
their affiliates beneficially owned approximately 22.1% of the outstanding
shares of Netscape common stock.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 44)
We have structured the merger so that, in general, America Online, Netscape
and their respective stockholders will not recognize gain or loss for United
States federal income tax purposes in the merger, except for taxes payable
because of cash received by
6
<PAGE> 13
Netscape stockholders instead of fractional
shares. It is a condition to the merger that we receive legal opinions to this
effect.
ACCOUNTING TREATMENT OF THE MERGER (SEE PAGE 46)
We intend to account for the merger as a "pooling of interests" business
combination. It is a condition to completion of the merger that America Online
be advised in writing by Ernst & Young LLP that they concur with America
Online's conclusion that the merger can properly be accounted for as a "pooling
of interests" business combination, although this condition may be waived. Under
the "pooling of interests" method of accounting, each of our historical recorded
assets and liabilities will be carried forward to the combined company at their
recorded amounts. In addition, the operating results of the combined company
will include our operating results for the entire fiscal year in which the
merger is completed and our historical reported operating results for prior
periods will be combined and restated as the operating results of the combined
company.
ANTITRUST APPROVAL REQUIRED TO COMPLETE THE MERGER (SEE PAGE 46)
The merger is subject to antitrust laws. We have made the required filings
with the Department of Justice and the Federal Trade Commission as well as
foreign regulatory agencies. However, we are not permitted to complete the
merger until the applicable waiting periods have expired or terminated. We
believe that we have substantially complied with all requests for information
from the Department of Justice and the Federal Trade Commission and we expect
that the applicable waiting periods will expire on February 28, 1999. The
Department of Justice or the Federal Trade Commission, as well as a foreign
regulatory agency or government, state or private person, may challenge the
merger at any time before its completion.
RESTRICTIONS ON THE ABILITY TO SELL AMERICA ONLINE STOCK (SEE PAGE 47)
All shares of America Online common stock received by you in connection
with the merger will be freely transferable unless you are considered an
"affiliate" of either of us under the Securities Act of 1933. Shares of America
Online common stock held by our affiliates may only be sold pursuant to a
registration statement or exemption under the Securities Act.
YOU DO NOT HAVE DISSENTERS' OR APPRAISAL RIGHTS (SEE PAGE 47)
Under Delaware law, you are not entitled to dissenters' or appraisal rights
in the merger.
AMERICA ONLINE'S STRATEGIC ALLIANCE WITH SUN MICROSYSTEMS (SEE PAGE 59)
As of November 23, 1998, America Online and Sun Microsystems, Inc. entered
into a strategic alliance in which: (1) America Online and Sun have committed to
collaboratively develop, market and sell client and server software to customers
worldwide, (2) America Online and Sun have committed to collaboratively develop
an America Online-specific Java environment that will enable America Online
services to be accessed through a variety of hardware devices, (3) America
Online has committed to purchase computer hardware and related services from Sun
and (4) Sun has committed to purchase online advertising and dial-up access from
America Online.
AMERICA ONLINE'S RELATIONSHIP WITH MICROSOFT (SEE PAGE 58)
America Online intends to maintain its working relationship with Microsoft;
America Online intends to include Internet Explorer as the default browser on
the AOL service. America Online's multi-year agreement with Microsoft provides
that, under these circumstances, Microsoft will continue to include America
Online software in the Windows operating system and promote the AOL services on
the desktop.
WHERE YOU CAN FIND MORE INFORMATION (SEE PAGE 84)
If you have any questions about the merger, please call Netscape Investor
Relations at 1-650-937-2150. You may also call America Online Investor Relations
at 1-703-265-2741.
7
<PAGE> 14
- --------------------------------------------------------------------------------
FORWARD LOOKING STATEMENTS IN THIS PROXY STATEMENT-PROSPECTUS (SEE PAGE 87)
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to America Online's and Netscape's financial condition,
results of operations and business and on the expected impact of the merger on
America Online's financial performance. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
identify forward-looking statements. These forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of risks and uncertainties in the section entitled "Risk
Factors" on page 15 of this proxy statement-prospectus.
- --------------------------------------------------------------------------------
8
<PAGE> 15
- --------------------------------------------------------------------------------
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present (1) selected historical financial data of
America Online, (2) selected historical financial data of Netscape and (3)
selected unaudited pro forma combined financial data of America Online, which
reflects the proposed transaction and assumes the pooling of interests method of
accounting.
The selected historical financial data of America Online has been derived
from the audited historical consolidated financial statements and related notes
of America Online for each of the years in the five-year period ended June 30,
1998 and the unaudited consolidated financial statements for the six months
ended December 31, 1998. The selected historical financial data of Netscape has
been derived from the audited historical consolidated financial statements of
Netscape for each of the years in the four-year period ended December 31, 1997
and the ten months ended October 31, 1998. The historical information is only a
summary and you should read it in conjunction with the historical financial
statements and related notes contained in the annual and quarterly reports for
America Online and Netscape which have been incorporated by reference into this
proxy statement-prospectus. The selected unaudited pro forma combined financial
data has been derived from the unaudited pro forma combined financial
information included elsewhere in this proxy statement-prospectus and should be
read in conjunction with the unaudited pro forma combined financial information
and related notes. All America Online and pro forma per share data have been
adjusted to reflect America Online's two-for-one stock split which was effected
on November 17, 1998, but do not reflect America Online's two-for-one stock
split which will be effected on February 22, 1999.
- --------------------------------------------------------------------------------
9
<PAGE> 16
AMERICA ONLINE
SELECTED HISTORICAL FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------------------------
1998 1998 1997 1996 1995 1994
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............... $1,819 $2,600 $1,685 $1,094 $ 394 $ 115
Income (loss) from
operations................. 242 73 (505) 65 (21) 4
Net income (loss)............ 228 88 (499) 30 (36) 2
Net income (loss) per share-
diluted.................... 0.41 0.17 (1.31) 0.07 (0.13) 0.01
Net income (loss) per share-
basic...................... 0.50 0.21 (1.31) 0.09 (0.13) 0.01
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30,
DECEMBER 31, ------------------------------------------
1998 1998 1997 1996 1995 1994
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................. $3,146 $2,215 $ 833 $ 959 $ 405 $ 155
Total debt................... 417 373 52 23 22 9
Stockholders' equity......... 1,451 598 140 513 217 99
</TABLE>
Significant Events Affecting America Online's Earnings Trends
In 1998, America Online incurred the following non-recurring charges:
charges for acquired research and development totaling $80 in connection with
its acquisitions of Mirabilis, Ltd., Personal Library Software, Inc. and
Netchannel, Inc.; a charge of $17 in connection with a settlement for a class
action lawsuit; and a restructuring charge totaling $34. In 1997, America Online
incurred non-recurring charges for a charge associated with the write-off of
previously capitalized deferred subscriber acquisition costs of $385, a
restructuring charge totaling $49, and a contract termination charge of $24 in
connection with its switch to flat rate pricing of its AOL service; and a
settlement charge of $24 in connection with a settlement with various State
Attorneys General. In 1996, America Online incurred non-recurring charges for
acquired research and development totaling $17 in connection with its
acquisition of Ubique, Ltd. and merger expenses totaling $1 related to the
acquisition of Johnson Grace. In 1995, America Online incurred merger expenses
totaling $2 related to the acquisition of Redgate Communications Corporation and
charges for acquired research and development totaling $50 in connection with
its acquisitions of Booklink Technologies, Inc. and Navisoft, Inc. Excluding
these non-recurring charges, income (loss) from operations would be $204, $(23),
$83 and $31 for the years ended June 30, 1998, 1997, 1996, and 1995,
respectively.
10
<PAGE> 17
NETSCAPE
SELECTED HISTORICAL FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED DECEMBER 31,
OCTOBER 31, -------------------------------------
1998 1997 1996 1995 1994
---------------- ---------- ------ ------ ------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues...................... $ 448 $ 534 $ 346 $ 85 $ 4
Income (loss) from operations....... (75) (56) 20 (11) (14)
Net income (loss)................... (60) (39) 20 (7) (14)
Net income (loss) per
share-diluted..................... (0.63) (0.45) 0.21 (0.16) (2.84)
Net income (loss) per share-basic... (0.63) (0.45) 0.27 (0.16) (2.84)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF DECEMBER 31,
OCTOBER 31, -------------------------------------
1998 1997 1996 1995 1994
---------------- ---------- ------ ------ ------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets........................ $ 738 $ 712 $ 541 $ 231 $ 17
Short-term debt..................... 1 1 1 1 1
Long-term debt...................... -- -- 1 1 1
Stockholders' equity................ 475 509 394 177 8
</TABLE>
Restatement of Netscape's Financial Statements
Subsequent to the Securities and Exchange Commission's letter to the
American Institute of Certified Public Accountants dated September 9, 1998,
regarding its views on in-process research and development, Netscape
re-evaluated the amounts of its in-process research and development charges
arising from the acquisitions of Portola Communications, Inc., DigitalStyle
Corporation, and Actra Business Systems, LLC, revised the related purchase price
allocations and restated its historical financial statements. Amounts for the
ten months ended October 31, 1998 and the year ended December 31, 1997, have
been restated to adjust the allocations of the purchase prices of these
acquisitions. The adjustment had the effect of increasing the net loss and
diluted net loss per share by $9 and $0.09, respectively, for the ten months
ended October 31, 1998, and decreasing the net loss and diluted net loss per
share by $77 and $0.89, respectively, for the year ended December 31, 1997.
Significant Events Affecting Netscape's Earnings Trends
In the ten months ended October 31, 1998, Netscape incurred a restructuring
charge totaling $12 associated with a reduction in workforce. In 1997, Netscape
incurred the following non-recurring charges: merger expenses totaling $6
related to the acquisition of Kiva Software Corporation; charges for acquired
research and development totaling $23 in connection with its acquisitions of
Portola Communications, Inc., DigitalStyle Corporation and Actra Business
Systems, L.L.C.; and a restructuring charge totaling $23. In 1996, Netscape
incurred merger expenses totaling $6 related to the acquisitions of Insoft,
Inc., Paper Software, Inc. and Netcode Corporation. In 1995, Netscape incurred
merger expenses totaling $2 related to the acquisition of with Collabra
Software, Inc. Excluding these non-recurring charges, income (loss) from
operations would be $(63), $(4), $26 and $(9) for the ten months ended October
31, 1998 and the years ended December 31, 1997, 1996 and 1995, respectively.
11
<PAGE> 18
AMERICA ONLINE
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
--------------- ------------------------
1998 1997 1998 1997 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................... $2,117 $1,374 $3,052 $2,145 $1,290
Income (loss) from operations............ 208 (27) (116) (485) 65
Net income (loss)........................ 199 3 (66) (489) 35
Net income (loss) per share-diluted...... 0.33 0.01 (0.14) (1.17) 0.07
Net income (loss) per share-basic........ 0.40 0.01 (0.14) (1.17) 0.09
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30,
DECEMBER 31, ------------------------
1998 1998 1997 1996
------------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................. $3,813 $2,867 $1,501 $1,271
Total debt................................... 417 373 55 25
Stockholders' equity......................... 1,800 1,002 606 705
</TABLE>
Significant Events Affecting Pro Forma Earnings Trends
For the six months ended December 31, 1998, on a pro forma basis, America
Online incurred a non-recurring charge of $2 for merger expenses related to the
acquisition of AtWeb, Inc. For the year ended June 30, 1998, on a pro forma
basis, America Online incurred the following non-recurring charges: charges for
acquired research and development totaling $94 in connection with its
acquisitions of Mirabilis, Ltd., Personal Library Software, Inc., Netchannel,
Inc. and Actra Business Systems, L.L.C.; a charge of $17 in connection with a
settlement of a class action law suit; merger expenses totaling $6 related to
the acquisition of Kiva Software Corporation; and restructuring charges totaling
$69, including a reversal into income of $2 during the six months ended December
31, 1997. In 1997, on a pro forma basis, America Online incurred the following
non-recurring charges: charges for acquired research and development totaling $9
in connection with its acquisitions of Portola Communications Inc. and
DigitalStyle Corporation; a charge associated with the write-off of previously
capitalized deferred subscriber acquisition costs of $385, a restructuring
charge totaling $49, a contract termination charge of $24 in connection with its
switch to flat rate pricing of its AOL service; and a settlement charge of $24
in connection with a settlement with various State Attorneys General. In 1996,
on a pro forma basis, America Online incurred the following non-recurring
charges: a charge for acquired research and development totaling $17 in
connection with its acquisition of Ubique, Ltd. and merger expenses totaling $8
related to acquisitions of Johnson Grace, Insoft, Inc., Paper Software, Inc. and
Netcode Corporation. Excluding these non-recurring charges, income from
operations would be $210, $(29), $70, $6 and $90 for the six months ended
December 31, 1998 and 1997 and the years ended June 30, 1998, 1997 and 1996,
respectively.
12
<PAGE> 19
UNAUDITED COMPARATIVE PER SHARE INFORMATION
We have summarized below the per share information for our respective
companies on a historical, pro forma combined and equivalent basis. The Pro
Forma Combined per share amounts and America Online's historical data have been
adjusted to reflect America Online's two-for-one stock split which was effected
on November 17, 1998, but have not been adjusted to reflect America Online's
two-for-one stock split which will be effected on February 22, 1998. The
Netscape Per Share Equivalents are calculated by multiplying the Pro Forma
Combined per share amounts by 0.45, the exchange ratio prior to adjustment for
America Online's two-for-one stock split which will be effected on February 22,
1999. Netscape's historical financial data has been recast to conform to America
Online's June 30 fiscal year end.
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS AS OF OR FOR THE YEAR ENDED
ENDED JUNE 30,
DECEMBER 31, -----------------------------
1998 1998 1997 1996
---------------- ------- ------- -------
<S> <C> <C> <C> <C>
PRO FORMA COMBINED:
Net income (loss) per common share....... $ 0.33 $(0.14) $(1.17) $ 0.07
Cash dividends declared per common
share.................................. -- -- -- --
Book value per common share.............. $ 3.52 $ 2.07
NETSCAPE PER SHARE EQUIVALENTS:
Net income (loss) per common share....... $ 0.15 $(0.06) $(0.53) $ 0.03
Cash dividends declared per common
share.................................. -- -- -- --
Book value per common share.............. $ 1.58 $ 0.93
NETSCAPE -- HISTORICAL (RESTATED):
Net income (loss) per common share....... $(0.28) $(1.39) $ 0.22 $ 0.06
Cash dividends declared per common
share.................................. -- -- -- --
Book value per common share.............. $ 4.24 $ 4.36
AMERICA ONLINE -- HISTORICAL:
Net income (loss) per common share....... $ 0.41 $ 0.17 $(1.31) $ 0.07
Cash dividends declared per common
share.................................. -- -- -- --
Book value per common share.............. $ 3.13 $ 1.36
</TABLE>
13
<PAGE> 20
COMPARATIVE PER SHARE MARKET PRICE DATA
America Online common stock is traded on the New York Stock Exchange under
the symbol "AOL." Netscape common stock is traded on the Nasdaq National Market
under the symbol "NSCP."
The following table sets forth the closing prices per share of Netscape
common stock as reported on the Nasdaq National Market and the closing prices
per share of America Online common stock as reported on the New York Stock
Exchange on (1) November 20, 1998, the business day preceding public
confirmation of merger discussions between America Online and Netscape and
disclosure of the exchange ratio, (2) November 23, 1998, the business day
preceding public announcement that America Online and Netscape had entered into
the merger agreement and (3) February 16, 1999, the last full trading day for
which closing prices were available at the time of the printing of this proxy
statement-prospectus. THE PRICES IN THE FOLLOWING TABLES HAVE BEEN ADJUSTED TO
REFLECT AMERICA ONLINE'S TWO-FOR-ONE STOCK SPLIT WHICH WAS EFFECTED IN NOVEMBER
OF 1998, BUT HAVE NOT BEEN ADJUSTED TO REFLECT AMERICA ONLINE'S TWO-FOR-ONE
STOCK SPLIT WHICH WILL BE EFFECTED ON FEBRUARY 22, 1999.
The following table also sets forth the equivalent price per share of
America Online common stock of shares of Netscape common stock on those dates.
The equivalent price per share of America Online common stock of Netscape common
stock is equal to the closing price of a share of America Online common stock on
that date multiplied by 0.45, the number of shares of America Online common
stock to be issued in exchange for each share of Netscape common stock, prior to
giving effect to America Online's two-for-one stock split which will be effected
on February 22, 1999. This equivalent per share price reflects the value of the
America Online common stock you would receive for each share of your Netscape
common stock if the merger was completed on any of these dates.
<TABLE>
<CAPTION>
AMERICA
NETSCAPE ONLINE EQUIVALENT
COMMON COMMON PER
STOCK STOCK SHARE PRICE
------------ ------------ --------------
<S> <C> <C> <C>
November 20, 1998.......................... $ 39.19 $ 84.88 $ 38.20
November 23, 1998.......................... $ 41.94 $ 89.25 $ 40.17
February 16, 1999.......................... $ 68.25 $159.50 $ 71.78
</TABLE>
Because the market price of America Online common stock may increase or
decrease before the completion of the merger, you are urged to obtain current
market quotations. You may call 1-800-401-6223 during normal business hours at
any time before the special meeting to obtain the prior day's closing market
quotations of Netscape common stock and America Online common stock.
14
<PAGE> 21
RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in America
Online common stock. An investment in America Online common stock involves a
high degree of risk. In addition to the other information contained in or
incorporated by reference into this proxy statement-prospectus, you should
carefully consider the following risk factors in deciding whether to vote for
the merger.
YOU WILL RECEIVE 0.45 OF A SHARE OF AMERICA ONLINE COMMON STOCK DESPITE CHANGES
IN MARKET VALUE OF NETSCAPE COMMON STOCK OR AMERICA ONLINE COMMON STOCK
Upon completion of the merger, each share of Netscape common stock will be
exchanged for 0.45 of a share of America Online common stock, prior to
adjustment for America Online's two-for-one stock split which will be effected
on February 22, 1999. Giving effect to America Online's two-for-one stock split,
each share of Netscape common stock will be exchanged for 0.9 of a share of
America Online common stock. There will be no adjustment for changes in the
market price of either Netscape common stock or America Online common stock, and
Netscape is not permitted to "walk away" from the merger or resolicit the vote
of its stockholders solely because of changes in the market price of America
Online common stock. Accordingly, the specific dollar value of America Online
common stock to be received by you upon completion of the merger will depend on
the market value of America Online common stock at the time of completion of the
merger.
ALTHOUGH AMERICA ONLINE AND NETSCAPE EXPECT THAT THE MERGER WILL RESULT IN
BENEFITS, THOSE BENEFITS MAY NOT BE REALIZED
America Online and Netscape entered into the merger agreement with the
expectation that the merger will result in benefits, including adding one of the
Internet's best known brands, Netscape, with the AOL service, the CompuServe
service, AOL.COM, ICQ and Digital City brands to advance a multiple brand
strategy, strengthening our positions in the interactive medium and enterprise
software and creating the opportunity for potential cost savings. Achieving the
benefits of the merger will depend in part on the integration of our technology,
operations and personnel in a timely and efficient manner so as to minimize the
risk that the merger will result in the loss of customers or key employees or
the continued diversion of the attention of management. Among the challenges
involved in this integration is demonstrating to our customers that the merger
will not result in adverse changes in client service standards or business focus
and persuading our personnel that our business cultures are compatible. There
can be no assurance that America Online and Netscape can be successfully
integrated or that any of the anticipated benefits will be realized, and failure
to do so could have a material adverse effect on America Online's business,
financial condition and operating results.
NETSCAPE OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE
THEM TO SUPPORT OR APPROVE THE MERGER
The directors and officers of Netscape participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or are in addition to, yours.
In particular, James L. Barksdale, Peter Currie, Roberta Katz and Noreen
Bergin have agreements with Netscape entitling them to continued vesting of
their stock options and restricted stock after the merger. The number of shares
of Netscape common stock
15
<PAGE> 22
subject to unvested options held by those officers or held by them as restricted
stock totaled 977,219, as of November 23, 1998.
In addition, unvested stock options granted under Netscape's 1995 Director
Option Plan to L. John Doerr, William V. Campbell and Eric A. Benhamou, each an
outside director of Netscape, will vest upon the completion of the merger. The
number of shares of Netscape common stock subject to unvested options held by
these outside directors that will vest upon completion of the merger totaled
84,499, on November 23, 1998.
Furthermore, Marc L. Andreessen, Netscape's Executive Vice
President-Products, will join America Online following the merger in the new
position of Chief Technology Officer.
As a result, these directors and officers could be more likely to vote to
approve the merger agreement than if they did not hold these interests. Netscape
shareholders should consider whether these interests may have influenced these
directors and officers to support or recommend the merger.
IF WE FAIL TO OBTAIN ALL REQUIRED CONSENTS AND WAIVERS THIRD PARTIES MAY
TERMINATE OR ALTER EXISTING CONTRACTS WITH NETSCAPE
Netscape has contracts with many of its suppliers, customers, licensors,
licensees and other business partners relating to, among other things,
intellectual property rights. Some of these contracts require Netscape to obtain
the consent, waiver or approval of these other parties in connection with the
merger agreement. If consent, waiver or approval cannot be obtained, Netscape
may be required to refund various prepaid amounts under material contracts. In
addition, Netscape may lose the right to use intellectual property that is
necessary for smooth operation of the Netscape Internet portal or related to
some of its software. Netscape has agreed to use reasonable efforts to secure
the necessary consents, waivers and approvals and it is a condition to America
Online's obligation to complete the merger that Netscape obtain any consents,
waivers and approvals which, if not obtained, would have a material adverse
effect on Netscape. However, there can be no assurance that Netscape will be
able to obtain all of the necessary consents, waivers and approvals and failure
to do so could have a material adverse effect on America Online's business,
financial condition and operating results.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT NETSCAPE'S STOCK PRICE
AND FUTURE BUSINESS AND OPERATIONS
If the merger is not completed for any reason, Netscape may be subject to a
number of material risks, including the following:
- Netscape may be required to pay America Online a termination fee of $100
million
- the option granted to America Online by Netscape may become exercisable
- the price of Netscape common stock may decline to the extent that the
current market price of Netscape common stock reflects a market
assumption that the merger will be completed
- costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed
In addition, Netscape's customers may, in response to the announcement of
the merger, delay or defer purchasing decisions. America Online has little or no
history as a software vendor, so this is particularly true for Netscape's
current and prospective enterprise software customers. Any delay or deferral in
purchasing decisions by Netscape
16
<PAGE> 23
customers could have a material adverse effect on Netscape's business,
regardless of whether or not the merger is ultimately completed. Similarly,
current and prospective Netscape employees may experience uncertainty about
their future role with America Online until America Online's strategies with
regard to Netscape are announced or executed. This may adversely affect
Netscape's ability to attract and retain key management, marketing and technical
personnel.
Further, if the merger is terminated and Netscape's board of directors
determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner willing to pay an equivalent or
more attractive price than that which would be paid in the merger. In addition,
while the merger agreement is in effect and subject to certain limited
exceptions described on page 50 of this proxy statement-prospectus, Netscape is
prohibited from soliciting, initiating or knowingly encouraging or entering into
certain extraordinary transactions, such as a merger, sale of assets or other
business combination, with any party other than America Online. Furthermore, if
the merger agreement is terminated and America Online exercises its option to
purchase Netscape common stock, Netscape would not be able to account for future
transactions as a "pooling of interests."
AFTER THE MERGER WE WILL FACE COMPETITION FOR SUBSCRIPTION REVENUES AND THE
DEVELOPMENT AND SALE OF ELECTRONIC COMMERCE INFRASTRUCTURE AND APPLICATIONS
After the merger, the combined company will face competition from a wide
range of other companies in the communications, advertising, entertainment,
information, media, Web-based services, software, technology, direct mail and
commerce fields for subscription, advertising, commerce revenue, development and
sale of electronic commerce infrastructure and applications and in the
development of distribution technologies and equipment.
- Competitors for subscription revenues include:
-- online services such as the Microsoft Network, AT&T Worldnet and
Prodigy Services Company
-- national and local Internet service providers
-- long distance and regional telephone companies offering access as part
of their telephone service, such as AT&T Corp., MCI WorldCom, Inc. and
regional Bell operating companies
-- cable television companies
-- cable Internet access services offered by companies such as AtHome
Corporation and Road Runner Group
- Competitors for advertising and commerce revenues include:
-- online services such as the Microsoft Network, AT&T Worldnet and
Prodigy Services Company
-- Web-based navigation and search service companies such as Yahoo! Inc.,
Infoseek Corporation, Lycos, Inc. and Excite, Inc.
-- global media companies including newspapers, radio and television
stations and content providers, such as the National Broadcasting
Corporation, CBS Corporation, The Walt Disney Company, Time Warner
Inc., The Washington Post Company and Conde Nast Publications, Inc.
17
<PAGE> 24
-- cable Internet access services offered by companies such as AtHome
Corporation and Road Runner Group
- Competitors in the development and sale of electronic commerce
infrastructure and applications include:
-- providers of electronic commerce infrastructure such as server
software, including International Business Machines Corporation,
Microsoft Corporation, Oracle Corporation, Sun Microsystems, Inc.,
Novell, Inc., Software.com, Inc., BEA Systems, Inc. and the provider
of the Apache Web Server
-- providers of electronic commerce applications, including International
Business Machines Corporation, Oracle Corporation, General Electric
Information Systems, Microsoft Corporation, PeopleSoft, Inc., SAP
A.G., Open Market, Inc., Ariba Technologies, Inc., Commerce One,
Sterling Commerce, Inc. and BroadVision, Inc.
- Competition in the development of distribution technologies and equipment
includes:
-- broadband distribution technologies, such as cable Internet access
services offered by companies such as AtHome Corporation and Road
Runner Group
-- advanced telephone-based access services offered through digital
subscriber line technologies offered by local telecommunications
companies
-- other advanced digital services offered by broadcast, satellite and
wireless companies
-- television-based interactive computer services, such as those offered
by Microsoft's WebTV
-- personal digital assistants, enhanced mobile phones and other
equipment offering functional equivalents to America Online's features
Some of the present competitors and potential future competitors of America
Online may have greater financial, technical, marketing or personnel resources
than America Online. The competitive environment could have a variety of adverse
effects on America Online. For example, it could:
- require price reductions in the subscription fees for online services and
require increased spending on marketing, network capacity, content
procurement and product development
- negatively impact America Online's ability to generate greater revenues
and profits from sources other than online service subscription revenues,
such as advertising and electronic commerce
- limit America Online's opportunities to enter into or renew agreements
with content providers and distribution partners
- limit America Online's ability to develop new products and services
- limit America Online's ability to continue to grow its subscriber base
- result in attrition in America Online's subscriber base
18
<PAGE> 25
Any of the foregoing events could have an adverse impact on revenues or result
in an increase in costs as a percentage of revenues, either of which could have
a material adverse effect on America Online's business, financial condition and
operating results.
YEAR 2000 PROBLEMS MAY HAVE AN ADVERSE EFFECT ON AMERICA ONLINE'S AND NETSCAPE'S
OPERATIONS AND ABILITY TO OFFER PRODUCTS AND SERVICES WITHOUT INTERRUPTION
America Online utilizes a significant number of computer software programs
and operating systems across its entire organization, including applications
used in operating the AOL service, the CompuServe service, the proprietary
software of the AOL service and the CompuServe service, member services, network
access, content providers, joint ventures and various administrative and billing
functions. To the extent America Online's software applications contain source
codes that are unable to appropriately interpret the upcoming calendar year
2000, some level of modification, or even possibly replacement of such
applications may be necessary. America Online has appointed a Year 2000 Task
Force to perform an audit to assess the scope of America Online's risks and
bring its applications into compliance. This Task Force is undertaking its
assessment of America Online's compliance and has begun testing. The America
Online client and host software and corporate business and information systems
are currently undergoing review and testing. The testing of the America Online
system hardware components began in January 1999. To date, America Online has
experienced very few problems related to Year 2000 testing, and the problems
that have been identified are in the process of being fixed. The international
portion of the AOL service and the CompuServe service continues to move forward
with system inventory gathering as well as an analysis of common systems. The
international services utilize the same America Online infrastructure, so it is
anticipated that additional costs of compliance for the international portion
will be minimal.
In addition, America Online is in the process of asking its vendors, joint
venture partners and content partners about their progress in identifying and
addressing problems that their computer systems may face in correctly processing
date information related to the Year 2000, but has received very few complete
responses. America Online intends to continue its efforts to seek reassurances
regarding the Year 2000 compliance of vendors, joint venture partners and
content partners. In the event any third parties cannot timely provide America
Online with content, products, services or systems that meet the Year 2000
requirements, the content on America Online's services, access to America
Online's services, the ability to offer products and services and the ability to
process sales could be materially adversely affected.
The costs incurred by America Online through December 1998 to address Year
2000 compliance were approximately $3 million. America Online currently
estimates it will incur a total of approximately $8 million in costs to support
its compliance initiatives. Although America Online expects its proprietary
software to be Year 2000 compliant on or before December 31, 1999, it cannot
predict the outcome or the success of its Year 2000 program, whether third party
systems are or will be Year 2000 compliant, the costs required to address the
Year 2000 issue, or whether a failure to achieve substantial Year 2000
compliance will have a material adverse effect on America Online's business,
financial condition or results of operations. America Online is in the process
of developing a contingency plan to address possible risks to its systems. It is
America Online's intention to implement its contingency plan no later than July
1999.
Netscape has developed a phased Year 2000 readiness plan for the current
versions of its products. The plan includes development of:
- corporate awareness
19
<PAGE> 26
- assessment
- implementation, including remediation, upgrading, and replacement of
product versions
- validation testing
- contingency planning
Netscape continues to respond to customer concerns about prior versions of
its products on a case-by-case basis.
Netscape has largely completed all phases of its plan, except for
contingency planning, with respect to the current versions of all of its
products. Netscape has made Year 2000 readiness disclosures stating that the
current versions of all of the products that it currently ships are "Year 2000
Compliant," as defined below, when configured and used in accordance with the
related documentation, and provided that the underlying operating system of the
host machine and any other software used with or in the host machine or Netscape
products are also Year 2000 Compliant. These disclosures note that, in some
cases, Netscape products require a patch provided with the product to be Year
2000 Compliant. Netscape, its customers, and vendors continue to test Netscape
software for compliance and may find additional errors or defects associated
with Year 2000 date functions.
Netscape has defined "Year 2000 Compliant" to mean that the product will
accurately receive, process and provide date data from, into and between the
twentieth and twenty-first centuries, including the years 1999 and 2000, and
make leap year calculations, provided that all other products, whether hardware,
software or firmware, used in or in combination with the product, properly
exchange data with it. Netscape has not tested its products on all platforms or
all versions of operating systems that it currently supports and has advised its
customers to verify that their platforms and operating systems support the
transition to the year 2000.
Netscape has not specifically tested software, including licensed software,
shareware, and freeware, obtained from third parties that is incorporated into
its products, but it is seeking assurances from its vendors that licensed
software is Year 2000 Compliant. Despite Netscape's testing, testing by its
current and potential customers and whatever assurances it may receive from
developers of products incorporated into Netscape products, the products may
contain undetected errors or defects associated with Year 2000 date functions.
Current versions of Netscape ECXpert, Netscape BuyerXpert, Netscape SellerXpert
and Netscape MerchantXpert include third-party Java components that may not be
Year 2000 Compliant in all respects. Netscape provides no warranty to its
customers with respect to the Year 2000 compliance of third-party components
embedded in its software. Also, certain prior versions of Netscape products are
not fully Year 2000 Compliant and Netscape is working to address these issues.
Known or unknown errors or defects in Netscape products could result in delay or
loss of revenue, diversion of development resources, damage to Netscape's
reputation or increased service and warranty costs, any of which could impair
the finances or business prospects of the company on a combined basis following
the merger.
Netscape's internal systems include both our information technology and
non-information technology systems. Netscape has completed a baseline assessment
of its material internal information technology systems, including both its own
software products and third-party software and hardware technology, and its
non-information technology systems, such as the security system, building
equipment, and embedded microcontrollers, and are beginning implementation which
includes remediation, upgrading and replacement.
20
<PAGE> 27
Netscape has retained an outside contractor to provide assistance with
validation testing and contingency planning. Netscape expects to complete all
project phases by August 31, 1999. To the extent that Netscape is not able to
test the technology provided by third-party vendors, Netscape is seeking
assurances from such vendors that their systems are Year 2000 compliant. The
worst case scenario would involve the unavailability of the major internal
systems to employees and the unavailability of Netcenter to its users. In the
event of this worst case scenario, Netscape may incur expenses to repair its
systems, face interruptions in the work of employees, lose advertising revenue,
not be able to deliver minimum guaranteed levels of traffic, not be able to
deliver downloads of its browser product, and suffer damage to its reputation.
Netscape estimates total costs for all internal systems project phases to be
approximately $8 million, with approximately $5 million of this representing the
internal cost of the work Netscape employees have done on this project. Costs to
be capitalized in connection with purchased computer hardware are expected to
approximate $1.5 million, with the remaining costs to be expensed when incurred.
In addition to the specific problems and costs described, Netscape may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in its internal information technology and
non-information technology systems.
Netscape does not currently have any information concerning the Year 2000
compliance status of its customers. As is the case with other similarly situated
software companies, if current or future customers fail to achieve Year 2000
compliance or if they divert technology expenditures, especially technology
expenditures that were reserved for enterprise software, to address Year 2000
compliance problems, Netscape's finances or business prospects could be
impaired.
Netscape has funded its Year 2000 plan from operating cash flows. Netscape
estimates that costs incurred through October 31, 1998 in connection with Year
2000 compliance projects have not been material. Netscape will incur additional
amounts related to the Year 2000 plan for administrative personnel to manage the
project, outside contractor assistance, technical support for our products,
product engineering and customer satisfaction. Netscape may experience material
problems and costs with Year 2000 compliance that could impair its finances and
business prospects.
Netscape has not yet fully developed a comprehensive contingency plan to
address situations that may result if it is unable to achieve Year 2000
readiness of its critical operations. The cost of developing and implementing
such a plan may itself be material. Finally, Netscape is also subject to
external forces that might generally affect industry and commerce, such as
utility or transportation company Year 2000 compliance failures and related
service interruptions.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues and we are aware of such lawsuits against other software
vendors. Because of the unprecedented nature of such litigation, it is uncertain
whether or to what extent we may be affected by it.
After the merger, the combined company intends to continue the assessment,
implementation, remediation, testing and contingency planning described above
related to Year 2000 compliance. The risks and potential adverse effects and
consequences associated with Year 2000 compliance currently faced by each
company and described above will continue to exist. Although America Online and
Netscape intend to take appropriate actions to reduce the risk of disruption or
delay in the ongoing Year 2000 compliance programs following the merger, there
can be no assurance that the merger will not cause some delay or disruption.
21
<PAGE> 28
AMERICA ONLINE'S ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS
OF AMERICA ONLINE AND MAY DEPRESS ITS STOCK PRICE
America Online's certificate of incorporation and bylaws contain provisions
that could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
America Online. These provisions allow America Online to issue preferred stock
with rights senior to those of its common stock and impose various procedural
and other requirements that could make it more difficult for America Online
stockholders to effect certain corporate actions.
In addition, under America Online's stockholder rights plan, holders of
America Online common stock are entitled to one preferred share purchase right
for each outstanding share of common stock they hold, exercisable under certain
defined circumstances involving a potential change of control, as discussed on
pages 78 through 80 of this proxy statement-prospectus. The preferred share
purchase rights have the anti-takeover effect of causing substantial dilution to
a person or group that attempts to acquire America Online on terms not approved
by America Online's board of directors. The foregoing provisions could have a
material adverse effect on the premium that potential acquirors might be willing
to pay in an acquisition or that investors might be willing to pay in the future
for shares of America Online common stock.
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to our financial condition, results of operations and
business, and on the expected impact of the merger on America Online's financial
performance. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the above discussion of risks and uncertainties.
22
<PAGE> 29
THE SPECIAL MEETING OF NETSCAPE STOCKHOLDERS
PROXY STATEMENT-PROSPECTUS
This proxy statement-prospectus is being furnished to you in connection
with the solicitation of proxies by Netscape's board of directors in connection
with our proposed merger.
This proxy statement-prospectus is first being furnished to stockholders of
Netscape on or about February 17, 1999.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of stockholders of Netscape is scheduled to be held as
follows:
Wednesday, March 17, 1999
8:00 a.m., local time
The Westin Santa Clara
5101 Great America Parkway
Santa Clara, California 95054
PURPOSE OF THE SPECIAL MEETING
The special meeting is being held so that stockholders of Netscape may
consider and vote upon a proposal to adopt the Agreement and Plan of Merger,
dated as of November 23, 1998, by and among America Online, Apollo Acquisition
Corp., a newly-formed and wholly-owned subsidiary of America Online, and
Netscape and to transact any other business that properly comes before the
special meeting or any adjournment. Adoption of the merger agreement will also
constitute approval of the merger and the other transactions contemplated by the
merger agreement.
If the stockholders of Netscape adopt the merger agreement, Apollo will
merge with and into Netscape and Netscape will survive the merger as a
wholly-owned subsidiary of America Online. You will receive 0.45 of a share of
America Online common stock for each share of Netscape common stock you hold,
prior to adjustment for America Online's two-for-one stock split which will be
effected on February 22, 1999. Giving effect to America Online's two-for-one
stock split, you will receive 0.9 of a share of America Online common stock for
each share of Netscape common stock you hold.
STOCKHOLDER RECORD DATE FOR THE SPECIAL MEETING
Netscape's board of directors has fixed the close of business on February
10, 1999, as the record date for determination of Netscape stockholders entitled
to notice of and entitled to vote at the special meeting. On the record date,
there were 104,105,890 shares of Netscape common stock outstanding, held by
approximately 3,623 holders of record.
VOTE OF NETSCAPE STOCKHOLDERS REQUIRED FOR ADOPTION OF THE MERGER AGREEMENT
A majority of the outstanding shares of Netscape common stock entitled to
vote at the special meeting must be represented, either in person or by proxy,
to constitute a quorum at the special meeting. The affirmative vote of the
holders of at least a majority of Netscape's common stock outstanding and
entitled to vote at the special meeting is required to adopt the merger
agreement. You are entitled to one vote for each share of
23
<PAGE> 30
Netscape common stock held by you on the record date on each proposal to be
presented to stockholders at the special meeting.
The Netscape stockholders who are parties to the voting agreement with
America Online agreed to vote their shares of Netscape common stock in favor of
the adoption of the merger agreement. As of the record date, these stockholders
held approximately 20,232,546 shares of Netscape common stock which represented
approximately 19.4% of all outstanding shares of Netscape common stock entitled
to vote at the special meeting.
As of the record date for the special meeting, directors and executive
officers of Netscape and their affiliates beneficially owned approximately
22,964,016 shares of Netscape common stock which represented approximately 22.1%
of all outstanding shares of Netscape common stock entitled to vote at the
special meeting.
PROXIES
All shares of Netscape common stock represented by properly executed
proxies received before or at the special meeting will, unless the proxies are
revoked, be voted in accordance with the instructions indicated thereon. If no
instructions are indicated on a properly executed proxy, the shares will be
voted FOR adoption of the merger agreement. You are urged to mark the box on the
proxy to indicate how to vote your shares.
If a properly executed proxy is returned and the stockholder has abstained
from voting on adoption of the merger agreement, the Netscape common stock
represented by the proxy will be considered present at the special meeting for
purposes of determining a quorum and for purposes of calculating the vote, but
will not be considered to have been voted in favor of adoption of the merger
agreement. Similarly, if an executed proxy is returned by a broker holding
shares of Netscape common stock in street name which indicates that the broker
does not have discretionary authority to vote on adoption of the merger
agreement, the shares will be considered present at the meeting for purposes of
determining the presence of a quorum and of calculating the vote, but will not
be considered to have been voted in favor of adoption of the merger agreement.
Your broker will vote your shares only if you provide instructions on how to
vote by following the information provided to you by your broker.
Because adoption of the merger agreement requires the affirmative vote of
at least a majority of Netscape's common stock outstanding as of the record
date, abstentions, failures to vote and broker non-votes will have the same
effect as a vote against adoption of the merger agreement.
Netscape does not expect that any matter other than adoption of the merger
agreement will be brought before the special meeting. If, however, other matters
are properly presented, the persons named as proxies will vote in accordance
with their judgment with respect to those matters, unless authority to do so is
withheld in the proxy.
You may revoke your proxy at any time before it is voted by:
- notifying in writing the Secretary of Netscape at 501 East Middlefield
Road, Mountain View, California 94043
- granting a subsequent proxy
24
<PAGE> 31
- appearing in person and voting at the special meeting. Attendance at the
special meeting will not in and of itself constitute revocation of a
proxy
We will equally share the expenses incurred in connection with the printing
and mailing of this proxy statement-prospectus. Netscape has retained Corporate
Investor Communications, Inc. at an estimated cost of $7500.00 plus
reimbursement of expenses, to assist in the solicitation of proxies. Netscape
and Corporate Investor Communications, Inc. will also request banks, brokers and
other intermediaries holding shares beneficially owned by others to send this
proxy statement-prospectus to and obtain proxies from the beneficial owners and
will reimburse the holders for their reasonable expenses in so doing.
YOU SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH YOUR PROXIES. A
TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK CERTIFICATES FOR
NETSCAPE COMMON STOCK WILL BE MAILED TO YOU AS SOON AS PRACTICABLE AFTER
COMPLETION OF THE MERGER.
25
<PAGE> 32
THE MERGER
This section of the proxy statement-prospectus describes material aspects
of the proposed merger, including the merger agreement and the stock option
agreement. While we believe that the description covers the material terms of
the merger and the related transactions, this summary may not contain all of the
information that is important to you. You should read this entire document and
the other documents we refer to carefully for a more complete understanding of
the merger.
BACKGROUND OF THE MERGER
America Online and Netscape have been familiar with each other for several
years and have done business together from time to time. For example, in late
1997 and 1998, America Online and Netscape entered into transactions whereby
Netscape licensed intellectual property from America Online and America Online
agreed to provide content to Netscape for use in its Netcenter Internet portal.
On August 26, 1998, Miles Gilburne, Senior Vice President, Corporate
Development, of America Online, met with Peter Currie, Executive Vice President
and Chief Administrative Officer of Netscape, and Michael Homer, Executive Vice
President and General Manager of Netscape Netcenter, at Netscape's offices to
discuss the merits of a possible strategic transaction between America Online
and Netscape, including among other things, a possible business combination.
From September 1, 1998 to September 9, 1998, Mr. Gilburne and Mr. Currie,
together with other representatives of America Online and Netscape, had several
discussions relating to the businesses of America Online and Netscape and a
possible business combination between the companies.
On September 2, 1998, Mr. Currie and Quincy Smith, Netscape's Director of
New Business Development and Investor Relations, met with representatives of
Netscape's financial advisor, Morgan Stanley & Co. Incorporated, regarding
Morgan Stanley's representation of Netscape in connection with a possible
transaction with America Online. From this date through the execution of the
definitive merger agreement, members of Netscape's management regularly
discussed the possible business combination with Morgan Stanley.
In early September, members of America Online management met with
representatives of America Online's financial advisor, Goldman, Sachs & Co.,
regarding Goldman Sachs' representation of America Online in connection with a
possible transaction with Netscape. Thereafter, through the execution of the
definitive merger agreement, members of America Online's management regularly
discussed the possible business combination with Goldman Sachs.
On September 16, 1998, Mr. Currie, Mr. Homer and Mr. Smith met with Mr.
Gilburne and other members of America Online management, along with
representatives of America Online's financial advisor, Goldman Sachs, at the
offices of Goldman Sachs to conduct preliminary due diligence investigations on
America Online and Netscape, respectively. Mr. Currie and Mr. Gilburne continued
to speak regularly through the execution of the definitive merger agreement.
From September 16, 1998 through the execution of the definitive merger
agreement, Netscape's financial advisors periodically conducted financial due
diligence on America
26
<PAGE> 33
Online and America Online's financial advisors periodically conducted financial
due diligence on Netscape.
On September 17, 1998, James Barksdale, President and Chief Executive
Officer of Netscape, and Mr. Currie met with Mr. Gilburne to discuss the terms
for a possible business combination of Netscape and America Online.
On September 24, 1998, Mr. Currie and Mr. Smith of Netscape met with J.
Michael Kelly, Senior Vice President and Chief Financial Officer of America
Online, James MacGuidwin, Vice President, Controller, Chief Accounting and
Budget Officer of America Online and Scott Pearson, Vice President-Corporate
Development of America Online, together with representatives of Morgan Stanley
and Goldman Sachs at America Online's offices, to discuss various business
issues, including valuation, and to continue their respective due diligence
investigations of America Online and Netscape.
On October 13, 1998, Mr. Gilburne informed Mr. Currie of America Online's
internal analysis process concerning a possible business combination.
On October 20, 1998, at a regularly scheduled meeting of America Online's
board of directors, management of America Online discussed the recent
communications with Netscape.
On November 9, 1998, Mr. Barksdale met with Steve Case, Chairman of the
Board and Chief Executive Officer of America Online, to discuss the possible
business combination of Netscape and America Online.
On November 10, 1998 and November 11, 1998, members of America Online's
executive management team, including Robert W. Pittman, President and Chief
Operating Officer and Messrs. Case and Gilburne, met with members of Netscape's
executive management team, including Marc L. Andreessen, Executive Vice
President, Products, Barry M. Ariko, Executive Vice President and Chief
Operating Officer, and Messrs. Barksdale, Currie and Homer, to continue due
diligence investigations and further discuss the possible business combination.
On November 12, 1998, Mr. Currie and Mr. Smith had telephone conversations
with Mr. Pearson to discuss the terms of the possible business combination and
to continue due diligence investigations of America Online and Netscape,
respectively.
On November 16, 1998, members of Netscape's management met with Netscape's
legal advisors, Wilson Sonsini Goodrich & Rosati, to discuss the terms of the
possible business combination.
On November 17, 1998, America Online's board of directors met to discuss
the recent communications with Netscape and the advantages of a business
combination, and it authorized the appropriate officers to continue with formal
merger negotiations.
From November 17, 1998 to November 22, 1998, America Online's legal
advisors conducted legal due diligence on Netscape, and from November 16, 1998
to November 20, 1998, Netscape's legal advisors conducted legal due diligence on
America Online.
On November 17, 1998, Mr. Barksdale and other members of Netscape's
management met with Netscape's legal and financial advisors to discuss the terms
of the proposed merger with America Online.
In the evening of November 17, 1998, a meeting was held between the parties
at the offices of Goldman Sachs in San Francisco. Messrs. Gilburne, Pearson and
Kenneth Novack, Vice Chairman of America Online, representing America Online and
Messrs.
27
<PAGE> 34
Barksdale, Currie, Homer, Smith and Roberta Katz, Netscape's Senior Vice
President, General Counsel and Secretary, representing Netscape, and the
parties' financial and legal advisors, held negotiations concerning key terms of
the proposed merger. The parties reached tentative agreement on the exchange
ratio for Netscape common stock and discussed other key terms of the proposed
merger. The following day, a preliminary draft of a merger agreement and related
documents were delivered to Netscape.
From November 17, 1998 through November 23, 1998, members of management of
Netscape and America Online, along with their respective legal and financial
advisors, continued to meet and discuss the terms of the proposed merger of
Netscape and America Online. During such time, the legal advisors to Netscape
and America Online discussed the principal terms of the agreement and other
related documents, including the following:
- termination rights under the merger agreement
- the conditions upon which any breakup fee would be payable
- the representations, warranties and covenants to be made
Also, there was discussion of whether Netscape and America Online would enter
into a stock option agreement, and then a discussion of its terms and
conditions.
On November 18, 1998, Netscape's board of directors held a special meeting.
At the meeting, Netscape's management and legal advisors, Wilson Sonsini
Goodrich & Rosati, gave a presentation to Netscape's board of directors on the
proposed merger.
On November 20, 1998, Netscape's board of directors held a regular meeting.
At the meeting, Netscape's management and legal advisors, Wilson Sonsini
Goodrich & Rosati, discussed the proposed merger with Netscape's board of
directors and Morgan Stanley gave a presentation to Netscape's board of
directors on the financial terms of the proposed merger.
On the afternoon of November 22, 1998, America Online's board of directors
held a special meeting to discuss the proposed transaction. Mr. Case and other
members of management reviewed the status of the transaction, including the
following:
- the details related to the proposed merger that still required resolution
- a financial review of the proposed transaction
- a review of Netscape's business operations
- the results of America Online's due diligence review
Representatives of Goldman Sachs presented to America Online's board of
directors a summary of its analyses of the financial aspects of the proposed
transaction, including an analysis of the fairness, from a financial point of
view, of the exchange ratio to America Online. In addition, Sheila A. Clark,
Vice President and Acting General Counsel of America Online and representatives
of Skadden, Arps, Slate, Meagher & Flom LLP, America Online's legal advisors,
outlined the terms of the proposed merger and the directors' legal duties and
responsibilities. At the conclusion of the meeting, America Online's board of
directors unanimously approved the principal terms of the proposed business
combination, approved the merger agreement in the form presented and authorized
management to finalize the details of the merger agreement.
On November 22, 1998, Netscape's board of directors met and the senior
management and legal and financial advisors of Netscape reviewed the following:
- the status of the negotiations of the proposed transaction
- the results of the due diligence evaluation of America Online
28
<PAGE> 35
- the benefits and potential risks of the transaction with America Online
- the principal terms of the merger agreement and related documents
Netscape's legal advisors discussed the board's fiduciary duties in considering
a strategic business combination and strategic alternatives and further
discussed the terms of the merger agreement and related documents. Netscape's
financial advisors reviewed the strategic rationale for, and financial analyses
relating to, the proposed merger. In addition, at the meeting, Netscape's
financial advisors provided their opinion that the exchange ratio pursuant to
the merger agreement was fair, from a financial point of view, to Netscape's
stockholders. Following discussion, the Netscape board determined that the
proposed merger was advisable and approved the merger agreement and resolved to
recommend that Netscape stockholders adopt the merger agreement.
During the morning of November 23, 1998, in response to prevalent rumors
concerning the proposed transaction, Netscape and America Online each issued a
press release announcing the discussions between the two companies. America
Online also announced that it was in simultaneous negotiations with Sun
Microsystems, Inc. concerning a strategic alliance. Please see the section
entitled "America Online's Strategic Alliance with Sun Microsystems" on page 59
of this proxy statement-prospectus. During the day, America Online and Netscape
worked towards resolving outstanding issues and finalizing the definitive merger
agreement and related documents.
Netscape and America Online entered into the merger agreement and the stock
option agreement as of November 23, 1998, certain stockholders of Netscape
entered into the voting agreement with America Online, and each of the members
of America Online's and Netscape's boards of directors and certain officers of
Netscape and America Online entered into affiliate agreements with Netscape and
America Online, respectively. On November 24, 1998, America Online issued a
press release announcing the merger.
JOINT REASONS FOR THE MERGER
America Online's and Netscape's boards of directors have determined that
the combined company following the merger would have the potential to realize
long-term improved operating and financial results and a stronger competitive
position. America Online's and Netscape's boards of directors have identified
additional potential mutual benefits of the merger that they believe will
contribute to the success of the combined company. These potential benefits
include the following:
- combining America Online and Netscape will advance a multiple brand
strategy by adding one of the Internet's best known brands, Netscape,
with the AOL service, CompuServe service, AOL.COM, ICQ and Digital City
brands. Together, America Online and Netscape will operate one of the
most popular and diverse family of brands in cyberspace
- combining America Online and Netscape will strengthen our current
respective market positions in the interactive medium
-- combining America Online and Netscape joins complementary Web
audiences of the America Online services and products and Netscape
Netcenter services and products
-- adding Netscape to America Online will expand the range of America
Online products and services by adding world-class technology and an
experienced development team that has demonstrated its ability to
innovate rapidly
- combining America Online and Netscape will improve our competitive
position in enterprise software
29
<PAGE> 36
-- the combined company will have an enhanced ability to sell electronic
commerce solutions through bundling with Website positioning
-- the combined company will have an enhanced ability to provide
innovative Internet infrastructure, applications and services
-- adding Netscape to America Online will expand the range of America
Online products and services by adding world-class technology and an
experienced development team that has demonstrated its ability to
innovate rapidly
- combining America Online and Netscape will create the opportunity for
cost savings and synergies
-- the combined company will be able to offer content and service
offerings across a larger combined base of users
-- the combined company will have the ability to offer electronic
commerce partners access to high levels of online traffic
-- combining America Online and Netscape may improve network efficiency
through increased scale and through the integration of two sets of
users, each with different usage patterns
NETSCAPE'S REASONS FOR THE MERGER
In addition to the anticipated potential joint benefits described above,
Netscape's board of directors believes that the following are additional reasons
the merger will be beneficial to Netscape and for stockholders of Netscape to
vote FOR adoption of the merger agreement:
- Netscape's stockholders would have the opportunity to participate in the
potential for growth of the combined company after the merger
- given the complementary nature of America Online's and Netscape's
businesses, the merger will enhance the opportunity for the potential
realization of Netscape's strategic objectives of achieving greater
presence on the Internet and providing end-to-end electronic commerce
solutions to acquire and keep customers
- the exchange ratio in the merger represented a 16.0% premium over the
closing price for Netscape common stock on November 17, 1998, the day
Netscape and America Online reached tentative agreement upon the exchange
ratio, as well as 17.7% and 16.5% premiums over the closing price of
Netscape common stock for the ten and thirty trading days ending on
November 17, 1998, respectively
- combining with America Online will increase the advertising and commerce
relationships available to support Netscape's products and services
In the course of deliberations, the Netscape board reviewed with Netscape
management and outside advisors a number of additional factors relevant to the
merger, including:
- historical information concerning America Online's and Netscape's
respective businesses, financial performance and condition, operations,
technology, management and competitive position, including public reports
concerning results of operations during the most recent fiscal year and
fiscal quarter for each company filed with the SEC
- Netscape management's view as to the financial condition, results of
operations and businesses of America Online and Netscape before and after
giving effect to the merger based on management due diligence and
publicly available earnings estimates
30
<PAGE> 37
- current financial market conditions and historical market prices,
volatility and trading information with respect to America Online common
stock and Netscape common stock
- the consideration to be received by Netscape stockholders in the merger
and an analysis of the market value of the America Online common stock to
be issued in exchange for each share of Netscape common stock in light of
comparable merger transactions
- the belief that the terms of the merger agreement and the stock option
agreement, including the parties' representations, warranties and
covenants, and the conditions to the parties' respective obligations, are
reasonable
- Netscape management's view as to the prospects of Netscape as an
independent company
- Netscape management's view as to the potential for other third parties to
enter into strategic relationships with or to acquire Netscape
- detailed financial analysis and pro forma and other information with
respect to the companies presented by Morgan Stanley in a board
presentation, including Morgan Stanley's opinion that the exchange ratio
pursuant to the merger agreement is fair, from a financial point of view,
to the Netscape stockholders
- the impact of the merger on Netscape's customers and employees
- reports from management, legal advisors and financial advisors as to the
results of their due diligence investigation of America Online
Netscape's board of directors also considered the terms of the merger
agreement regarding Netscape's rights to consider and negotiate other strategic
transaction proposals, as well as the possible effects of the provisions
regarding termination fees and the stock option agreement. In addition,
Netscape's board of directors noted that the merger is expected to be a tax-free
transaction and accounted for as a pooling of interests such that no goodwill is
expected to be created on the books of the combined company as a result of the
transaction. Netscape's board of directors also considered various alternatives
to the merger, including remaining as an independent company.
Netscape's board of directors believed that these factors, including the
Netscape board's review of the terms of the merger agreement, supported the
board's recommendation of the merger when viewed together with the risks and
potential benefits of the merger.
Netscape's board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
- the risk that the potential benefits sought in the merger might not be
fully realized
- the possibility that the merger might not be completed and the effect of
public announcement of the merger on
-- Netscape's sales and operating results
-- Netscape's ability to attract and retain key management, marketing and
technical personnel
-- progress of development projects
- the substantial charges to be incurred in connection with the merger,
including costs of integrating the businesses and transaction expenses
arising from the merger
- the risk that despite the efforts of the combined company, key technical
and management personnel might not remain employed by the combined
company
31
<PAGE> 38
- the difficulty of managing separate operations at different geographic
locations
- the other risks described under "Risk Factors" on page 15 of this proxy
statement-prospectus
Netscape's board of directors believed that these risks were outweighed by
the potential benefits of the merger.
The foregoing discussion is not exhaustive of all factors considered by
Netscape's board of directors. Each member of Netscape's board may have
considered different factors, and Netscape's board evaluated these factors as a
whole and did not quantify or otherwise assign relative weights to factors
considered.
RECOMMENDATION OF NETSCAPE'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY DETERMINED
THE MERGER TO BE FAIR TO YOU AND IN YOUR BEST INTEREST AND DECLARED THE MERGER
ADVISABLE. NETSCAPE'S BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS YOUR ADOPTION OF THE MERGER AGREEMENT.
In considering the recommendation of the Netscape board of directors with
respect to the merger agreement, you should be aware that certain directors and
officers of Netscape have certain interests in the merger that are different
from, or are in addition to the interests of Netscape stockholders generally.
Please see the section entitled "Interests of Certain Netscape Directors,
Officers and Affiliates in the Merger" on page 42 of this proxy
statement-prospectus.
OPINION OF NETSCAPE'S FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of November 16, 1998, Morgan
Stanley was engaged to provide financial advisory services and a financial
fairness opinion in connection with the merger. Morgan Stanley was selected by
Netscape's board of directors to act as Netscape's financial advisor based on
Morgan Stanley's qualifications, expertise and reputation and its knowledge of
the business and affairs of Netscape. At the meeting of Netscape's board of
directors on November 22, 1998, Morgan Stanley rendered its oral opinion,
subsequently confirmed in writing, that as of November 22, 1998, based upon and
subject to the various considerations set forth in the opinion, the exchange
ratio pursuant to the merger agreement was fair from a financial point of view
to the holders of shares of Netscape common stock.
THE OPINION OF MORGAN STANLEY IS ATTACHED AS ANNEX D TO THIS PROXY
STATEMENT-PROSPECTUS. NETSCAPE STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY. MORGAN STANLEY'S OPINION IS DIRECTED TO
NETSCAPE'S BOARD OF DIRECTORS AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE
RATIO PURSUANT TO THE MERGER AGREEMENT FROM A FINANCIAL POINT OF VIEW TO THE
HOLDERS OF SHARES OF NETSCAPE COMMON STOCK AS OF THE DATE OF THE OPINION. MORGAN
STANLEY'S OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF NETSCAPE COMMON STOCK AS TO HOW TO
VOTE AT THE NETSCAPE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF MORGAN
STANLEY SET FORTH IN THIS PROXY STATEMENT-PROSPECTUS, ALTHOUGH MATERIALLY
COMPLETE, IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed some publicly available financial statements and other
information of Netscape and America Online, respectively
32
<PAGE> 39
- reviewed the reported prices and trading activity for the Netscape common
stock and the America Online common stock
- compared the financial performance of Netscape and America Online and the
prices and trading activity of the Netscape common stock and the America
Online common stock with that of some other publicly-traded companies and
their securities
- reviewed some internal financial statements and other financial and
operating data concerning Netscape and America Online prepared by the
managements of Netscape and America Online, respectively
- discussed the past and current operations and financial condition and the
prospects of Netscape and America Online, including information relating
to some strategic, financial and operational benefits anticipated from
the merger, with senior executives of Netscape and America Online,
respectively
- reviewed the pro forma impact of the merger on America Online
- reviewed the financial terms, to the extent publicly available, of
comparable acquisition transactions
- discussed the strategic rationale for the merger with the senior
managements of Netscape and America Online, respectively
- participated in discussions and negotiations among representatives of
Netscape and America Online and their financial and legal advisors
- reviewed the draft merger agreement and related agreements
- performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate
In rendering its opinion, Morgan Stanley assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by it for the purposes of its opinion. With respect to the internal
financial statements and other financial and operating data and discussions
relating to strategic, financial and operational benefits anticipated from the
merger provided by Netscape and America Online, Morgan Stanley assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the prospects of Netscape and America Online,
respectively. Morgan Stanley relied upon the following:
- the assessment by the managements of Netscape and America Online of their
ability to retain key employees of Netscape and America Online
- the assessment by the managements of Netscape and America Online of the
strategic and other benefits expected to result from the merger
- the assessment by the managements of Netscape and America Online of
Netscape's and America Online's technologies and products
- the timing and risks associated with the integration of Netscape with
America Online
- the validity of, and risks associated with, Netscape's and America
Online's existing and future products and technologies
Morgan Stanley did not make any independent valuation or appraisal of the assets
or liabilities or technology of Netscape or America Online, nor was Morgan
Stanley furnished
33
<PAGE> 40
with any such appraisals. In addition, Morgan Stanley assumed that the merger
will be accounted for as a "pooling of interests" business combination in
accordance with U.S. generally accepted accounting principles and the merger
will be treated as a tax-free reorganization and/or exchange pursuant to the
Internal Revenue Code of 1986 and will be completed in accordance with the terms
set forth in the merger agreement. Morgan Stanley's opinion is necessarily based
on financial, economic, market and other conditions as in effect on, and the
information made available to it as of, November 22, 1998.
The following is a brief summary of some of the analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
opinion letter dated November 22, 1998. These summaries of financial analyses
include information presented in tabular format. In order fully to understand
the financial analyses used by Morgan Stanley, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses.
COMPARATIVE STOCK PRICE PERFORMANCE. Morgan Stanley reviewed the recent
stock price performance of Netscape and America Online and compared such
performance with that of the following indices:
- Internet Portal Index
-- Yahoo! Inc.
-- Excite, Inc.
-- CNET, Inc.
-- Infoseek Corporation
- Major Application Index
-- Oracle Corporation
-- SAP Corporation
-- PeopleSoft, Inc.
-- Baan Company N.V.
-- J.D. Edwards & Company
- Mid-Cap Application Index
-- Networks Associates, Inc.
-- i2 Technologies, Inc.
-- Check Point Software Technologies LTD
-- Manugistics Group, Inc.
- Customer Information Management Index
-- Siebel Systems, Inc.
-- Remedy Corporation
-- Clarify, Inc.
-- The Vantive Corporation
- Internet Provider Index
-- AtHome Corporation
-- Earthlink Network, Inc.
-- Mindspring Enterprises, Inc.
-- PSINet Inc.
34
<PAGE> 41
- Cable Index
-- Time Warner Inc.
-- MediaOne Group, Inc.
-- Tele-Communications, Inc.
-- Comcast Corporation
-- Cox Communications, Inc.
-- Cablevision Systems Corporation
Morgan Stanley observed that over the period from November 19, 1997 to
November 19, 1998, the market price of Netscape common stock increased 22%,
compared with an increase of 528% for the Internet portal index, an increase of
21% for the major application index, an increase of 30% for the mid-cap
application index and an increase of 10% for the customer information management
index. Morgan Stanley also observed that over the period from November 19, 1997
to November 19, 1998, the market price of America Online common stock increased
360%, compared with an increase of 528% for the Internet portal index, an
increase of 259% for the Internet provider index and an increase of 75% for the
cable index.
PEER GROUP COMPARISON. Morgan Stanley compared financial information of
Netscape, each of Netscape's two primary businesses, Netcenter and Enterprise
Software, and America Online with publicly available information for the
companies comprising the Internet portal index, the major application index, the
mid-cap application index, the customer information management index, the
Internet provider index and the cable index, respectively. For this analysis, as
well as other analyses, Morgan Stanley examined a range of estimates based on
securities research analysts as well as two additional estimate scenarios for
Netscape developed by Netscape management, a downside case and a target case,
which were below and above research estimates, respectively.
The following table presents, as of November 19, 1998, the median for the
Internet portal companies, the major application companies, the mid-cap
application companies and the customer information companies of each of
estimated aggregate value, defined as market capitalization plus total debt less
cash and cash equivalents, to projected calendar year 1999 revenue multiples and
stock price to projected calendar year 1999 earnings multiples, compared to the
values indicated for the Netscape estimates.
<TABLE>
<CAPTION>
AGGREGATE VALUE TO
PROJECTED STOCK PRICE TO PROJECTED
CALENDAR YEAR 1999 REVENUE CALENDAR YEAR 1999 EARNINGS
-------------------------- ---------------------------
<S> <C> <C>
Netscape range 4.6-5.0 59.9-131.0
Internet portal companies 13.1 210.3
major applications companies 3.0 41.2
mid-cap application companies 4.0 26.6
customer information companies 1.5 26.8
</TABLE>
The following table presents, as of November 19, 1998, the median for the
Internet portal companies, the Internet provider companies and the cable
companies of each of estimated aggregate value, defined as market capitalization
plus total debt less cash and cash equivalents, to projected calendar year 1999
revenue multiples, aggregate value per current subscriber and aggregate value
per projected one year forward subscriber, compared to the values indicated for
America Online.
35
<PAGE> 42
<TABLE>
<CAPTION>
AGGREGATE VALUE PER
AGGREGATE VALUE TO ONE YEAR FORWARD
PROJECTED AGGREGATE VALUE PER PROJECTED
CALENDAR YEAR 1999 REVENUE CURRENT SUBSCRIBER SUBSCRIBER
-------------------------- ------------------- -------------------
<S> <C> <C> <C>
America Online 10.4 $ 3,073 $2,562
Internet portal companies 13.1 NA NA
Internet provider companies 6.0 $ 2,414 $2,321
cable companies 5.7 $ 3,040 $2,923
</TABLE>
No company utilized in the peer group comparison analysis as a comparison
is identical to Netscape or America Online. In evaluating the peer groups,
Morgan Stanley made judgments and assumptions with regard to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Netscape or America
Online, such as the impact of competition on the business of Netscape or America
Online and the industry generally, industry growth and the absence of any
adverse material change in the financial condition and prospects of Netscape or
America Online or the industry or in the financial markets in general.
Mathematical analysis, such as determining the average or median, is not in
itself a meaningful method of using peer group data.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Morgan Stanley reviewed a
number of Internet related transactions which consisted of:
- the acquisition of Mecklermedia Corporation by Fenton Media, Inc.
- the acquisition of Barnesandnoble.com by Bertelsmann AG
- the acquisition of WebLogic Inc. by BEA System, Inc.
- the acquisition of Icon CMT Corporation by Qwest Communications
International Inc.
- the acquisition of Who Where? Inc. by Lycos, Inc.
- the acquisition of Junglee Corporation by Amazon.com, Inc.
- the acquisition of 43% of Infoseek Corporation by Walt Disney Company
- the acquisition of Mirabilis, Ltd. by America Online
- the acquisition of EUNet International Ltd by Qwest Communications
International Inc.
- the acquisition of ActaMed Corporation by Healtheon Corporation
- the acquisition of Kiva Software Corporation by Netscape
- the acquisition of CompuServe Corporation by Worldcom, Inc.
- the acquisition of 19% of Excite, Inc. by Intuit Inc.
- the acquisition of Digex Inc. by Intermedia Communications Inc.
- the acquisition of BBN Corporation by GTE Corporation
- the acquisition of VeriFone, Inc. by Hewlett Packard Company
- the acquisition of Intuit Inc. Bill Payment Unit by Checkfree Corporation
- the acquisition of Border Network Technologies, Inc. by Secure Computing
Corporation
36
<PAGE> 43
- the acquisition of UUNet Technologies, Inc. by MFS Communications Company
- the acquisition of RSA Data Security, Inc. by Security Dynamics
Technologies, Inc.
- the acquisition of InSoft, Inc. by Netscape
- the acquisition of Illustra Information Technonlogies Inc. by Informix
Corporation
- the acquisition of Collabra Software, Inc. by Netscape
Morgan Stanley also reviewed a number of large capitalization software
transactions which consisted of:
- the acquisition of Boole & Babbage, Inc. by BMC Software, Inc.
- the acquisition of HBO & Company by McKesson Corporation
- the acquisition of Seagate Software, Inc NSMG by Veritas Software
Corporation
- the acquisition of Discreet Logic Inc. by AutoDesk, Inc.
- the acquisition of Memco Software Ltd. by Platinum Technology, Inc.
- the acquisition of Broderbund Software, Inc. by The Learning Company,
Inc.
- the acquisition of Dr Solomon's Group PLC by Network Associates, Inc.
- the acquisition of Hyperion Software Corporation by Arbor Software
Corporation
- the acquisition of Lacerte Software Corporation by Intuit Inc.
- the acquisition of Scopus Technology, Inc. by Siebel Systems, Inc.
- the acquisition of Wonderware Corporation by Siebe PLC
- the acquisition of Trusted Information Systems, Inc. by Network
Associates, Inc.
- the acquisition of BGS Systems, Inc. by BMC Software, Inc.
- the acquisition of Computer Language Research, Inc. by Thomson
Corporation
- the acquisition of Infinity Financial Technology, Inc. by SunGard Data
Systems Inc.
- the acquisition of Network General Corporation by McAfee Associates, Inc.
- the acquisition of Pure Atria Corporation by Rational Software
Corporation
- the acquisition of MDL Info Systems, Inc. by Reed Elsevier PLC
- the acquisition of OpenVision Technologies, Inc. by Veritas Software
Corporation
- the acquisition of SQA, Inc. by Rational Software Corporation
- the acquisition of Cheyenne Software, Inc. by Computer Associates
International, Inc.
- the acquisition of Landmark Graphics Corporation by Halliburton Company
- the acquisition of Atria Software, Inc. by Pure Software Inc.
- the acquisition of Tivoli Systems, Inc. by International Business
Machines Corporation
- the acquisition of The Learning Company, Inc. by SoftKey International
Inc.
37
<PAGE> 44
- the acquisition of Minnesota Educational Computing Corporation by SoftKey
International Inc.
- the acquisition of Delrina Corporation by Symantec Corporation
- the acquisition of Frame Technology Corporation by Adobe Systems
Incorporated
- the acquisition of Lotus Development Corporation by International
Business Machines Corporation
- the acquisition of Legent Corporation by Computer Associates
International, Inc.
- the acquisition of Alias Research, Inc. by Silicon Graphics, Inc.
- the acquisition of ACT Group PLC by Misys PLC
- the acquisition of Aldus Corporation by Adobe Systems Incorporated
- the acquisition of Finsiel SpA by STET
- the acquisition of Hoskyns Group PLC by Cap Gemini Sogeti SA
Morgan Stanley compared some publicly available statistics for the transactions
listed above to the relevant financial statistics for Netscape based on the
value of Netscape implied by the exchange ratio and the closing price for
Netscape common stock and America Online common stock as of November 19, 1998.
The following table presents the low, median and high 1 trading day and 30
trading day prior to announcement offer price premia as well as the 30 trading
day prior to announcement implied exchange ratio premia for the Internet
transactions and large capitalization software transactions, compared to the
respective offer price and implied exchange ratio premium for the merger as of
November 19, 1998.
<TABLE>
<CAPTION>
OFFER PRICE PREMIUM
---------------------------
1 DAY 30 DAY 30 DAY PRIOR TO
PRIOR TO PRIOR TO ANNOUNCEMENT EXCHANGE
ANNOUNCEMENT ANNOUNCEMENT RATIO PREMIUM
------------ ------------ ---------------------
<S> <C> <C> <C> <C>
Low -5.2% -5.0% 11.0%
Internet transactions Median 27.9% 41.0% 39.9%
High 67.6% 113.5% 76.5%
Low 0.0% -12.0% 1.9%
large cap software
transactions Median 32.5% 44.3% 31.2%
High 96.9% 109.3% 61.0%
Netscape 2.6% 111.4% 14.9%
</TABLE>
No transaction utilized as a comparison in the precedent transactions
analysis is identical to the merger. In evaluating the Internet and large
capitalization software transactions, Morgan Stanley made judgments and
assumptions with regard to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of Netscape or America Online, such as the impact of competition on
Netscape or America Online and the industry generally, industry growth and the
absence of any adverse material change in the financial condition and prospects
of Netscape or America Online or the industry or in the financial markets in
general. Mathematical analysis, such as determining the average or median, is
not in itself a meaningful method of using comparable transaction data.
RELATIVE CONTRIBUTION ANALYSIS. Morgan Stanley analyzed the pro forma
contribution of each of Netscape and America Online to the combined company
assuming completion
38
<PAGE> 45
of the merger and based on estimates from securities research analysts for both
companies. The analysis showed, among other things, that in terms of last 12
months' historical revenue, calendar year 1998 projected revenue and calendar
year 1999 projected revenue, Netscape would contribute 16.0%, 15.6% and 15.5%,
respectively, to the combined company. In terms of calendar year 1998 projected
earnings and calendar year 1999 projected earnings, Netscape would contribute
0.9% and 11.3%, respectively, to the combined company. These figures, adjusted
to reflect each company's respective capital structures, were compared to the
pro forma fully-diluted ownership of the combined company by Netscape
shareholders of 8.1% implied by the merger.
EXCHANGE RATIO ANALYSIS. Morgan Stanley reviewed the ratios of the closing
prices of Netscape common stock divided by the corresponding prices of America
Online over various periods during the twelve month period ending November 19,
1998 and computed the premia represented by the exchange ratio over the averages
of these daily ratios over various periods. The following table presents the
range of implied exchange ratios over the periods covered and the implied
exchange ratio as of November 19, 1998, compared to the exchange ratio of the
merger. The numbers in this table do not reflect America Online's two-for-one
stock split that will be effected on February 22, 1999.
<TABLE>
<CAPTION>
PERCENTAGE PREMIUM REPRESENTED
AVERAGE EXCHANGE RATIO BY EXCHANGE RATIO IN MERGER
PERIOD ENDING NOVEMBER 19, 1998 OVER PERIOD OVER HISTORICAL EXCHANGE RATIO
------------------------------- ---------------------- ------------------------------
<S> <C> <C>
As of November 19, 1998 0.439 3%
5 Trading Days 0.415 9%
10 Trading Days 0.403 12%
20 Trading Days 0.384 17%
30 Trading Days 0.391 15%
60 Trading Days 0.415 9%
90 Trading Days 0.449 0%
</TABLE>
DISCOUNTED EQUITY VALUE. Morgan Stanley performed an analysis of the
present value per share of Netscape on a standalone basis based on Netscape's
future trading price. Morgan Stanley observed that, based on a range of revenue
estimates based on the three estimates for the calendar year 2000, illustrative
multiples of revenue ranging from 3.0 times to 5.0 times and illustrative
discount rates of 17.7% to 20.0%, the present value per share of Netscape common
stock on a standalone basis ranged from $23.10 to $43.52. In addition, Morgan
Stanley observed that, based on the three estimates discussed above under the
subheading "Peer Group Comparison" for the calendar years 2000 and 2001,
illustrative multiples of earnings per share ranging from 50.0 times to 80.0
times and illustrative discount rates of 17.7% to 20.0%, the present value per
share of Netscape common stock on a standalone basis ranged from $15.94 to
$65.50.
Morgan Stanley also performed an analysis of the present value per share of
Netscape on a standalone basis based on Netscape's future trading price assuming
separation of Netscape's two primary businesses: Netcenter and Enterprise
Software. Morgan Stanley observed that for the Netcenter business, based on a
range of revenue estimates based on the three estimates for the calendar year
2000, illustrative multiples of revenue ranging from 9.5 times to 13.5 times and
illustrative discount rates of 17.7% to 20.0%, the present value per share of
Netscape common stock on a standalone basis ranged from $22.40 to $38.57 for the
Netcenter business. Additionally, Morgan Stanley observed that for the
Enterprise Software business, based on a range of revenue estimates based on the
three estimates for the calendar year 2000, illustrative multiples of revenue
ranging from 1.0 times to 3.0 times and illustrative discount rates of 17.7% to
20.0%, the present value per share of Netscape common stock on a standalone
basis ranged from $6.84 to $18.09 for
39
<PAGE> 46
the Enterprise Software business. Combining the two businesses and based on a
range of revenue estimates based on the three estimates for the calendar year
2000, yielded a present value per share of Netscape common stock on a standalone
basis which ranged from $29.24 to $56.66.
Morgan Stanley compared the results of the Netscape standalone analysis to
an analysis of the present value per share of the implied value of Netscape
based on America Online's future trading price assuming completion of the merger
and based on a range of revenue estimates based on securities research analysts
for both companies for calendar year 2000 and prior to any synergies resulting
from the merger, multiples of revenue ranging from 9.5 times to 13.5 times and
discount rates of 16.5% and 20.0%. Based on this analysis, Morgan Stanley
estimated a present value per equivalent share of Netscape common stock ranging
from $37.79 to $55.03. Morgan Stanley also compared the results of the
standalone analysis to an analysis of the present value per share of the implied
value of Netscape based on America Online's future trading price assuming
completion of the merger and based on a range of earnings per share estimates
based on securities research analysts for both companies for calendar years 2000
and 2001 and prior to any synergies resulting from the merger, multiples of
earnings per share ranging from 60.0 times to 100.0 times and discount rates of
16.5% and 20.0%. Based on this analysis, Morgan Stanley estimated present value
per equivalent share of Netscape common stock ranging from $24.21 to $53.18.
Morgan Stanley also performed an analysis of the present value per share of
America Online on a standalone basis. Morgan Stanley observed that, based on a
range of revenue estimates based on securities research analysts for the
calendar year 2000, illustrative multiples of revenue ranging from 9.5 times to
13.5 times and illustrative discount rates ranging from 16.4% to 20.0%, the
present value per share of America Online common stock on a standalone basis
ranged from $69.12 to $121.65. Morgan Stanley also observed that, based on a
range of earnings per share estimates based on securities research analysts for
the calendar years 2000 and 2001, illustrative multiples of earnings per share
ranging from 60.0 times to 100.0 times and illustrative discount rates ranging
from 16.4% to 20.0%, the present value per share of America Online common stock
on a standalone basis ranged from $41.98 to $139.49. Morgan Stanley observed
that the price of America Online common stock on November 19, 1998 was $83.38.
PRO FORMA MERGER ANALYSIS. Morgan Stanley analyzed the pro forma impact of
the merger on America Online's projected earnings per share for the calendar
years 1999 and 2000. Such analysis was based on earnings projections by
securities research analysts for both companies. Based on this analysis, Morgan
Stanley observed that, assuming that the merger was treated as a pooling
transaction, the merger would result in earnings per share accretion for America
Online shareholders of 3.4% and 2.5% for calendar years 1999 and 2000,
respectively, before taking into account any one-time charges or synergies.
In connection with the review of the merger by Netscape's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of its opinion given in connection therewith. The summary
set forth above does not purport to be a complete description of the analyses
performed by Morgan Stanley in connection with the merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley
40
<PAGE> 47
believes that selecting any portion of its analyses, without considering all
analyses, would create an incomplete view of the process underlying its opinion.
In addition, Morgan Stanley may have given various analyses and factors more or
less weight than other analyses and factors, and may have deemed various
assumptions more or less probable than other assumptions, so that the ranges of
valuations resulting from any particular analysis described above should not be
taken to be Morgan Stanley's view of the actual value of Netscape or America
Online.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Netscape or America
Online. Any estimates contained in Morgan Stanley's analysis are not necessarily
indicative of future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates. The analyses performed
were prepared solely as part of Morgan Stanley's analysis of the fairness of the
exchange ratio pursuant to the merger agreement from a financial point of view
to the holders of Netscape common stock and were conducted in connection with
the delivery of the Morgan Stanley opinion to Netscape's board of directors. The
analyses do not purport to be appraisals or to reflect the prices at which
Netscape common stock or America Online common stock might actually trade. The
exchange ratio pursuant to the merger agreement and other terms of the merger
agreement were determined through arm's-length negotiations between Netscape and
America Online and were approved by Netscape's board of directors. Morgan
Stanley provided advice to Netscape during such negotiations; however, Morgan
Stanley did not recommend any specific consideration to Netscape or that any
specific consideration constituted the only appropriate consideration for the
merger. In arriving at its opinion, Morgan Stanley was not authorized to
solicit, and did not solicit, interest from any party with respect to the
acquisition, business combination or other extraordinary transaction involving
Netscape, although in the course of its engagement, it did provide advice to
Netscape in connection with potential business combinations with parties other
than America Online. In addition, as described above, Morgan Stanley's opinion
and presentation to Netscape's board of directors was one of many factors taken
into consideration by Netscape's board of directors in making its decision to
approve the merger. Consequently, the Morgan Stanley analyses as described above
should not be viewed as determinative of the opinion of Netscape's board of
directors with respect to the value of Netscape or of whether Netscape's board
of directors would have been willing to agree to a different consideration.
Netscape's board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the ordinary course of
Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade or otherwise
effect transactions, for its own account or for the account of customers in the
equity or debt securities or senior loans of Netscape or America Online.
Pursuant to an engagement letter dated November 16, 1998, Morgan Stanley
provided financial advisory services and a financial fairness opinion in
connection with the merger, and Netscape agreed to pay Morgan Stanley a fee of
approximately $16.2 million in connection with the merger if the merger is
completed. This fee was calculated based on a
41
<PAGE> 48
percentage of the aggregate value of the transaction. Netscape has also agreed
to reimburse Morgan Stanley for its out-of-pocket expenses incurred by Morgan
Stanley in performing its services. In addition, Netscape has also agreed to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against liabilities and expenses, including
liabilities under the federal securities laws, related to or arising out of
Morgan Stanley's engagement and any related transactions.
In the past two years, Netscape retained Morgan Stanley for financing and
advisory assignments for which Morgan Stanley was paid customary fees in the
aggregate of approximately $360,000. These assignments included certain hedging
and sale transactions relating to marketable securities in June 1998 and a
November 1997 fairness opinion for the acquisition of Kiva Software, Inc. In the
past two years, America Online has also retained Morgan Stanley for financing
and advisory assignments for which Morgan Stanley was paid customary fees in the
aggregate of approximately $3.4 million. These assignments included a June 1998
equity block trade and a June 1998 fairness opinion for the acquisition of
Mirabilis, Ltd. In connection with these assignments for both Netscape and
America Online, Morgan Stanley was reimbursed for its out-of-pocket expenses.
Netscape and America Online also agreed to indemnify Morgan Stanley and its
affiliates, their respective directors, officers, agents and employees and each
person, if any, controlling Morgan Stanley or any of its affiliates against
liabilities and expenses, including liabilities under the federal securities
laws, related to or arising out of Morgan Stanley's engagement and any related
transactions.
INTERESTS OF CERTAIN NETSCAPE DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
When considering the recommendation of Netscape's board of directors, you
should be aware that certain Netscape directors and officers have interests in
the merger that are different from, or are in addition to, yours.
In particular, James L. Barksdale, Peter L. S. Currie, Roberta R. Katz and
Noreen G. Bergin have agreements with Netscape, entered into at the outset of
their employment, entitling them to continued service with Netscape or America
Online until all options granted to these officers by Netscape prior to the
merger have vested on their existing terms and all repurchase rights applicable
to restricted Netscape stock held by these officers prior to the merger have
lapsed. The number of shares of Netscape common stock subject to unvested
options held by those officers or held by them as restricted stock totaled
977,219, as of November 23, 1998. Other employees of Netscape are not entitled
to continued service and accordingly, upon termination, could lose the right to
any unvested options held by them.
In addition, unvested stock options granted under Netscape's 1995 Director
Option Plan to L. John Doerr, William V. Campbell and Eric A. Benhamou, each an
outside director of Netscape, will vest upon the completion of the merger. The
number of shares of Netscape common stock subject to unvested options held by
these outside directors that will vest upon completion of the merger totaled
84,499, as of November 23, 1998.
As of the record date, directors and executive officers of Netscape and
their affiliates beneficially owned approximately 22.1% of the outstanding
shares of Netscape common stock.
It is expected that James L. Barksdale, Netscape's Chief Executive Officer
and President, will join America Online's board of directors following the
merger and that Marc L. Andreessen, Netscape's Executive Vice
President-Products, will join America Online following the merger in the new
position of Chief Technology Officer. In addition,
42
<PAGE> 49
other executive officers of Netscape are in the process of negotiating the terms
of their employment with America Online should the merger be completed. These
terms are expected to be consistent with usual and customary business practice.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including adoption of the merger agreement
by the stockholders of Netscape. The merger will become effective upon the
filing of a certificate of merger with the State of Delaware.
We are working towards completing the merger as quickly as possible. We
hope to complete the merger during the spring of 1999.
STRUCTURE OF THE MERGER AND CONVERSION OF NETSCAPE COMMON STOCK
In accordance with the merger agreement and Delaware law, Apollo
Acquisition Corp., a newly-formed and wholly-owned subsidiary of America Online,
will be merged with and into Netscape. As a result of the merger, the separate
corporate existence of Apollo will cease and Netscape will survive the merger as
a wholly-owned subsidiary of America Online.
Upon completion of the merger, each outstanding share of Netscape common
stock, other than shares held by us and our subsidiaries, together with each
associated Netscape preferred stock purchase right, will be converted into the
right to receive 0.45 of a fully paid and nonassessable share of America Online
common stock, together with the associated America Online preferred stock
purchase right. The number of shares of America Online common stock issuable in
the merger will be proportionately adjusted for any additional future stock
split, stock dividend or similar event with respect to Netscape common stock or
America Online common stock effected between the date of the merger agreement
and the completion of the merger, including America Online's two-for-one stock
split which will be effected on February 22, 1999. Giving effect to America
Online's two-for-one stock split, each outstanding share of Netscape common
stock will be converted into the right to receive 0.9 of a fully paid and
nonassessable share of America Online common stock, together with one associated
America Online preferred stock purchase right.
No certificate or scrip representing fractional shares of America Online
common stock will be issued in connection with the merger. Instead you will
receive cash, without interest, in lieu of a fraction of a share of America
Online common stock. Specifically, the exchange agent in the merger will sell a
number of shares of America Online common stock equal to the aggregate number of
fractional shares that would otherwise be issuable in the merger and will remit
to you an amount equal to your pro rata portion of the proceeds of these sales.
EXCHANGE OF NETSCAPE STOCK CERTIFICATES FOR AMERICA ONLINE STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to you an
executed letter of transmittal and instructions for use in surrendering your
Netscape stock certificates in exchange for America Online stock certificates.
When you deliver your Netscape stock certificates to the exchange agent along
with a properly executed letter of transmittal and any other required documents,
your Netscape stock certificates will be canceled and you will receive America
Online stock certificates representing the number of full shares of America
Online common stock to which you are entitled under the merger agreement.
43
<PAGE> 50
You will receive payment in cash, without interest, in lieu of any fractional
shares of America Online common stock which would have been otherwise issuable
to you as a result of the merger.
YOU SHOULD NOT SUBMIT YOUR NETSCAPE STOCK CERTIFICATES FOR EXCHANGE UNLESS
AND UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT.
You are not entitled to receive any dividends or other distributions on
America Online common stock until the merger is completed and you have
surrendered your Netscape stock certificates in exchange for America Online
stock certificates.
If there is any dividend or other distribution on America Online common
stock with a record date after the merger and a payment date prior to the date
you surrender your Netscape stock certificates in exchange for America Online
stock certificates, you will receive it with respect to the whole shares of
America Online common stock issued to you promptly after they are issued. If
there is any dividend or other distribution on America Online common stock with
a record date after the merger and a payment date after the date you surrender
your Netscape stock certificates in exchange for America Online stock
certificates, you will receive it with respect to the whole shares of America
Online common stock issued to you promptly after the payment date.
America Online will only issue an America Online stock certificate or a
check in lieu of a fractional share in a name other than the name in which a
surrendered Netscape stock certificate is registered if you present the exchange
agent with all documents required to show and effect the unrecorded transfer of
ownership and show that you paid any applicable stock transfer taxes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
In the opinions of Skadden, Arps, Slate, Meagher & Flom LLP and Wilson
Sonsini Goodrich & Rosati, Professional Corporation, the following are the
material United States federal income tax consequences of the merger. These
opinions and the following discussion are based on and subject to the Internal
Revenue Code of 1986, the regulations promulgated thereunder, existing
administrative interpretations and court decisions, all of which are subject to
change, possibly with retroactive effect, and assumptions, limitations,
representations and covenants, including those contained in certificates of
officers of America Online and Netscape expected to be executed as of the
completion of the merger. This discussion does not address all aspects of United
States federal income taxation that may be important to you in light of your
particular circumstances or if you are subject to special rules, such as rules
relating to:
- stockholders who are not citizens or residents of the United States
- financial institutions
- tax-exempt organizations
- insurance companies
- dealers in securities
- stockholders who acquired their shares of Netscape common stock
pursuant to the exercise of options or similar derivative securities
or otherwise as compensation
- stockholders who hold their shares of Netscape common stock as part of
a straddle or conversion transaction
44
<PAGE> 51
This discussion assumes you hold your shares of Netscape common stock as
capital assets within the meaning of Section 1221 of the Internal Revenue Code.
Our obligations to complete the merger are conditioned on, subject to
waiver by America Online and Netscape, (1) the delivery of an opinion dated as
of the completion of the merger to America Online from Skadden, Arps, Slate,
Meagher & Flom LLP and (2) the delivery of an opinion dated as of the completion
of the merger to Netscape from Wilson Sonsini Goodrich & Rosati, Professional
Corporation, in each case regarding material United States federal income tax
consequences of the merger. Alternatively, this condition will also be satisfied
upon the delivery of such a tax opinion to America Online and Netscape from
either Skadden, Arps, Slate, Meagher & Flom or Wilson Sonsini Goodrich & Rosati.
The opinions discussed in the preceding paragraph will conclude as of the
completion of the merger that the merger will have the United States federal
income tax consequences discussed below. The opinions of counsel referred to
above will assume the absence of changes in existing facts and will rely on
assumptions, representations and covenants including those contained in
certificates executed by officers of America Online, Netscape and others and
dated as of the completion of the merger. The opinions referred to above neither
bind the IRS nor preclude the IRS from adopting a position contrary to that
expressed below, and no assurance can be given that contrary positions will not
be successfully asserted by the IRS or adopted by a court if the issues are
litigated. Neither of us intends to obtain a ruling from the IRS with respect to
the tax consequences of the merger.
TAX IMPLICATIONS TO AMERICA ONLINE STOCKHOLDERS. No gain or loss will be
recognized for United States federal income tax purposes by current stockholders
of America Online as a result of the merger.
TAX IMPLICATIONS TO NETSCAPE STOCKHOLDERS. Except as discussed below, you
will not recognize gain or loss for United States federal income tax purposes
when you exchange your Netscape common stock for America Online common stock
pursuant to the merger. The aggregate tax basis of the America Online common
stock you receive as a result of the merger will be the same as your aggregate
tax basis in the Netscape common stock you surrender in the exchange, reduced by
the tax basis of any shares of Netscape common stock for which you receive cash
instead of fractional shares of America Online common stock. The holding period
of the America Online common stock you receive as a result of the exchange will
include the period during which you held the Netscape common stock you exchange
in the merger. You will recognize gain or loss for United States federal income
tax purposes with respect to the cash you receive instead of a fractional share
interest in America Online common stock. Your gain or loss will be measured by
the difference between the amount of cash you receive and the portion of the tax
basis of your shares of Netscape common stock allocable to the shares of
Netscape common stock exchanged for such fractional share interest. This gain or
loss will be capital gain or loss and will be a long-term capital gain or loss
if your shares of Netscape common stock have been held for more than one year at
the time the merger is completed.
TAX IMPLICATIONS TO AMERICA ONLINE, NETSCAPE AND APOLLO. America Online,
Netscape and Apollo will not recognize gain or loss for United States federal
income tax purposes as a result of the merger.
THIS FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OR
ANY OTHER CONSEQUENCES OF
45
<PAGE> 52
THE MERGER. IN ADDITION, THIS DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH
MAY VARY WITH, OR ARE CONTINGENT ON, YOUR INDIVIDUAL CIRCUMSTANCES. MOREOVER,
THIS DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR
LOCAL TAX CONSEQUENCES OF THE MERGER. ACCORDINGLY, YOU ARE STRONGLY URGED TO
CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE PARTICULAR UNITED STATES FEDERAL,
STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES TO YOU OF THE MERGER.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger as a "pooling of interests" business
combination. It is a condition to completion of the merger that America Online
be advised by Ernst & Young LLP that they concur with America Online's
conclusion that the transactions contemplated by the merger agreement can
properly be accounted for as a "pooling of interests" business combination,
although this condition may be waived by America Online. Under the "pooling of
interests" method of accounting, each of our historical recorded assets and
liabilities will be carried forward to the combined company at their recorded
amounts. In addition, the operating results of the combined company will include
our operating results for the entire fiscal year in which the merger is
completed and our historical reported operating results for prior periods will
be combined and restated as the operating results of the combined company.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 which prevents some transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade Commission
and certain waiting periods end or expire. We believe that we have substantially
complied with all requests for information from the Department of Justice and
the Federal Trade Commission and we expect that the applicable waiting periods
will expire February 28, 1999. In addition, we have made similar filings
required to be made prior to completion of the merger relating to compliance
with foreign antitrust regulations. The requirements of Hart-Scott-Rodino will
be satisfied if the merger is completed within one year from the termination of
the waiting period.
However, the Antitrust Division of the Department of Justice or the Federal
Trade Commission may challenge the merger on antitrust grounds either before or
after expiration of the waiting period. Accordingly, at any time before or after
the completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws as it deems necessary or desirable in the public interest, or other persons
could take action under the antitrust laws, including seeking to enjoin the
merger. Additionally, at any time before or after the completion of the merger,
notwithstanding that the applicable waiting period expired or ended, any state
could take action under the antitrust laws as it deems necessary or desirable in
the public interest. There can be no assurance that a challenge to the merger
will not be made or that, if a challenge is made, we will prevail.
Neither of us is aware of any other material governmental or regulatory
approval required for completion of the merger, other than compliance with
applicable corporate law of Delaware.
46
<PAGE> 53
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF NETSCAPE AND AMERICA ONLINE
The shares of America Online common stock to be issued in connection with
the merger will be registered under the Securities Act of 1933 and will be
freely transferable under the Securities Act, except for shares of America
Online common stock issued to any person who is deemed to be an "affiliate" of
either of us at the time of the special meeting. Persons who may be deemed to be
affiliates include individuals or entities that control, are controlled by, or
are under common control of either of us and may include some of our officers
and directors, as well as our principal stockholders. Affiliates may not sell
their shares of America Online common stock acquired in connection with the
merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares
- an exemption under paragraph (d) of Rule 145 under the Securities Act
- any other applicable exemption under the Securities Act
America Online's registration statement on Form S-4, of which this proxy
statement-prospectus forms a part, does not cover the resale of shares of
America Online common stock to be received by our affiliates in the merger.
LISTING ON THE NEW YORK STOCK EXCHANGE OF AMERICA ONLINE COMMON STOCK TO BE
ISSUED IN THE MERGER
America Online will use reasonable efforts to cause the shares of America
Online common stock to be issued in the merger to be approved for listing on the
New York Stock Exchange, subject to official notice of issuance, before the
completion of the merger.
DISSENTERS' AND APPRAISAL RIGHTS
You are not entitled to exercise dissenter's or appraisal rights as a
result of the merger or to demand payment for your shares under Delaware law.
DELISTING AND DEREGISTRATION OF NETSCAPE COMMON STOCK AFTER THE MERGER
If the merger is completed, Netscape common stock will be delisted from the
Nasdaq National Market and will be deregistered under the Securities Exchange
Act of 1934.
THE MERGER AGREEMENT
Please note that the italicized terms ACQUISITION PROPOSAL and MATERIAL
ADVERSE EFFECT used in this section are defined on pages 50 and 54,
respectively.
OUR REPRESENTATIONS AND WARRANTIES. We each made a number of
representations and warranties in the merger agreement regarding aspects of our
respective businesses, financial condition, structure and other facts pertinent
to the merger.
The representations given by Netscape cover the following topics, among
others, as they relate to Netscape and its subsidiaries:
- Netscape's corporate organization and its qualification to do business
- Netscape's certificate of incorporation and bylaws
- Netscape's capitalization
47
<PAGE> 54
- authorization of the merger agreement by Netscape
- regulatory approvals required to complete the merger
- the effect of the merger on obligations of Netscape and under applicable
laws
- Netscape's filings and reports with the Securities and Exchange
Commission
- Netscape's financial statements
- Netscape's liabilities
- changes in Netscape's business since July 31, 1998
- Netscape's title to the properties it owns and leases
- Netscape's material contracts
- Netscape's insurance
- the possession of and compliance with permits required to conduct
Netscape's business
- litigation involving Netscape
- Netscape's compliance with applicable laws
- information supplied by Netscape in this proxy statement-prospectus and
the related registration statement filed by America Online
- Netscape's employee benefit plans
- Netscape's taxes
- environmental laws that apply to Netscape
- intellectual property used by Netscape
- the treatment of the merger as a "pooling of interests" and a tax-free
reorganization
- identification of Netscape's affiliates
- Netscape's business practices with respect to certain sensitive payments
- Netscape's financial advisors
- Netscape's interest rate and foreign exchange contracts
- the inapplicability of Netscape's stockholders rights agreement or
"poison pill" to the merger
The representations given by America Online cover the following topics,
among others, as they relate to America Online and its subsidiaries:
- America Online's corporate organization and its qualification to do
business
- America Online's certificate of incorporation and bylaws
- America Online's capitalization
- authorization of the merger agreement by America Online and Apollo
- regulatory approvals required to complete the merger
- the effect of the merger on obligations of America Online and under
applicable laws
48
<PAGE> 55
- America Online's filings and reports with the Securities and Exchange
Commission
- America Online's financial statements
- changes in America Online's business since September 30, 1998
- information supplied by America Online in this proxy statement-prospectus
and the related registration statement filed by America Online
- the treatment of the merger as a "pooling of interests" and a tax-free
reorganization
- identification of America Online's affiliates
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to carefully read the articles of the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of the Acquiror Companies."
NETSCAPE'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER. Netscape
agreed that until the completion of the merger or unless America Online consents
in writing, Netscape and its subsidiaries will operate its businesses in good
faith with the goal of:
- preserving intact its assets and current business organizations
- keeping available the services of its current officers and employees
- maintaining its material contracts and preserving its relationships with:
-- customers
-- suppliers
-- creditors
-- brokers
-- agents
-- others having business dealings with them
Netscape also agreed that until the completion of the merger or unless
America Online consents in writing, Netscape and its subsidiaries would conduct
their business in compliance with specific restrictions relating to the
following:
- the issuance and redemption of securities
- the issuance of dividends or other distributions
- the liquidation or restructuring of, or merger involving Netscape
- modification of Netscape's certificate of incorporation and bylaws
- the incurrence of indebtedness
- the acquisition of assets or other entities
- the disposition of Netscape's assets
- capital expenditures
- entrance into or modification of contracts
- employees and employee benefits
- accounting policies and procedures
- liens
49
<PAGE> 56
- settlement of litigation and claims
- changes in interest rate and foreign exchange positions
- tax elections and liabilities
- insurance
- Netscape's Year 2000 compliance plan
The agreements related to the conduct of Netscape's business in the merger
agreement are complicated and not easily summarized. You are urged to carefully
read the article of the merger agreement entitled "Covenants Relating to the
Conduct of Business."
NO OTHER NEGOTIATIONS INVOLVING NETSCAPE. Until the merger is completed or
the merger agreement is terminated, Netscape has agreed not to take any of the
following actions:
- solicit, initiate or knowingly encourage any Acquisition Proposal
- engage in discussions or provide non-public information relating to
Netscape to any person that has made or expressed interest in making an
Acquisition Proposal
Netscape has agreed to provide America Online with detailed information
about any Acquisition Proposal it receives.
However, Netscape may engage in any of these acts otherwise prohibited,
other than solicitation, initiation or knowing encouragement of an Acquisition
Proposal, if both of the following occur:
- Netscape's board of directors believes in good faith that the Acquisition
Proposal will result in a transaction providing aggregate value greater
than the merger and that the Acquisition Proposal is reasonably capable
of being financed
- Netscape's board of directors determines in good faith that the failure
to engage in the prohibited negotiations or discussions or provide the
non-public information is a breach of the fiduciary duties of the board
under applicable law
An ACQUISITION PROPOSAL is any offer or proposal involving Netscape and its
subsidiaries other than the transactions contemplated by the merger agreement
and other than in the ordinary course of business for any of the following:
- a merger or other transaction that would result in a party other than
America Online owning 20% or more of any class of equity securities of
Netscape and its subsidiaries
- the acquisition of 20% or more of any class of equity securities of
Netscape and its subsidiaries
- any tender offer or exchange offer, that, if completed, would result in
any person or party, other than America Online, beneficially owning 20%
or more of any class of equity securities of Netscape and its
subsidiaries
- the acquisition or license of a substantial portion of the technology,
business or assets of Netscape and its subsidiaries
NETSCAPE'S EMPLOYEE BENEFIT PLANS. Individuals who are employed by
Netscape when the merger is completed will become employees of America Online or
one of America Online's subsidiaries, although America Online may terminate
these employees at any time. America Online will give these former Netscape
employees full credit for their service with Netscape and its subsidiaries for
purposes of:
50
<PAGE> 57
- eligibility, including service and waiting period requirements
- vesting
- benefit accrual
- determination of the level of benefits under any employee benefit plans
or arrangements maintained by America Online to the same extent
recognized by Netscape and its subsidiaries immediately before the merger
America Online will also waive some limitations as to preexisting
conditions, exclusions, waiting periods and service requirements under any
welfare benefit plans that former Netscape employees may be eligible to
participate in after completion of the merger. America Online will provide
former Netscape employees with credit for any co-payments and deductibles paid
before completion of the merger, as shown on Netscape's records, in satisfying
any applicable deductible or out-of-pocket requirements under any welfare
benefit plans that former Netscape employees are eligible to participate in
after the merger.
For six months after completion of the merger, the coverage and benefits
provided to former Netscape employees pursuant to employee benefit plans or
arrangements maintained by either of us will be, in the aggregate, not less
favorable than those provided to employees immediately prior to completion of
the merger.
TREATMENT OF NETSCAPE STOCK OPTIONS. Each stock option or warrant issued
by Netscape will be assumed by America Online, including options under each of
the following:
- Netscape 1994 Stock Option Plan
- Netscape 1995 Stock Plan
- Netscape 1998 Stock Option Plan
- Netscape 1995 Director Option Plan
- Collabra Software, Inc. 1993 Incentive Stock Option Plan
- Insoft, Inc. 1993 Stock Option Plan
- Netcode Corp. 1996 Stock Plan
- DigitalStyle Corp. 1995 Stock Option/Stock Issuance Plan
- Portola Communications, Inc. 1996 Stock Option Plan
- Kiva Software Corp. 1995 Stock Option Plan
- Mosaic Communications Corporation 1994 Stock Option Plan
- AtWeb, Inc. 1997 Stock Plan
Upon completion of the merger, each outstanding option to purchase Netscape
common stock will be converted, in accordance with its terms, into an option to
purchase the number of shares of America Online common stock equal to 0.45, the
exchange ratio prior to adjustment for America Online's two-for-one stock split
which will be effected on February 22, 1999, times the number of shares of
Netscape common stock which could have been obtained before the merger upon the
exercise of each option, rounded down to the nearest whole share. The exercise
price will be equal to the exercise price per share of
51
<PAGE> 58
Netscape common stock subject to the option before conversion divided by 0.45,
rounded up to the nearest whole cent.
Giving effect to America Online's two-for-one stock split, upon completion
of the merger, each outstanding option to purchase Netscape common stock will be
converted, in accordance with its terms, into an option to purchase the number
of shares of America Online common stock equal to 0.9 times the number of shares
of Netscape common stock which could have been obtained before the merger upon
the exercise of each option, rounded down to the nearest whole share. The
exercise price will be equal to the exercise price per share of Netscape common
stock subject to the option before conversion divided by 0.9, rounded up to the
nearest whole cent.
The other terms of each option and the Netscape option plans referred to
above under which the options were issued will continue to apply in accordance
with their terms, including any provisions providing for acceleration. Upon
completion of the merger, each outstanding award, including restricted stock,
stock equivalents and stock units, under any employee incentive or benefit
plans, programs or arrangements maintained by Netscape which provide for grants
of equity-based awards will be amended or converted into a similar instrument of
America Online, with adjustments to preserve their value. The other terms of
each Netscape award, and the plans or agreements under which they were issued,
will continue to apply in accordance with their terms, including any provisions
providing for acceleration.
America Online will file a registration statement on Form S-8 for the
shares of America Online common stock issuable with respect to options under the
Netscape stock option plans and will use its commercially reasonable efforts to
maintain the effectiveness of that registration statement for as long as any of
the options remain outstanding, to the same extent as America Online maintains
the effectiveness of its existing Forms S-8.
CONDITIONS TO COMPLETION OF THE MERGER. Our respective obligations to
complete the merger and the other transactions contemplated by the merger
agreement are subject to the satisfaction or waiver of each of the following
conditions before completion of the merger:
- America Online's registration statement on Form S-4 must be effective
- the merger agreement must be adopted by the holders of a majority of the
outstanding shares of Netscape common stock
- no law, regulation or order must be enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger substantially on the terms contemplated by the merger
agreement
- all applicable approvals and consents required to complete the merger
must be received and all applicable waiting periods under applicable
antitrust laws must have expired or been terminated
- the shares of America Online common stock to be issued in the merger must
be approved for listing, subject to official notice of issuance, on the
New York Stock Exchange
- America Online must have been advised in writing by Ernst & Young LLP
that they concur with America Online's conclusion that the transactions
contemplated by the merger agreement, if completed, can properly be
accounted for as a "pooling of interests" business combination in
accordance with generally accepted accounting
52
<PAGE> 59
principles and the criteria of Accounting Principles Board Opinion No. 16
and the regulations of the Securities and Exchange Commission
However, (1) to the extent that one of us breaches sections of the merger
agreement related to whether it has taken or will take any action that would
prevent the merger from being treated for financial accounting purposes as a
"pooling of interests" and (2) but for such breach, this condition could have
been satisfied, then the obligations of that party to effect the merger will not
be subject to this pooling condition, provided that if the breach is curable,
the breaching party will have an opportunity to cure the breach.
America Online's obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- Netscape's representations and warranties, including Netscape's
representation that there is not and has not been a Material Adverse
Effect on either of Netscape's business segments since July 31, 1998,
must be true and correct as of November 23, 1998 and at and as of the
date the merger is to be completed as if made at and as of such time
except that if any of Netscape's representations and warranties are not
true and correct but the cumulative effect of all inaccuracies of
Netscape's representations and breaches of such warranties does not have
a Material Adverse Effect on Netscape, then this condition will be deemed
satisfied
- Separately, Netscape's representations and warranties related to
intellectual property must be true and correct as of November 23, 1998
and at and as of the date the merger is to be completed as if made at and
as of such time except that if any of these representations and
warranties are not true and correct but the cumulative effect of all
inaccuracies of these representations and breaches of these warranties
does not have a Material Adverse Effect on any of Netscape's business
segments, then this condition will be deemed satisfied
- Netscape must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement
- Any third party consents under material contracts related to a change in
control of Netscape must be obtained except where the failure to obtain
consents will not have a Material Adverse Effect on Netscape
- America Online must receive the opinion of its tax counsel, Skadden,
Arps, Slate, Meagher & Flom LLP to the effect that the merger will
qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code. However, this condition will be satisfied
regardless of whether Skadden, Arps, Slate, Meagher & Flom renders such
opinion if Wilson Sonsini Goodrich & Rosati, Professional Corporation,
tax counsel to Netscape, renders such opinion
- Netscape's affiliates must deliver an executed affiliate agreement to
America Online, which is in full force and effect
- Netscape's stockholders' rights agreement must not apply to America
Online or any of its affiliates as a result of the merger agreement, the
stock option agreement or the voting agreement, or to the merger. In
addition, all the rights issued under Netscape's rights agreement must be
canceled upon completion of the merger
53
<PAGE> 60
Netscape's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
- America Online's representations and warranties, including America
Online's representation that there is not and has not been a Material
Adverse Effect on America Online since September 30, 1998 must be true
and correct as of November 23, 1998 and at and as of the date the merger
is to be completed as if made at and as of such time except if any of
these representations and warranties are not true and correct but the
cumulative effect of all inaccuracies of these representations and
breaches of these warranties does not have a Material Adverse Effect on
America Online, then this condition will be deemed satisfied
- America Online must perform or comply in all material respects with all
of its agreements and covenants required by the merger agreement
- Netscape must receive the opinion of its tax counsel, Wilson Sonsini
Goodrich & Rosati, Professional Corporation, to the effect that the
Merger will qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code. However, this condition will be
satisfied regardless of whether Wilson Sonsini Goodrich & Rosati renders
such opinion if Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to
America Online, renders such opinion
A MATERIAL ADVERSE EFFECT is any change, event or effect that individually
or in the aggregate, has had, or is reasonably likely to have, a material
adverse effect on the consolidated business, results of operations or financial
condition of America Online or Netscape and their respective subsidiaries, taken
as a whole. However, there will be no Material Adverse Effect to the extent that
any change, event or effect results from:
- the direct effect of the public announcement of the transactions
contemplated by the merger agreement on Netscape's current or prospective
customers or revenues
- changes in general economic conditions or changes affecting the industry
generally in which America Online or Netscape operates
- stockholder class action litigation arising from allegations of a breach
of fiduciary duty relating to the merger agreement
Netscape will bear the burden of proof in any proceeding before a court with
regard to establishing that any change, event or effect is attributable to or
results from the direct effect of the public announcement or pendency of the
transactions contemplated by the merger agreement.
TERMINATION OF THE MERGER AGREEMENT. The merger agreement may be
terminated at any time prior to completion of the merger, whether before or
after adoption of the merger agreement by Netscape stockholders:
- by mutual consent of America Online and Netscape
- by America Online, upon a material breach of any covenant or agreement on
the part of Netscape set forth in the merger agreement, or if any of
Netscape's representations or warranties are or become untrue or
inaccurate so that the corresponding condition to completion of the
merger would not be met. However, if the breach or inaccuracy is curable
by Netscape through the exercise of its reasonable efforts and Netscape
continues to exercise such reasonable efforts,
54
<PAGE> 61
America Online may not terminate the merger agreement if the breach or
inaccuracy is cured prior to June 30, 1999
- by Netscape, upon a material breach of any covenant or agreement on the
part of America Online set forth in the merger agreement, or if any of
America Online's representations or warranties are or become untrue or
inaccurate so that the corresponding condition to completion of the
merger would not be met. However, if the breach or inaccuracy is curable
by America Online through the exercise of its reasonable efforts and
America Online continues to exercise such reasonable efforts, Netscape
may not terminate the merger agreement if the breach or inaccuracy is
cured prior to June 30, 1999
- by America Online or Netscape, if there is any order of a court or
governmental authority permanently prohibiting the completion of the
merger which is final and nonappealable, unless the party relying on such
order has not complied with certain of its obligations under the merger
agreement
- by America Online or Netscape, if the merger is not completed before June
30, 1999 except that the right to terminate the merger agreement is not
available to any party whose failure to fulfill any obligation under the
merger agreement has been a cause of the failure to complete the merger
on or before June 30, 1999
- by America Online or Netscape, if the merger agreement fails to receive
the requisite vote for adoption by the stockholders of Netscape at the
Netscape special meeting
- by America Online:
-- if Netscape's board of directors fails to recommend adoption of the
merger agreement by the stockholders of Netscape or withdraws or
modifies, or publicly announces an intention to withdraw or modify, in
any adverse manner its approval or recommendation of the merger
-- if Netscape's board of directors makes any public recommendation with
respect to any Acquisition Proposal other than a recommendation to
reject such Acquisition Proposal (see the definition of Acquisition
Proposal on page 50 of this proxy statement-prospectus)
-- if Netscape takes any action prohibited by the merger agreement with
respect to the persons or entities who have made or may make an
Acquisition Proposal
-- if Netscape breaches the stock option agreement in any material respect
-- if Netscape's board of directors resolves to take any of the actions
specified above
PAYMENT OF TERMINATION FEE. Netscape will pay to America Online a
termination fee of $100 million promptly, but not later than two business days
after the date the merger agreement is terminated because:
- Netscape's board of directors fails to recommend adoption of the merger
agreement by the stockholders of Netscape
- Netscape's board of directors withdraws or modifies, or publicly
announces an intention to withdraw or modify, in any adverse manner its
approval or recommendation of the merger agreement or the merger
55
<PAGE> 62
- Netscape's board of directors makes any public recommendation with
respect to any Acquisition Proposal other than a recommendation to
reject such Acquisition Proposal (see the definition of Acquisition
Proposal on page 50 of this proxy statement-prospectus)
- Netscape takes any action prohibited by the merger agreement with
respect to the persons, groups or entities who have made or may make an
Acquisition Proposal
- Netscape breaches in any material respect the stock option agreement
- Netscape's board of directors resolves to take any of the actions
specified above
In addition, Netscape will pay to America Online a termination fee of $100
million promptly, but not later than two days after satisfaction of the
following conditions:
- the merger agreement is terminated by America Online because of the
failure to obtain the required adoption of the merger agreement by
Netscape stockholders if an Acquisition Proposal is publicly announced or
disclosed at or prior to the Netscape special meeting, whether or not the
offer, proposal, announcement or agreement has been rejected or withdrawn
before the time of the termination or before the Netscape stockholder
meeting and any of the following occur within 6 months following
termination of the merger agreement:
-- a third party or "group," within the meaning of Rule 13d-5 under the
Securities Exchange Act of 1934 directly or indirectly, acquires
Netscape common stock which results in the third party or "group"
having beneficial ownership of 35% or more of the then outstanding
Netscape common stock, other than an underwriter who acquires such
beneficial ownership pursuant to a bonafide underwritten offering
-- a sale, transfer or license having a similar effect as a sale or
transfer, of 35% or more of the fair market value of the assets of
Netscape is completed with a third party or "group," other than in the
ordinary course of business
-- a definitive agreement with respect to any transaction referred to
above is executed by Netscape or any of its subsidiaries
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT. We may amend the
merger agreement before completion of the merger. However, after the Netscape
stockholders adopt the merger agreement, no change will be made to the number of
shares of America Online common stock for which Netscape common stock will be
converted.
Either of us may extend the other's time for the performance of any of the
obligations or other acts under the merger agreement, waive any inaccuracies in
the other's representations and warranties and waive compliance by the other
with any of the agreements or conditions contained in the merger agreement. If
any of either of our conditions or other obligations are waived, we will
consider the facts and circumstances at that time and make a determination as to
whether a resolicitation of proxies is appropriate.
THE STOCK OPTION AGREEMENT
America Online required Netscape to enter into the stock option agreement
as a prerequisite to entering into the merger agreement. The stock option
agreement grants America Online the option to buy up to 19,887,317 shares of
Netscape common stock at an exercise price of $33.94 per share. The exercise
price is (1) the average of the closing prices for a share of America Online
common stock for the 10 trading days through
56
<PAGE> 63
November 20, 1998, times (2) 0.45, the exchange ratio prior to adjustment for
America Online's two-for-one stock split which will be effected on February 22,
1999. The number of shares issuable upon exercise of the option and the exercise
price of the option are subject to adjustment to prevent dilution. Based on the
number of shares of Netscape common stock outstanding on November 23, 1998, the
option would be exercisable for approximately 19.9% of the outstanding shares of
Netscape common stock, or 16.6% after issuance of the shares of Netscape common
stock subject to the option.
The option is intended to increase the likelihood that the merger will be
completed. Consequently, aspects of the stock option agreement may have the
effect of discouraging persons who might now or at any time be interested in
acquiring all or a significant interest in Netscape or its assets before
completion of the merger.
America Online may exercise the option, in whole or part up to one year
from the date on which America Online first has the right to receive the
termination fee, other than because of termination of the merger agreement
because of Netscape's breach of the stock option agreement. However, the option
will not be exercisable if, at the time the merger agreement is terminated,
America Online is in breach of the merger agreement and the effect of America
Online's breach is materially adverse to Netscape.
Furthermore, the option will terminate and not become exercisable upon any
of the following:
- completion of the merger
- the termination of the merger agreement other than under circumstances
which cause the option to become exercisable or in which it is still
possible that the option would become exercisable
- six months after termination of the merger agreement if the option has
not become exercisable
Upon the occurrence of events set forth in the stock option agreement,
Netscape is required to repurchase the option or the shares issued upon exercise
of the option. In addition, the stock option agreement grants registration
rights to America Online with respect to the shares of Netscape common stock
represented by the option. Also, Netscape is entitled to a right of first
refusal if America Online desires to sell all or any part of the option or
shares of Netscape common stock acquired by America Online through its exercise
of the option.
THE VOTING AGREEMENT
America Online required Netscape stockholders James L. Barksdale, Marc L.
Andreessen and James H. Clark to enter into a voting agreement. The voting
agreement requires these Netscape stockholders to vote all of the shares of
Netscape common stock beneficially owned by them in favor of the merger.
As of the record date, the Netscape stockholders who entered into the
voting agreement collectively held approximately 20,232,546 shares of Netscape
common stock which represented approximately 19.4% of the outstanding Netscape
common stock. None of the stockholders who are parties to the voting agreement
was paid additional consideration in connection with the voting agreement.
Each Netscape stockholder who is a party to the voting agreement agreed not
to sell the Netscape stock and options owned, controlled or acquired, either
directly or indirectly, by that person until the termination of the voting
agreement without the prior written
57
<PAGE> 64
consent of America Online. However, the stockholders may sell their stock or
options if the person to whom the Netscape stock or options are to be sold
agrees to be bound by the voting agreement.
The voting agreement will terminate upon the earliest to occur of the
termination of the merger agreement in accordance with its terms or the
completion of the merger.
OPERATIONS AFTER THE MERGER
Following the merger, Netscape will continue its operations as a
wholly-owned subsidiary of America Online. The membership of America Online's
board of directors will remain unchanged as a result of the merger, except that
it is expected that James L. Barksdale, Netscape's Chief Executive Officer and
President, will join the America Online board of directors. In addition, it is
expected that Marc L. Andreessen, Netscape's Executive Vice President-Products,
will join America Online following the merger in the new position of Chief
Technology Officer. However, Mr. Barksdale's board membership and Mr.
Andreessen's employment are not required as a condition to closing the merger.
The stockholders of Netscape will become stockholders of America Online, and
their rights as stockholders will be governed by the America Online Restated
Certificate of Incorporation, as currently in effect the America Online Restated
Bylaws and the laws of the State of Delaware. See "Comparison of Rights of
Holders of Netscape Common Stock and America Online Common Stock."
America Online intends to maintain its working relationship with Microsoft;
America Online intends to continue to include Internet Explorer as the default
browser on the AOL service. America Online's multi-year agreement with Microsoft
provides that, under these circumstances, Microsoft will continue to include
America Online software in the Windows operating system and promote the AOL
services on the desktop.
58
<PAGE> 65
AMERICA ONLINE'S STRATEGIC ALLIANCE
WITH SUN MICROSYSTEMS
As of November 23, 1998, America Online and Sun Microsystems, Inc. entered
into a strategic alliance in which:
- America Online and Sun have committed to collaboratively develop, market
and sell client and server software to customers worldwide
- America Online and Sun have committed to collaboratively develop an
America Online-specific Java environment that will enable America Online
services to be accessed through a variety of hardware devices
- America Online has committed to purchase computer hardware and related
services from Sun
- Sun has committed to purchase online advertising and dial-up access from
America Online
The strategic alliance provides that, over a three year period, America
Online will develop and market, together with Sun, client software and network
application and server software for electronic commerce, extended communities
and connectivity, including software based in part on the Netscape code base, on
Sun code and technology and on certain America Online services features, to
business enterprises.
America Online and Sun have agreed to coordinate their sales efforts and
share revenues with respect to designated collaboratively developed client
software and network application and server software and associated services.
America Online and Sun will each retain ownership of all pre-existing
intellectual property, including software and technology, which will be used in
the development activities. If the merger is completed, the pre-existing
intellectual property of which America Online will retain ownership will include
Netscape's pre-existing intellectual property. America Online will own
proprietary rights in collaboratively developed client software, and Sun will
own proprietary rights in collaboratively developed network application and
server software. In this regard, America Online and Sun have granted to each
other non-exclusive, irrevocable, perpetual, worldwide and royalty free software
licenses for the collaboratively developed software in which they will own
proprietary rights, as well as non-exclusive, perpetual, non-terminable and
fully sublicenseable patent licenses to any patents which are developed in the
course of the development activities.
In addition, America Online has granted to Sun a limited license to
existing Netscape software source code to permit Sun, working with America
Online, to create software in connection with the collaborative development
activities. America Online has also granted to Sun a license to distribute
commercially existing Netscape software.
America Online and Sun will work together to design, develop and implement
software and related technology based upon the Java platform that is intended to
enable America Online services to be accessed through a variety of hardware
devices.
Sun has committed that the total revenue earned by America Online from
certain existing Netscape contracts, the sale or license of certain America
Online and Netscape software products and services, the sale or license of
certain collaboratively developed software products and services and the license
to Sun to distribute commercially existing Netscape software will not be less
than $312 million, $330 million and $333 million in the first, second and third
years following the merger, respectively; for these purposes, a
59
<PAGE> 66
portion of total revenue is determined as a percentage of gross margin or net of
sales commissions earned by Sun. In addition, America Online will receive
approximately $275 million in licensing fees and approximately $75 million in
marketing and advertising fees from Sun over the three years following the
merger. America Online has committed to purchase systems worth $500 million at
list price and related services from Sun during the period between November 1,
1998 and June 30, 2002 for its own use.
Complementing the strategic alliance, America Online and Sun entered into
customary agreements under which Sun will purchase remote dial-up network access
services from America Online which will enable Sun's employees to access Sun's
network and the AOL service via a dial-up IP connection. The minimum aggregate
usage fee payable by Sun for the remote dial-up network access services is $7
million for the term of the agreement.
The merger is not conditioned on America Online's strategic alliance with
Sun. The strategic alliance is provided for in a number of agreements between
America Online and Sun, including a Strategic Development and Marketing
Agreement and a Service Provider Agreement. Certain aspects of the strategic
alliance as described above assume completion of the merger. If the merger is
not completed by June 30, 1999, America Online and Sun have agreed to negotiate
in good faith for a period of 30 days thereafter in an effort to agree to
alternative terms for the strategic alliance, and either party may terminate the
Strategic Development and Marketing Agreement if they fail to agree on
alternative terms in that period. Copies of the Strategic Development and
Marketing Agreement and the Sun Microsystems, Inc. Service Provider Agreement
have been filed with the Securities and Exchange Commission as exhibits to
America Online's registration statement on Form S-4 of which this proxy
statement-prospectus is a part and which have been incorporated by reference
into this proxy statement-prospectus.
60
<PAGE> 67
COMPARATIVE PER SHARE MARKET PRICE DATA
Netscape common stock is traded on the Nasdaq National Market under the
symbol "NSCP." America Online common stock is traded on the New York Stock
Exchange under the symbol "AOL." Because the market price of America Online
common stock that you will receive in the merger may increase or decrease before
the merger, you are urged to obtain current market quotations.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of Netscape common stock as reported on the
Nasdaq National Market and per share of America Online common stock as quoted on
the New York Stock Exchange.
The prices in the following tables have been adjusted to reflect Netscape's
two-for-one stock split which was effected in January of 1996 and America
Online's two-for-one stock splits which were effected in March and November of
1998, but have not been adjusted to reflect America Online's two-for-one stock
split which will be effected on February 22, 1999.
<TABLE>
<CAPTION>
NETSCAPE AMERICA ONLINE
COMMON STOCK COMMON STOCK
------------------ -------------------
HIGH LOW HIGH LOW
------- ------- -------- -------
<S> <C> <C> <C> <C>
1996:
First Quarter........................ $ 86.00 $ 34.75 $ 15.00 $ 8.19
Second Quarter....................... 75.25 42.50 17.75 9.16
Third Quarter........................ 65.50 34.50 11.63 6.13
Fourth Quarter....................... 65.00 38.50 11.06 5.60
1997:
First Quarter........................ 59.25 25.50 12.00 7.94
Second Quarter....................... 37.88 23.50 15.53 10.44
Third Quarter........................ 49.50 32.19 20.13 14.13
Fourth Quarter....................... 41.50 23.69 22.84 16.00
1998:
First Quarter........................ 24.88 14.88 34.94 20.63
Second Quarter....................... 32.00 16.00 54.88 34.59
Third Quarter........................ 44.50 17.00 70.25 34.50
Fourth Quarter....................... 69.25 15.50 160.00 41.25
1999:
First Quarter (through February 16,
1999).............................. 74.88 52.88 177.50 130.00
</TABLE>
The following table sets forth the closing prices per share of Netscape
common stock as reported on the Nasdaq National Market and the closing prices
per share of America Online common stock as reported on the New York Stock
Exchange (1) on November 20, 1998, the business day preceding confirmation of
merger discussions between America Online and Netscape and disclosure of the
exchange ratio, (2) November 23, 1998, the business day preceding public
announcement that America Online and Netscape had entered into the merger
agreement and (3) February 16, 1999,
61
<PAGE> 68
the last full trading day for which closing prices were available at the time of
the printing of this proxy statement-prospectus.
The following table also sets forth the equivalent price per share of
America Online of shares of Netscape common stock on those dates. The equivalent
price per share of America Online of Netscape common stock is equal to the
closing price of a share of America Online common stock on that date multiplied
by 0.45, the number of shares of America Online common stock to be issued in
exchange for each share of Netscape common stock, prior to adjustment to reflect
America Online's two-for-one stock split which will be effected on February 22,
1999. This equivalent per share price reflects the value of the America Online
common stock you would receive for each share of your Netscape common stock if
the merger were closed on any of these dates.
<TABLE>
<CAPTION>
AMERICA
NETSCAPE ONLINE EQUIVALENT
COMMON COMMON PER
STOCK STOCK SHARE PRICE
------------ ------------ --------------
<S> <C> <C> <C>
November 20, 1998..................... $ 39.19 $ 84.88 $ 38.20
November 23, 1998..................... $ 41.94 $ 89.25 $ 40.17
February 16, 1999..................... $ 68.25 $ 159.50 $ 71.78
</TABLE>
Because the market price of America Online common stock that you will
receive in the merger may increase or decrease before completion of the merger,
you are urged to obtain current market quotations. You may call 1-800-401-6223
during normal business hours at any time before the special meeting to obtain
the prior day's closing market quotations of Netscape common stock and America
Online common stock.
62
<PAGE> 69
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives
effect to the merger using the pooling of interests method of accounting, after
giving effect to the pro forma adjustments described in the accompanying notes.
The unaudited pro forma combined financial information should be read in
conjunction with the audited historical consolidated financial statements and
related notes of America Online and Netscape, which are incorporated by
reference into this proxy statement-prospectus.
The unaudited pro forma combined statements of operations give effect to
the merger as if it had occurred at the beginning of the periods presented. The
Netscape financial information has been recast to conform to America Online's
June 30 fiscal year end. The unaudited pro forma combined statements of
operations for each year in the three-year period ended June 30, 1998 combine
the audited historical consolidated statements of operations of America Online
for each year in the three-year period ended June 30, 1998 and the unaudited
consolidated historical statements of operations of Netscape for each year in
the three-year period ended June 30, 1998. The unaudited pro forma combined
statements of operations for the six months ended December 31, 1998 and 1997
combine the unaudited historical consolidated statements of operations of
America Online for the six months ended December 31, 1998 and 1997 and the
unaudited historical consolidated statements of operations of Netscape for the
six months ended December 31, 1998 and 1997.
The unaudited pro forma combined condensed balance sheet gives effect to
the merger as if it had occurred on December 31, 1998. The unaudited pro forma
combined condensed balance sheet combines the unaudited combined condensed
historical consolidated balance sheets of America Online and Netscape as of
December 31, 1998.
The unaudited pro forma combined financial information is presented for
illustrative purposes only and does not purport to be indicative of the
operating results or financial position that would have actually occurred if the
merger had been in effect on the dates indicated, nor is it necessarily
indicative of future operating results or financial position of the merged
companies. The pro forma adjustments are based on the information and
assumptions available at the time of the printing of this proxy
statement-prospectus.
63
<PAGE> 70
AMERICA ONLINE
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
-------------------
AMERICA PRO FORMA PRO FORMA
ONLINE NETSCAPE ADJUSTMENTS COMBINED
------- -------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Online service................... $1,494 $ -- $-- $1,494
Advertising, commerce and
other......................... 325 80 (2) 403
Enterprise solutions............. -- 220 -- 220
------ ------ --- ------
Total revenues................ 1,819 300 (2) 2,117
Costs and expenses:
Cost of revenues................. 1,136 86 -- 1,222
Marketing........................ 237 138 -- 375
Product development.............. 60 76 -- 136
General and administrative....... 118 24 -- 142
Amortization of goodwill and
other intangible assets....... 26 6 -- 32
Merger expense................... -- 2 -- 2
------ ------ --- ------
Total costs and expenses...... 1,577 332 -- 1,909
------ ------ --- ------
Income (loss) from operations...... 242 (32) (2) 208
Other income, net.................. 16 5 -- 21
------ ------ --- ------
Income (loss) before provision for
income taxes..................... 258 (27) (2) 229
Provision for income taxes......... (30) -- -- (30)
------ ------ --- ------
Net income (loss).................. $ 228 $ (27) $(2) $ 199
====== ====== === ======
Net income (loss) per common
share -- diluted................. $ 0.41 $(0.28) $ 0.33
Net income (loss) per common
share -- basic................... $ 0.50 $(0.28) $ 0.40
Weighted average shares
outstanding -- diluted........... 556(d) 98 604(b)
Weighted average shares
outstanding -- basic............. 457(d) 98 501(b)
</TABLE>
64
<PAGE> 71
AMERICA ONLINE
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL
-------------------
AMERICA PRO FORMA PRO FORMA
ONLINE NETSCAPE ADJUSTMENTS COMBINED
------- -------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Online service.................. $ 917 $ -- -- $ 917
Advertising, commerce and
other........................ 197 51 (17) 231
Enterprise solutions............ -- 226 -- 226
------ ------ --- ------
Total revenues............... 1,114 277 (17) 1,374
Costs and expenses:
Cost of revenues................ 713 67 -- 780
Marketing....................... 195 134 -- 329
Product development............. 40 69 -- 109
General and administrative...... 107 29 -- 136
Amortization of goodwill and
other intangible assets...... 4 3 -- 7
Restructuring charges........... (2) 23 -- 21
Acquired research and
development.................. -- 14 -- 14
Merger expense.................. -- 6 -- 6
Settlement charges.............. (1) -- -- (1)
------ ------ --- ------
Total costs and expenses..... 1,056 345 -- 1,401
------ ------ --- ------
Income (loss) from operations..... 58 (68) (17) (27)
Other income, net................. 6 4 -- 10
------ ------ --- ------
Income before provision for income
taxes........................... 64 (64) (17) (17)
Benefit for income taxes.......... -- 20 -- 20
------ ------ --- ------
Net income (loss)................. $ 64 $ (44) (17) $ 3
====== ====== === ======
Net income (loss) per common
share -- diluted................ $ 0.13 $(0.49) $ 0.01
Net income (loss) per common
share -- basic.................. $ 0.16 $(0.49) $ 0.01
Weighted average shares
outstanding -- diluted.......... 508(d) 89 553(b)
Weighted average shares
outstanding -- basic............ 409(d) 89 449(b)
</TABLE>
65
<PAGE> 72
AMERICA ONLINE
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
-------------------
AMERICA PRO FORMA PRO FORMA
ONLINE NETSCAPE ADJUSTMENTS COMBINED
------- -------- ----------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments....... $1,452 $ 164 $ -- $1,616
Trade accounts receivable,
net.......................... 113 124 -- 237
Prepaid expenses and other
current assets............... 217 67 -- 284
------ ----- ---- ------
Total current assets......... 1,782 355 -- 2,137
Property and equipment, net....... 424 144 -- 568
Other assets:
Investments including
available-for-sale
securities................... 485 74 -- 559
Product development costs,
net.......................... 91 -- -- 91
Goodwill and other intangible
assets, net.................. 359 83 -- 442
Other assets.................... 5 11 -- 16
------ ----- ---- ------
Total assets...................... $3,146 $ 667 $ -- $3,813
====== ===== ==== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Trade accounts payable.......... $ 91 $ 33 $ -- $ 124
Other accrued expenses and
liabilities.................. 453 35 50(c) 538
Accrued personnel costs......... 64 24 -- 88
Deferred revenue................ 309 136 40(e) 485
Deferred network services
credit....................... 76 -- -- 76
------ ----- ---- ------
Total current liabilities.... 993 228 90 1,311
Notes payable..................... 400 -- -- 400
Deferred revenue.................. 53 -- -- 53
Other liabilities................. 14 -- -- 14
Deferred network services
credit.......................... 235 -- -- 235
------ ----- ---- ------
Total liabilities............ 1,695 228 90 2,013
Total stockholders' equity... 1,451 439 (90)(c,e) 1,800
------ ----- ---- ------
Total liabilities and
stockholders' equity............ $3,146 $ 667 $ -- $3,813
====== ===== ==== ======
</TABLE>
66
<PAGE> 73
AMERICA ONLINE
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------
AMERICA PRO FORMA PRO FORMA
ONLINE NETSCAPE ADJUSTMENTS COMBINED
------- -------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Online service..................... $2,161 $ -- $ -- $2,161
Advertising, commerce and other.... 439 114 (26)(e) 527
Enterprise solutions............... -- 364 -- 364
------ ------ ---- ------
Total revenues.................. 2,600 478 (26) 3,052
Costs and expenses:
Cost of revenues................... 1,679 131 -- 1,810
Marketing.......................... 374 249 -- 623
Product development................ 97 141 -- 238
General and administrative......... 232 55 -- 287
Amortization of goodwill and other
intangible assets............... 14 10 -- 24
Restructuring charges.............. 34 35 -- 69
Acquired research and
development..................... 80 14 -- 94
Merger expenses.................... -- 6 -- 6
Settlement charges................. 17 -- -- 17
------ ------ ---- ------
Total costs and expenses........ 2,527 641 -- 3,168
------ ------ ---- ------
Income (loss) from operations........ 73 (163) (26) (116)
Other income, net.................... 15 15 -- 30
------ ------ ---- ------
Income (loss) before benefit from
income taxes....................... 88 (148) (26) (86)
Benefit from income taxes............ -- 20 -- 20
------ ------ ---- ------
Net income (loss).................... $ 88 $ (128) $(26) $ (66)
====== ====== ==== ======
Net income (loss) per common share --
diluted............................ $ 0.17 $(1.39) $(0.14)
Net income (loss) per common share --
basic.............................. $ 0.21 $(1.39) $(0.14)
Weighted average shares
outstanding -- diluted............. 520(d) 92 461(b)
Weighted average shares
outstanding -- basic............... 420(d) 92 461(b)
</TABLE>
67
<PAGE> 74
AMERICA ONLINE
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
HISTORICAL
-------------------
AMERICA PRO FORMA PRO FORMA
ONLINE NETSCAPE ADJUSTMENTS COMBINED
------- -------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Online service..................... $1,429 $ -- $ -- $1,429
Advertising, commerce and other.... 256 60 (11)(e) 305
Enterprise solutions............... -- 411 -- 411
------ ------ ----- ------
Total revenues.................. 1,685 471 (11) 2,145
Costs and expenses:
Cost of revenues................... 1,074 88 -- 1,162
Marketing
Marketing....................... 422 186 -- 608
Write off of deferred subscriber
acquisition costs............. 385 -- -- 385
Product development................ 79 116 -- 195
General and administrative......... 127 41 -- 168
Amortization of goodwill and other
intangible assets............... 6 -- -- 6
Restructuring charges.............. 49 -- -- 49
Acquired research and
development..................... -- 9 -- 9
Contract termination charge........ 24 -- -- 24
Settlement charges................. 24 -- -- 24
------ ------ ----- ------
Total costs and expenses... 2,190 440 -- 2,630
------ ------ ----- ------
Income (loss) from operations........ (505) 31 (11) (485)
Other income, net.................... 6 4 -- 10
------ ------ ----- ------
Income (loss) before provision for
income taxes....................... (499) 35 (11) (475)
Provision for income taxes........... -- (14) -- (14)
------ ------ ----- ------
Net income (loss).................... $ (499) $ 21 (11) $ (489)
====== ====== ===== ======
Net income (loss) per common share --
diluted............................ $(1.31) $ 0.22 $(1.17)
Net income (loss) per common share --
basic.............................. $(1.31) $ 0.26 $(1.17)
Weighted average shares
outstanding -- diluted............. 382(d) 94 418(b)
Weighted average shares
outstanding -- basic............... 382(d) 80 418(b)
</TABLE>
68
<PAGE> 75
AMERICA ONLINE
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
----------------------
AMERICA PRO FORMA PRO FORMA
ONLINE NETSCAPE ADJUSTMENT COMBINED
--------- ---------- ------------ ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Online service....................... $ 992 $ -- -- $ 992
Advertising, commerce and other...... 102 8 -- 110
Enterprise solutions................. -- 188 -- 188
------ ------ ------ ------
Total revenues.................... 1,094 196 -- 1,290
Costs and expenses:
Cost of revenues..................... 654 41 -- 695
Marketing............................ 220 77 -- 297
Product development.................. 58 52 -- 110
General and administrative........... 73 18 -- 91
Amortization of goodwill and other
intangible assets................. 7 -- -- 7
Acquired research and development.... 17 -- -- 17
Merger expenses...................... -- 8 -- 8
------ ------ ------ ------
Total costs and expenses.......... 1,029 196 -- 1,225
------ ------ ------ ------
Income from operations................. 65 -- -- 65
Other income (expense), net............ (3) 8 -- 5
------ ------ ------ ------
Income before provision for income
taxes................................ 62 8 -- 70
Provision for income taxes............. (32) (3) -- (35)
------ ------ ------ ------
Net income............................. $ 30 $ 5 -- $ 35
====== ====== ====== ======
Net income per common
share -- diluted..................... $ 0.07 $ 0.06 $ 0.07
Net income per common share -- basic... $ 0.09 $ 0.07 $ 0.09
Weighted average shares outstanding --
diluted.............................. 430(d) 86 469(b)
Weighted average shares outstanding --
basic................................ 342(d) 67 372(b)
</TABLE>
69
<PAGE> 76
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
The unaudited pro forma combined financial information reflects the merger,
and gives effect to the following:
(a) Certain reclassifications have been made to the unaudited historical
financial statements to conform the presentation of the historical operations of
the merged companies. Netscape's financial information reflects the impact of
the restatement as described in its Form 10K/A filed with the Securities and
Exchange Commission on February 17, 1999.
(b) Reflects the exchange ratio of 0.45 of a share of America Online common
stock for each share of Netscape common stock, prior to adjustment to reflect
America Online's two-for-one stock split which will be effected on February 22,
1999. In addition, the adjustment reflects the impact of the pro forma combined
income (loss) on the pro forma combined basic and diluted weighted shares
outstanding.
(c) It is expected that approximately $50 - 70 million will be incurred for
direct costs of the merger, consisting primarily of transaction costs for
investment banking, legal, accounting, regulatory filing fees and facilities
consolidation. The unaudited pro forma combined condensed balance sheet gives
effect to $50 million of direct costs of the merger as if they had been incurred
as of December 31, 1998, but the unaudited pro forma combined statements of
operations do not give effect to any merger related costs.
It is expected that costs will be incurred for employee retention and work force
reductions. However, no amounts have been recorded on the unaudited pro forma
combined financial statements because the estimate and the related details
supporting such programs and activities are preliminary and therefore subject to
change. These costs will be provided for in the ordinary course of business.
(d) In November 1998, America Online effected a two-for-one stock split of its
outstanding shares of common stock. Accordingly, all data shown in the
accompanying unaudited pro forma combined financial information has been
retroactively adjusted to reflect the November stock split, but does not reflect
America Online's two-for-one stock split which will be effected on February 22,
1999.
(e) Adjustment to conform Netscape's policy of revenue recognition to America
Online's policy.
70
<PAGE> 77
COMPARISON OF RIGHTS OF HOLDERS OF
NETSCAPE COMMON STOCK AND
AMERICA ONLINE COMMON STOCK
This section of the proxy statement-prospectus describes certain
differences between the rights of holders of Netscape common stock and America
Online common stock. While we believe that the description covers the material
differences between the two, this summary may not contain all of the information
that is important to you. You should carefully read this entire document and the
other documents we refer to for a more complete understanding of the differences
between being a stockholder of Netscape and being a stockholder of America
Online.
As a stockholder of Netscape, your rights are governed by Netscape's
Restated Certificate of Incorporation, as currently in effect, and Netscape's
Amended and Restated Bylaws. After completion of the merger, you will become a
stockholder of America Online. As an America Online stockholder, your rights
will be governed by America Online's Restated Certificate of Incorporation and
America Online's Restated Bylaws. We are each incorporated under the laws of the
State of Delaware and accordingly, your rights as a stockholder will continue to
be governed by the Delaware General Corporation Law after completion of the
merger.
CLASSES OF COMMON STOCK OF NETSCAPE AND AMERICA ONLINE
We each have one class of common stock issued and outstanding. Holders of
America Online common stock and holders of Netscape common stock are each
entitled to one vote for each share held.
CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation's board of directors may be
divided into various classes with staggered terms of office. Both America
Online's and Netscape's boards of directors are divided into three classes, as
nearly equal in size as possible, with one class being elected annually. Both
America Online and Netscape directors are elected for a term of three years and
until their successors are elected and qualified.
NUMBER OF DIRECTORS
America Online's board of directors currently consists of nine directors.
The number of directors on America Online's board may only be changed by a vote
of a majority of the directors, subject to the rights of the holders of any
outstanding series of America Online preferred stock to elect additional
directors. There is currently no preferred stock of America Online outstanding.
Netscape's board of directors currently consists of six members. The number
of directors may be changed by a duly adopted amendment to Netscape's
certificate of incorporation or bylaws.
REMOVAL OF DIRECTORS
America Online directors, or the entire America Online board, may be
removed for cause by the affirmative vote of the holders of at least 80% of the
outstanding shares of capital stock of America Online entitled to vote in the
election of directors, voting as a single class and subject to the rights of the
holders of any outstanding series of America Online preferred stock. There is
currently no preferred stock of America Online outstanding.
71
<PAGE> 78
America Online's certificate of incorporation states that "cause" means:
- conviction of a felony
- declaration of unsound mind by order of a court
- gross dereliction of duty
- commission of an action which constitutes intentional misconduct or a
knowing violation of law if that action results in both an improper
substantial personal benefit and a material injury to America Online
Netscape directors may be removed only for "cause" by the stockholders of
Netscape. "Cause" is not defined in either Netscape's certificate of
incorporation or bylaws.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Any newly created directorships in either of our boards of directors,
resulting from any increase in the number of authorized directors or any
vacancies, may be filled by a majority of the remaining members of such board of
directors, even though less than a quorum, or in the case of America Online, by
a sole remaining director, subject to the rights of holders of any outstanding
series of preferred stock.
Newly created directorships or decreases in directorships in either of our
boards of directors are to be apportioned among the classes of directors so as
to make all classes as nearly equal in number as practicable, provided that no
decreases in the number of directors in either of our boards of directors may
shorten the term of any director then in office.
To the extent reasonably possible, any newly created America Online
directorship will be added to the class of directors whose term of office is to
expire at the latest date following the creation of that directorship, unless
otherwise provided for by resolution of the majority of the directors then in
office. Any newly eliminated America Online directorship will be subtracted from
the class whose office is to expire at the earliest date following the
elimination of the directorship, unless otherwise provided for by resolution of
the majority of the directors then in office.
LIMITS ON STOCKHOLDER ACTION BY WRITTEN CONSENT
America Online stockholders may take action at annual or special meetings
of stockholders, or by unanimous written consent of all America Online
stockholders entitled to vote.
Netscape stockholders may take action at annual or special meetings of
stockholders, but may not take action by written consent.
ABILITY TO CALL SPECIAL MEETINGS
Special meetings of America Online stockholders may be called by America
Online's board of directors, by affirmative vote of a majority of the total
number of authorized directors at that time, regardless of any vacancies, or by
the chief executive officer.
Special meetings of Netscape stockholders may be called by Netscape's board
of directors, chairman of the board or president.
72
<PAGE> 79
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
The America Online bylaws allow stockholders to nominate candidates for
election to America Online's board of directors at any annual or any special
stockholder meeting at which the board of directors has determined that
directors will be elected. In addition, the bylaws allow stockholders to propose
business to be brought before any annual stockholder meeting. However,
nominations and proposals may only be made by a stockholder who has given timely
written notice to the Secretary of America Online before the annual or special
stockholder meeting.
Under America Online's bylaws, to be timely, notice of stockholder
nominations or proposals to be made at an annual stockholder meeting must be
received by the Secretary of America Online no less than 60 days nor more than
90 days before the first anniversary of the preceding year's annual stockholder
meeting. If the date of the annual meeting is more than 30 days before or more
than 60 days after the anniversary of the preceding year's annual stockholder
meeting, notice will also be timely if delivered within 10 days of the date on
which public announcement of the meeting was first made by America Online.
In addition, if the number of directors to be elected is increased and no
public announcement is made by America Online naming all of the nominees or
specifying the size of the increased board of directors at least 70 days before
the first anniversary of the preceding year's annual meeting, or, if the date of
the annual meeting is more than 30 days before or 60 days after the anniversary
of the preceding year's annual meeting, at least 70 days before the annual
meeting, a stockholder's notice will be considered timely, with respect to the
nominees for any new positions created by the increase, if it is delivered to
the Secretary of America Online within 10 days of the date on which public
announcement of the meeting was first made by America Online.
Under America Online's bylaws, to be timely, notice of a stockholder
nomination to be made at a special stockholder meeting must be received no less
than 60 days nor more than 90 days before a special meeting at which directors
are to be elected or within 10 days of the date on which public announcement of
the special meeting was first made by America Online.
A stockholder's notice to America Online must set forth all of the
following:
- all information required to be disclosed in solicitations of proxies for
election of directors, or information otherwise required by applicable
law, relating to any person that the stockholder proposes to nominate for
election or reelection as a director, including that person's written
consent to being named in the proxy statement as a nominee and to serving
as a director if elected
- a brief description of the business the stockholder proposes to bring
before the meeting, the reasons for conducting that business at that
meeting and any material interest of the stockholder in the business
proposed
- the stockholder's name and address as they appear on America Online's
books and the class and number of shares of America Online which are
beneficially owned by the stockholder
Stockholder nominations and proposals will not be brought before any
America Online stockholder meeting unless the nomination or proposal was brought
before the meeting in accordance with America Online's stockholder advance
notice procedure.
The chairman of the America Online stockholder meeting will have the power
to determine whether the nomination or proposal was made by the stockholder in
accordance
73
<PAGE> 80
with the advance notice procedures set forth in America Online's bylaws. If the
chairman determines that the nomination or proposal is not in compliance with
America Online's advance notice procedures, the chairman may declare that the
defective proposal or nomination will be disregarded.
Netscape also has an advance notice procedure for stockholders to nominate
candidates for election to Netscape's board of directors at both annual and
special stockholder meetings, and to bring proposals before Netscape's annual
stockholder meeting. Nominations of directors may only be made by a stockholder
who has given timely written notice to the Secretary of Netscape before the
annual or special meeting.
To be timely, a stockholder's notice for the nomination of directors must
be delivered to the Secretary of Netscape at least 60 days before the date of
the annual meeting or within seven days after the date on which notice of the
special meeting was first given to Netscape's stockholders.
The stockholder's notice for the nomination of directors must set forth
certain information, including all of the following:
- the name and address of the stockholder who intends to make the
nomination and of the person to be nominated
- a representation that the stockholder is a holder of record of Netscape
stock, is entitled to vote at that meeting and intends to appear in
person or by proxy at the meeting to nominate the person or persons
specified in the notice
- a description of all arrangements between the stockholder, the nominee
and any other person pursuant to which the nomination is to be made
- other information relating to the nominee that is required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities
and Exchange Commission had the board of directors of Netscape nominated
the nominee
- the consent of the nominee to serve as a director of Netscape if elected
Only persons who are nominated in accordance with the procedures set forth
in Netscape's bylaws will be eligible for election as directors.
In addition, proposals may be brought before an annual meeting only by a
stockholder who has given timely written notice to the Secretary of Netscape. To
be timely, a stockholder's notice regarding the proposal must be delivered to
the Secretary of Netscape at least 60 days before the annual meeting. If less
than 70 days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, to be timely, notice by the
stockholder must be received within 10 days of the day on which the notice of
the annual meeting was mailed or public disclosure was made.
A stockholder's notice regarding a proposal must set forth as to each
matter the stockholder proposes to bring before the annual meeting the following
information:
- a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting
- the name and address, as they appear on Netscape's books, of the
stockholder proposing such business
- the class and number of shares of Netscape which are beneficially owned
by the stockholder
- any material interest of the stockholder in such business
74
<PAGE> 81
Netscape's board of directors may reject any nomination or proposal of
business made by a stockholder unless it is made on time and in accordance with
the advance notice procedures set forth in Netscape's bylaws. If the board of
directors determines that the information provided in the stockholder's notice
does not satisfy the information requirements, the Secretary of Netscape will
notify the stockholder of the deficiency. The stockholder will have an
opportunity to cure the deficiency within a period of time, as determined by
Netscape's board of directors, not to exceed 10 days.
PREFERRED STOCK
Both of our certificates of incorporation provide that our boards of
directors are authorized to provide for the issuance of shares of undesignated
preferred stock in one or more series, and to fix the designations, powers,
preferences and rights of the shares of each series and any qualifications,
limitations or restrictions thereof.
The number of authorized shares of America Online undesignated preferred
stock may be increased by the affirmative vote of the holders of a majority of
America Online's common stock, without a vote of the holders of preferred stock,
unless their vote is required pursuant to the terms of any preferred stock then
outstanding. The number of authorized shares of undesignated preferred stock of
America Online may be reduced or eliminated by the affirmative vote of the
holders of 80% of the outstanding capital stock of America Online entitled to
vote in the election of directors, voting together as a single class.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under Delaware law, a certificate of incorporation of a Delaware
corporation may be amended by approval of the board of directors of the
corporation and the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote for the amendment, unless a higher vote is
required by the corporation's certificate of incorporation.
America Online's certificate of incorporation provides that the affirmative
vote of the holders of at least 80% of the outstanding shares of capital stock
of America Online entitled to vote in the election of directors, voting together
as a single class, will be required to reduce or eliminate the number of
authorized shares of America Online common stock or America Online preferred
stock, or to amend, repeal or adopt any provision inconsistent with the
provisions of America Online's certificate of incorporation which deal with the
following:
- undesignated preferred stock
- matters relating to the board of directors, including the number of
members, board classification, vacancies and removal
- the powers and authority expressly conferred upon the board of directors
- the manner in which stockholder action may be effected
- amendments to America Online's bylaws
- business combinations with interested stockholders of America Online
- indemnification of officers and directors of America Online
- the personal liability of directors to America Online or its stockholders
for breaches of fiduciary duty
- the amendment of America Online's certificate of incorporation
75
<PAGE> 82
Netscape's certificate of incorporation contains no provisions requiring a
vote greater than that required by Delaware law to amend its certificate of
incorporation.
AMENDMENT OF BYLAWS
Under Delaware law, stockholders entitled to vote have the power to adopt,
amend or repeal bylaws. In addition, a corporation may, in its certificate of
incorporation, confer such power upon the board of directors. The stockholders
always have the power to adopt, amend or repeal bylaws, even though the board
may also be delegated such power.
America Online's board of directors is expressly authorized to adopt, amend
and repeal America Online's bylaws by an affirmative vote of a majority of the
total number of authorized directors at that time, regardless of any vacancies.
America Online's bylaws may also be adopted, amended and repealed by the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock of America Online entitled to vote in the election of directors,
voting together as a single class.
Netscape's board of directors and stockholders may adopt, amend or repeal
Netscape's bylaws in accordance with Delaware law.
STATE ANTI-TAKEOVER STATUTES
We are both subject to Section 203 of the Delaware General Corporation Law
which under certain circumstances, may make it more difficult for a person who
would be an "Interested Stockholder", as defined in Section 203, in our
respective companies, to effect various business combinations with either of us
for a three-year period. Under Delaware law, a corporation's certificate of
incorporation or bylaws may exclude a corporation from the restrictions imposed
by Section 203. Our respective certificates of incorporation and bylaws do not
exclude us from the restrictions imposed under Section 203.
LIMITATION OF LIABILITY OF DIRECTORS
The Delaware General Corporation Law permits a corporation to include a
provision in its certificate of incorporation eliminating or limiting the
personal liability of a director or officer to the corporation or its
stockholders for damages for a breach of the director's fiduciary duty, subject
to certain limitations. Our respective certificates of incorporation include
such a provision to the maximum extent permitted by law.
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate that
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his duty of care.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law permits a corporation to indemnify
officers and directors for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful.
Our respective certificates of incorporation and bylaws provide that any
person who was or is a party or is threatened to be a party to or is involved in
any action, suit, or proceeding, whether civil, criminal, administrative or
investigative, because that person is or was a director or officer, or is or was
serving at the request of either of us as a director, officer, employee or agent
of another corporation or of a partnership, joint venture, trust or
76
<PAGE> 83
other enterprise, will be indemnified against expenses, including attorney's
fees, and held harmless by each of us to the fullest extent permitted by the
Delaware General Corporation Law. The indemnification rights conferred by each
of us are not exclusive of any other right to which persons seeking
indemnification may be entitled under any statute, our respective certificates
of incorporation or bylaws, any agreement, vote of stockholders or disinterested
directors or otherwise. In addition, each of us is authorized to purchase and
maintain insurance on behalf of its directors and officers.
Additionally, each of us may pay expenses incurred by our directors or
officers in defending a civil or criminal action, suit or proceeding because
that person is a director or officer, in advance of the final disposition of
that action, suit or proceeding. However, such payment will be made only if we
receive an undertaking by or on behalf of that director or officer to repay all
amounts advanced if it is ultimately determined that he or she is not entitled
to be indemnified by us, as authorized by our respective certificates of
incorporation and bylaws.
FAIR PRICE PROVISION
America Online's certificate of incorporation contains a "fair price"
provision which states that "business combinations" with any "interested
stockholder" may not be completed without an affirmative vote of the holders of
at least 80% of the votes entitled to be cast by holders of outstanding shares
of voting stock of America Online, voting together as a single class, in
addition to any other vote required by America Online's certificate of
incorporation or Delaware law.
This fair price provision does not apply if the business combination will
have been approved either by a majority of the directors of America Online who
are not affiliated with the interested stockholder, of which there must be at
least two, or if price and procedural requirements, set forth in detail in
America Online's certificate of incorporation, are met.
The business combinations to which America Online's fair price provision
applies include:
- any merger or consolidation of America Online or any subsidiary with any
interested stockholder or any other corporation, whether or not itself an
interested stockholder, which is, or after the merger or consolidation,
would be, an affiliate of an interested stockholder who was an interested
stockholder before the transaction
- any sale, lease, exchange, mortgage, pledge transfer or other
disposition, in one transaction or a series of transactions, to or with
any interested stockholder or any affiliate of any interested
stockholder, of any assets of America Online or any subsidiary having an
aggregate fair market value, as determined in accordance with America
Online's certificate of incorporation, equaling or exceeding 10% or more
of the assets of America Online
- the issuance or transfer by America Online or any subsidiary, in one
transaction or a series of transactions, of any securities of America
Online or any subsidiary, to any interested stockholder or any affiliate
of any interested stockholder in exchange for cash, securities or other
property having an aggregate fair market value equaling or exceeding 10%
of the combined fair market value of the outstanding shares of voting
stock of America Online, except for any issuance or transfer pursuant to
an employee benefit plan of America Online or any subsidiary
77
<PAGE> 84
- the adoption of any plan or proposal for the liquidation or dissolution
of America Online proposed by or on behalf of an interested stockholder
or any affiliate of any interested stockholder
- any reclassification of securities, including any reverse stock split, or
recapitalization of America Online, or any merger or consolidation of
America Online with any of its subsidiaries or any other transaction
which has the effect, directly or indirectly, of increasing the
proportionate amount of the outstanding shares of any class of equity or
convertible securities of America Online or any subsidiary which is
directly or indirectly owned by any interested stockholder or any
affiliate of any interested stockholder
America Online's fair price provision defines an "interested stockholder"
as any person, other than America Online or any America Online holding company
or subsidiary, who or which:
- is the beneficial owner, directly or indirectly, of more than 15% of the
voting power of the outstanding voting stock of America Online
- is an affiliate of America Online and at any time within the two-year
period immediately before the date in question was the beneficial owner,
directly or indirectly, of 15% or more of the voting power of the
outstanding voting stock of America Online
- is an assignee of or has otherwise succeeded to any shares of voting
stock of America Online which were at any time within the two-year period
immediately before the date in question beneficially owned by any
interested stockholder, if the assignment or succession did not occur as
part of an initial public offering
The "fair price" provision may deter a purchaser from using two-tiered
pricing and similar unfair or discriminatory tactics in an attempt to acquire
America Online. The provision could also have the effect of discouraging a third
party from making a tender or exchange offer for America Online, even though an
offer by a third party might be beneficial to America Online and its
stockholders.
Netscape's certificate of incorporation and bylaws do not contain a
provision similar to the fair price provision contained in America Online's
certificate of incorporation.
STOCKHOLDER RIGHTS PLAN
Under Delaware law, every corporation may create and issue rights entitling
the holders of such rights to purchase from the corporation shares of its
capital stock of any class or classes, subject to any provisions in its
certificate of incorporation. The price and terms of such shares must be stated
in the certificate of incorporation or in a resolution adopted by the board of
directors for the creation or issuance of such rights.
Both America Online and Netscape have entered into stockholder rights
agreements. As with most stockholder rights agreements, the terms of our
respective rights agreements are complex and not easily summarized, particularly
as they relate to the acquisition of our respective common stocks and to
exercisability. This summary may not contain all of the information that is
important to you. Accordingly, you should carefully read our respective rights
agreements, which are incorporated by reference into this proxy-statement-
prospectus, in their entirety.
Our respective rights agreements provide that each share of our respective
common stock outstanding will have the right to purchase one one-thousandth of a
preferred share
78
<PAGE> 85
of our companies attached to it. The purchase price per one one-thousandth of
America Online preferred share under the America Online stockholder rights
agreement is $900, subject to adjustment. The purchase price per one
one-thousandth of a share of Netscape preferred stock under the Netscape
stockholder rights agreement is $225, subject to adjustment. Each share of
America Online common stock issued in the merger will have one right attached.
Initially, the rights under each of our rights agreements are attached to
outstanding certificates representing America Online common stock and Netscape
common stock, as the case may be, and no separate certificates representing the
rights will be distributed. The rights will separate from America Online common
stock or Netscape common stock, as the case may be, and be represented by
separate certificates approximately 10 days after someone acquires or commences
a tender offer for 15% of the outstanding America Online common stock or
Netscape common stock, as the case may be.
The Netscape rights will not separate from the Netscape common stock or
become exercisable as a result of the merger.
After the rights separate from our respective common stock, certificates
representing the rights will be mailed to record holders of the common stock.
Once distributed, the rights certificates alone will represent the rights.
All shares of America Online common stock and Netscape common stock, as the
case may be, issued prior to the date the rights separate from the common stock
will be issued with the rights attached. The rights are not exercisable until
the date the rights separate from the common stock. The America Online rights
will expire on May 12, 2008, unless earlier redeemed or exchanged by America
Online. The Netscape rights will expire on November 23, 2008 or upon the
completion of the merger, unless earlier redeemed or exchanged by Netscape.
If an acquiror obtains or has the right to obtain 15% or more of America
Online common stock, then each right will entitle the holder to purchase a
number of shares of America Online common stock with a then current market value
of $1,800 for $900, subject to adjustment.
Similarly, if an acquiror obtains 15% or more of Netscape common stock,
other than America Online pursuant to the merger, then each right will entitle
the holder to purchase a number of shares of Netscape common stock with a then
current market value of $450 for $225, subject to adjustment.
Each right will entitle the holder to purchase a number of shares of common
stock of the acquiror having a then current market value of twice the purchase
price if an acquiror, other than America Online in the merger, obtains 15% or
more of America Online common stock or Netscape common stock, as the case may
be, and any of the following occurs:
- Netscape or America Online, as the case may be, merges into another
entity
- an acquiring entity merges into Netscape or America Online, as the case
may be
- Netscape or America Online, as the case may be, sells more than 50% of
its assets or earning power
Under our respective rights agreements, any rights that are or were owned
by an acquiror of more than 15% of our respective outstanding common stock will
be null and void.
79
<PAGE> 86
Our respective rights agreements contain exchange provisions which provide
that after an acquiror obtains 15% or more, but less than 50% of our respective
outstanding common stock, our respective boards of directors may, at their
option, exchange all or part of the then outstanding and exercisable rights for
common shares. In such an event, the exchange ratio is one common share per
right, adjusted to reflect any stock split, stock dividend or similar
transaction.
Each of the America Online and Netscape board of directors may, at its
option, redeem all of the outstanding rights under its respective rights
agreement prior to the earlier of (1) the time that an acquiror obtains 15% or
more of its respective outstanding common stock or (2) the final expiration date
of the rights agreement. The redemption price under each of our respective
rights agreements is $.001 per right, subject to adjustment. The right to
exercise the rights will terminate upon the action of our boards ordering the
redemption of the rights and the only right of the holders of the rights will be
to receive the redemption price.
Holders of rights will have no rights as stockholders of America Online or
Netscape, including the right to vote or receive dividends, simply by virtue of
holding the rights.
Our respective rights agreements provide that the provisions of the rights
agreements may be amended by the board of directors prior to the date any person
acquires 15% of our respective common stock without the approval of the holders
of the rights. However, after the date any person acquires 15% of our respective
common stock, the rights agreements may not be amended in any manner which would
adversely effect the interests of the holders of the rights, excluding the
interests of any acquiror. In addition, the Netscape rights agreement provides
that no amendment may be made to adjust the time period governing redemption at
a time when the rights are not redeemable.
Our respective rights agreements contain rights that have anti-takeover
effects. The rights may cause substantial dilution to a person or group that
attempts to acquire either of us without conditioning the offer on a substantial
number of rights being acquired. Accordingly, the existence of the rights may
deter acquirors from making takeover proposals or tender offers. However, the
rights are not intended to prevent a takeover, but rather are designed to
enhance the ability of our boards to negotiate with an acquiror on behalf of all
the stockholders. In addition, the rights should not interfere with a proxy
contest.
80
<PAGE> 87
SHARE OWNERSHIP BY PRINCIPAL
STOCKHOLDERS, MANAGEMENT AND DIRECTORS OF NETSCAPE
The following table sets forth information concerning the beneficial
ownership of common stock of Netscape as of February 10, 1999 for the following:
- each person or entity who is known by Netscape to own beneficially more
than 5% of the outstanding shares of Netscape common stock
- each of Netscape's current directors
- the chief executive officer and certain other highly compensated officers
of Netscape
- all directors and executive officers of Netscape as a group
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rule, beneficial ownership includes any shares as to which the individual or
entity has voting power or investment power and any shares that the individual
has the right to acquire within 60 days of February 10, 1999 through the
exercise of any stock option or other right. Unless otherwise indicated in the
footnotes or table, each person or entity has sole voting and investment power
(or shares such powers with his or her spouse) with respect to the shares shown
as beneficially owned and has an address of c/o Netscape Communications
Corporation, 501 East Middlefield Road, Mountain View, CA 94043.
Certain stockholders of Netscape, as indicated below, have entered into a
voting agreement with America Online agreeing to vote their shares of Netscape
common stock in favor of the proposed merger.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------ ----------------------- ----------------
<S> <C> <C>
America Online, Inc.(1)................... 40,159,863 38.6%
22000 AOL Way
Dulles, VA 20166-9323
James H. Clark(2)......................... 14,429,336 13.9%
James L. Barksdale(3)..................... 5,098,459 4.9%
Marc L. Andreessen(4)..................... 1,028,684 *
Barry M. Ariko(5)......................... 119,700 *
Eric A. Benhamou(6)....................... 31,479 *
Noreen G. Bergin(7)....................... 86,451 *
William V. Campbell....................... 0 *
L. John Doerr(8).......................... 429,750 *
Roberta R. Katz(9)........................ 342,182 *
Robert J. Lisbonne(10).................... 131,298 *
John M. Paul(11).......................... 79,729 *
All directors and executive officers as a
group (15 persons)(12).................. 22,964,016 22.1%
</TABLE>
- ---------------
* Less than 1%
81
<PAGE> 88
(1) Includes 19,887,317 shares purchasable upon exercise of an option, as
discussed on page 56 of this proxy statement-prospectus. Also includes
20,272,546 shares which are subject to a voting agreement entered into
with America Online by Netscape stockholders James L. Barksdale, Marc L.
Andreessen and James H. Clark pursuant to which such stockholders have
agreed to vote all of the shares beneficially owned by them in favor of
the proposed merger.
(2) Includes (a) 200 stock option shares exercisable within 60 days of
February 10, 1999, (b) 900,000 shares held by Clark Ventures, Inc. and (c)
11,699,643 shares held by Monaco Partners, L.P., of which Dr. Clark is
sole limited partner. All of the shares beneficially owned by Dr. Clark
are subject to a voting agreement with America Online under which Dr.
Clark has agreed to vote his shares of Netscape common stock in favor of
the proposed merger.
(3) Includes (a) 176,000 unvested shares subject to a repurchase right of
Netscape upon cessation of Mr. Barksdale's service to Netscape, (b) 200
stock option shares exercisable within 60 days of February 10, 1999 and
(c) 40,000 shares held by a family member. All of the shares beneficially
owned by Mr. Barksdale are subject to a voting agreement with America
Online under which Mr. Barksdale has agreed to vote his shares of Netscape
common stock in favor of the proposed merger.
(4) Includes (a) 283,533 stock option shares exercisable within 60 days of
February 10, 1999 and (b) 10,038 shares held by The Andreessen 1996
Charitable Remainder Trust Dated 2/1/96. All of the shares beneficially
owned by Mr. Andreessen are subject to a voting agreement with America
Online under which Mr. Andreessen has agreed to vote his shares of
Netscape common stock in favor of the proposed merger.
(5) Includes 109,725 shares subject to a repurchase right of Netscape upon
cessation of Mr. Ariko's service to Netscape.
(6) Includes 28,300 stock option shares exercisable within 60 days of February
10, 1999.
(7) Includes 85,374 stock option shares exercisable within 60 days of February
10, 1999.
(8) Includes (a) 253,264 shares, 98,041 shares, 4,790 shares, 3,237 shares and
7,718 shares held by Mr. Doerr, the Doerr Irrevocable Children's Trust
5/26/94, the LJD Trust VII, the Doerr Trust Dated 3/16/92, and the Vallejo
Foundation respectively and (b) 62,700 stock option shares exercisable
within 60 days of February 10, 1999. Mr. Doerr disclaims beneficial
ownership of shares held by the Doerr Irrevocable Children's Trust DTD
5/26/94, the LJD Trust VII, the Doerr Trust DTD 3/16/92, and Vallejo
Foundation, except to the extent of any indirect pecuniary interest
therein.
(9) Includes (a) 60,000 unvested shares subject to a repurchase right of
Netscape upon cessation of Ms. Katz's service to Netscape and (b) 17,462
stock option shares exercisable within 60 days of February 10, 1999.
(10) Includes 104,304 stock option shares exercisable within 60 days of
February 10, 1999.
(11) Includes 78,326 stock option shares exercisable within 60 days of February
10, 1999.
(12) Includes (a) an aggregate of 535,697 shares issuable upon currently
exercisable options, (b) options exercisable for 614,585 shares within 60
days of February 10, 1999 and (c) an aggregate of 409,725 shares subject
to certain repurchase rights of
82
<PAGE> 89
Netscape upon cessation of certain executive officers' service to
Netscape, which repurchase rights generally lapse at a rate of two percent
per month.
CERTAIN LEGAL MATTERS
A complaint regarding the proposed merger was filed in the Delaware Court
of Chancery on November 23, 1998. The complaint, purportedly filed by a named
plaintiff on behalf of all holders of Netscape common stock other than
defendants, names Netscape and its directors as defendants. It alleges that the
directors breached their fiduciary duties in connection with the proposed
merger, the terms of which are claimed to be unfair and inadequate. The
plaintiffs seek to enjoin completion of the merger or, alternatively, the
plantiffs seek damages. In addition, after the filing of this complaint,
additional suits of similar character were filed. In each case, Netscape intends
to defend the plaintiffs' claims vigorously.
LEGAL OPINION
The validity of the shares of America Online common stock offered by this
proxy statement-prospectus will be passed upon for America Online by Skadden,
Arps, Slate, Meagher & Flom LLP.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of (1) America Online included in their Annual Report on
Form 10-K for the year ended June 30, 1998 and (2) Netscape included in their
Transition Report on Form 10-K, as amended, for the ten month period ended
October 31, 1998, as set forth in their reports, which are incorporated by
reference into this proxy statement-prospectus and registration statement. These
consolidated financial statements are incorporated by reference in reliance on
their reports, given on their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS FOR THE 1999
ANNUAL MEETING OF NETSCAPE STOCKHOLDERS
IF THE MERGER IS NOT COMPLETED
If the merger is not completed, you may present proper proposals for
consideration at the next annual meeting of Netscape stockholders by submitting
your proposal in writing to the Secretary of Netscape in a timely manner.
Netscape's bylaws establish an advance notice procedure for stockholder
proposals not included in Netscape's proxy statement, to be brought before an
annual meeting of stockholders. In general, nominations for the election of
directors may be made by:
- Netscape's board of directors
- any nominating committee appointed by Netscape's board of directors
- any stockholder entitled to vote who has delivered written notice to the
Secretary of Netscape 60 days in advance of Netscape's annual meeting,
which notice must contain specified information concerning the nominees
and concerning the stockholder proposing the nominations
83
<PAGE> 90
With respect to an election of directors to be held at a special meeting of
Netscape stockholders, nominations for the election of directors may be made by
any Netscape stockholder entitled to vote who has delivered written notice to
the Secretary of Netscape by the close of business on the seventh day following
the date on which notice of the meeting is first given to stockholders.
The only business that will be conducted at an annual meeting of Netscape
stockholders is business that is brought before the meeting by or at the
direction of the chairman of the meeting or by any stockholder entitled to vote
who has delivered written notice to the Secretary of Netscape 60 days in advance
of the annual meeting, which notice must contain specified information
concerning the matters to be brought before the meeting and concerning the
stockholder proposing those matters. If less than 70 days notice or prior public
disclosure of the date of Netscape's annual meeting is given or made to
stockholders, notice by the stockholder must be received not later than the
close of business on the tenth day following the earlier of the day on which
notice of the date of the annual meeting was mailed or public disclosure was
made. If a stockholder who has notified Netscape of his intention to present a
proposal at an annual meeting does not appear or send a qualified representative
to present his proposal at the meeting, Netscape need not present the proposal
for a vote at the meeting. A copy of the full text of the bylaw provisions
discussed above may be obtained by writing to the Secretary of Netscape. All
notices of proposals by stockholders, whether or not included in Netscape's
proxy materials, should be sent to Netscape Communications Corporation, 501 East
Middlefield Road, Mountain View, CA 94043, Attention: Secretary.
The deadline has passed for submission of stockholder proposals for
inclusion in Netscape's proxy materials for the 1999 Netscape annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED IN OR DELIVERED WITH THIS PROXY STATEMENT-PROSPECTUS.
All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 after the date of this proxy
statement-prospectus and before the date of the special meeting are incorporated
by reference into and to be a part of this proxy statement-prospectus from the
date of filing of those documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
The following documents, which were filed by Netscape with the Securities
and Exchange Commission, are incorporated by reference into this proxy
statement-prospectus:
- Netscape's Transition Report on Form 10-K for the ten month period ended
October 31, 1998 (SEC file number 000-26310 and filing date of January
29, 1999)
- Netscape's Amended Transition Report on Form 10-K/A for the ten month
period ended October 31, 1998 (SEC file number 000-26310 and filing date
of February 1, 1999)
- Netscape's Amended Transition Report on Form 10-K/A for the ten month
period ended October 31, 1998 (SEC file Number 000-26310 and filing date
of February 17, 1999)
84
<PAGE> 91
- Netscape's Current Report on Form 8-K dated November 23, 1998 (SEC file
number 000-26310 and filing date of November 25, 1998)
- Netscape's Current Report on Form 8-K dated November 23, 1998 (SEC file
number 000-26310 and filing date of December 7, 1998)
- Netscape's Current Report on Form 8-K dated December 31, 1998 (SEC file
number 000-26310 and filing date of January 8, 1999)
- Netscape's Amended Current Report on Form 8-K/A dated December 15, 1997
(SEC file number 000-26310 and filing date of February 17, 1999)
The following documents, which have been filed by America Online with the
Securities and Exchange Commission, are incorporated by reference into this
proxy statement-prospectus:
- America Online's Annual Report on Form 10-K for the fiscal year ended
June 30, 1998 (SEC file number 001-12143 and filing date of September 28,
1998)
- America Online's Quarterly Report on Form 10-Q, for the quarterly period
ended September 30, 1998 (SEC file number 001-12143 and filing date
November 6, 1998)
- America Online's Quarterly Report on Form 10-Q, for the quarterly period
ended December 31, 1998 (SEC file number 001-12143 and filing date of
February 10, 1999)
- America Online's Proxy Statement on Schedule 14A (SEC file number
001-12143 and filing date of September 28, 1998)
- America Online's Current Report on Form 8-K dated August 4, 1998 (SEC
file number 001-12143 and filing date of August 5, 1998)
- America Online's Current Report on Form 8-K dated September 28, 1998 (SEC
file number 001-12143 and filing date of September 29, 1998)
- America Online's Current Report on Form 8-K dated November 23, 1998 (SEC
file number 001-12143 and filing date of November 24, 1998)
- America Online's Current Report on Form 8-K dated February 1, 1999 (SEC
file number 001-12143 and filing date of February 11, 1999)
- America Online's Current Report on Form 8-K dated November 9, 1998 (SEC
file number 001-12143 and filing date of February 17, 1999)
- The description of America Online common stock set forth in America
Online's Registration Statement on Form S-3 dated June 24, 1998 (SEC file
number 001-12143 and filing date of June 24, 1998) filed pursuant to
Section 12 of the Securities Exchange Act including any amendment or
reports filed for the purpose of updating such description
Any statement contained in a document incorporated or deemed to be
incorporated by reference into this proxy statement-prospectus will be deemed to
be modified or superseded for purposes of this proxy statement-prospectus to the
extent that a statement contained in this proxy statement-prospectus or any
other subsequently filed document that is deemed to be incorporated by reference
into this proxy statement-prospectus modifies or supersedes the statement. Any
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this proxy statement-prospectus.
The documents incorporated by reference into this proxy
statement-prospectus are available from us upon request. We will provide a copy
of any and all of the information that is incorporated by reference in this
proxy statement-prospectus (not including exhibits
85
<PAGE> 92
to the information unless those exhibits are specifically incorporated by
reference into this proxy statement-prospectus) to any person, without charge,
upon written or oral request. ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY
WEDNESDAY, MARCH 10, 1999 TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS.
<TABLE>
<S> <C>
Requests for documents relating to Netscape should be Requests for documents relating to America Online
directed to: should be directed to:
Netscape Communications Corporation America Online, Inc.
501 East Middlefield Road 22000 AOL Way
Mountain View, California 94043 Dulles, Virginia 20166-9323
(650) 254-1900 (703) 265-2741
[email protected]
</TABLE>
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Copies of our reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
<TABLE>
<S> <C>
Reports, proxy statements and other information Reports, proxy statements and other information
concerning Netscape may be inspected at: regarding America Online may be inspected at:
The National Association of The New York Stock Exchange
Securities Dealers 20 Broad Street
1735 K Street, N.W. New York, New York 10005
Washington, D.C. 20006
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a Website that contains reports, proxy statements and other
information regarding each of us. The address of the SEC Website is
http://www.sec.gov.
America Online has filed a registration statement on Form S-4 under the
Securities Act with the Securities and Exchange Commission with respect to
America Online's common stock to be issued to Netscape stockholders in the
merger. This proxy statement-prospectus constitutes the prospectus of America
Online filed as part of the registration statement. This proxy
statement-prospectus does not contain all of the information set forth in the
registration statement because certain parts of the registration statement are
omitted in accordance with the rules and regulations of the SEC. The
registration statement and its exhibits are available for inspection and copying
as set forth above.
If you have any questions about the merger, please call Netscape Investor
Relations at 1-650-937-2150. You may also call America Online Investor Relations
at 1-703-265-2741. You may call 1-800-401-6223 during normal business hours at
any time before the special meeting to obtain the prior day's closing market
quotations of Netscape common stock and America Online common stock.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM
86
<PAGE> 93
IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES PURSUANT TO THIS PROXY
STATEMENT-PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED INTO THIS
PROXY STATEMENT-PROSPECTUS BY REFERENCE OR IN OUR AFFAIRS SINCE THE DATE OF THIS
PROXY STATEMENT-PROSPECTUS. THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT-PROSPECTUS WITH RESPECT TO NETSCAPE AND ITS SUBSIDIARIES WAS PROVIDED
BY NETSCAPE AND THE INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS
WITH RESPECT TO AMERICA ONLINE WAS PROVIDED BY AMERICA ONLINE.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This proxy statement-prospectus and the documents incorporated by reference
into this proxy statement-prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to our financial condition, results of operations and
business, and on the expected impact of the merger on America Online's financial
performance. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions identify
forward-looking statements. These forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements.
In evaluating the merger, you should carefully consider the discussion of
risks and uncertainties in the section entitled "Risk Factors" on page 15 of
this proxy statement-prospectus.
87
<PAGE> 94
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 23, 1998
BY AND AMONG
AMERICA ONLINE, INC.
APOLLO ACQUISITION CORP.
AND
NETSCAPE COMMUNICATIONS CORPORATION
A-1
<PAGE> 95
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1 Defined Terms.............................................. A-6
ARTICLE II
TERMS OF MERGER
Section 2.1 Statutory Merger........................................... A-10
Section 2.2 Effective Time............................................. A-10
Section 2.3 Certificate of Incorporation; Bylaws....................... A-10
Section 2.4 Directors and Officers..................................... A-11
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 3.1 Merger Consideration; Conversion and Cancellation of
Securities................................................. A-11
Section 3.2 Exchange of Certificates................................... A-12
Section 3.3 Closing.................................................... A-14
Section 3.4 Stock Transfer Books....................................... A-15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization and Qualification; Subsidiaries............... A-15
Section 4.2 Certificate of Incorporation; Bylaws....................... A-15
Section 4.3 Capitalization............................................. A-15
Section 4.4 Authorization of Agreement................................. A-16
Section 4.5 Approvals.................................................. A-17
Section 4.6 No Violation............................................... A-17
Section 4.7 Reports; Financial Statements.............................. A-17
Section 4.8 No Undisclosed Liabilities................................. A-18
Section 4.9 Absence of Certain Changes or Events....................... A-18
Section 4.10 Title to Properties........................................ A-18
Section 4.11 Material Contracts......................................... A-19
Section 4.12 Insurance.................................................. A-19
Section 4.13 Permits; Compliance........................................ A-19
Section 4.14 Litigation................................................. A-19
Section 4.15 Compliance with Laws....................................... A-19
Section 4.16 Registration Statement; Proxy Statement/Prospectus......... A-20
Section 4.17 Employee Benefit Plans..................................... A-20
Section 4.18 Taxes...................................................... A-21
Section 4.19 Environmental Laws and Regulations......................... A-22
</TABLE>
A-2
<PAGE> 96
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.20 Intellectual Property...................................... A-23
Section 4.21 Pooling; Tax Matters....................................... A-25
Section 4.22 Affiliate Letters.......................................... A-25
Section 4.23 Certain Business Practices................................. A-25
Section 4.24 Brokers.................................................... A-25
Section 4.25 Opinion of Financial Advisor............................... A-25
Section 4.26 Interest Rate and Foreign Exchange Contracts............... A-25
Section 4.27 Company Rights Agreement................................... A-26
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR COMPANIES
Section 5.1 Organization and Qualification; Subsidiaries............... A-26
Section 5.2 Certificate of Incorporation; Bylaws....................... A-26
Section 5.3 Capitalization............................................. A-26
Section 5.4 Authorization of Agreement................................. A-27
Section 5.5 Approvals.................................................. A-27
Section 5.6 No Violation............................................... A-27
Section 5.7 Reports.................................................... A-28
Section 5.8 Absence of Certain Changes or Events....................... A-28
Section 5.9 Registration Statement; Proxy Statement/Prospectus......... A-28
Section 5.10 Pooling; Tax Matters....................................... A-29
Section 5.11 Affiliates................................................. A-29
ARTICLE VI
COVENANTS RELATING TO THE CONDUCT OF BUSINESS
Section 6 Conduct of Business of the Company......................... A-29
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 No Solicitation............................................ A-32
Section 7.2 Access and Information..................................... A-33
Section 7.3 Meeting of Stockholders.................................... A-33
Section 7.4 Registration Statement; Proxy Statement.................... A-34
Section 7.5 Appropriate Action; Consents; Filings...................... A-34
Section 7.6 Affiliates; Pooling; Tax Treatment......................... A-36
Section 7.7 Public Announcements....................................... A-36
Section 7.8 Stock Exchange Listing..................................... A-37
Section 7.9 Employee Benefit Plans..................................... A-37
Section 7.10 Indemnification of Directors and Officers; Directors &
Officers Insurance......................................... A-38
Section 7.11 Event Notices.............................................. A-38
</TABLE>
A-3
<PAGE> 97
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 7.12 Assumption of Obligations to Issue Stock................... A-38
Section 7.13 Conveyance Taxes........................................... A-39
Section 7.14 Voting Agreement........................................... A-40
Section 7.15 Option Agreement........................................... A-40
Section 7.16 Rights Agreement........................................... A-40
Section 7.17 Reasonable Efforts and Further Assurances.................. A-40
ARTICLE VIII
CLOSING CONDITIONS
Section 8.1 Conditions to Obligations of Each Party Under This
Agreement.................................................. A-40
Section 8.2 Additional Conditions to Obligations of the Acquiror
Companies.................................................. A-41
Section 8.3 Additional Conditions to Obligations of the Company........ A-43
ARTICLE IX
TERMINATION, AMENDMENT AND EXPENSES
Section 9.1 Termination................................................ A-43
Section 9.2 Effect of Termination...................................... A-44
Section 9.3 Amendment.................................................. A-45
Section 9.4 Waiver..................................................... A-45
Section 9.5 Expenses................................................... A-45
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Interpretation............................................. A-46
Section 10.2 Effectiveness of Representations, Warranties and
Agreements................................................. A-46
Section 10.3 Notices.................................................... A-46
Section 10.4 Headings................................................... A-47
Section 10.5 Severability............................................... A-47
Section 10.6 Entire Agreement........................................... A-48
Section 10.7 Assignment................................................. A-48
Section 10.8 Parties in Interest........................................ A-48
Section 10.9 Failure or Indulgence Not Waiver; Remedies Cumulative...... A-48
Section 10.10 Governing Law.............................................. A-48
Section 10.11 Counterparts............................................... A-48
</TABLE>
A-4
<PAGE> 98
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 23, 1998 (this
"Agreement"), is by and among America Online, Inc., a Delaware corporation
("Acquiror"), Apollo Acquisition Corp., a Delaware corporation and a
newly-formed wholly owned direct subsidiary of Acquiror ("Newco"), and Netscape
Communications Corporation, a Delaware corporation (the "Company"). Acquiror and
Newco are sometimes referred to herein as the "Acquiror Companies".
RECITALS:
WHEREAS, the Boards of Directors of Acquiror, Newco and the Company deem it
advisable and in the best interests of their respective companies and their
respective stockholders to enter into a business combination by means of the
merger of Newco with and into the Company under the terms of this Agreement and
have approved and adopted this Agreement;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the willingness of Acquiror and Newco to enter
into this Agreement, certain holders of common stock, par value $0.0001 per
share, of the Company have each entered into a Voting Agreement in the form
attached hereto as Annex A (the "Voting Agreement") dated as of the date hereof
pursuant to which such holders have agreed to vote their shares of Company
Common Stock (as defined herein) in the manner set forth therein;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the willingness of Acquiror and Newco to enter
into this Agreement, the Company has entered into a Stock Option Agreement dated
as of the date hereof in the form attached hereto as Annex B (the "Option
Agreement") granting Acquiror an irrevocable option to purchase from the Company
up to a number of authorized but unissued shares representing 19.9% of the
outstanding shares of Company Common Stock, upon the terms and subject to the
conditions set forth therein;
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the Delaware General Corporation Law (the "DGCL"), Newco will
merge with and into the Company (the "Merger") and the Company will survive (the
"Surviving Corporation"); and
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger will qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall be, and is hereby, adopted as a plan of reorganization for
purposes of Section 368 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
A-5
<PAGE> 99
ARTICLE I
DEFINITIONS
Section 1 Defined Terms. For all purposes in this Agreement, the
following terms shall have the respective meanings set forth in this Section 1.
"Acquiror Common Stock" will mean the common stock, par value $0.01 per
share, of Acquiror and, unless the context requires otherwise, includes the
associated Acquiror Rights.
"Acquiror Rights" will mean rights to purchase shares of the preferred
stock of Acquiror pursuant to that certain Rights Agreement, dated as of May 12,
1998, between Acquiror and BankBoston, N.A., as Rights Agent.
"Acquiror's Disclosure Schedule" will mean a schedule of even date herewith
delivered by Acquiror to the Company concurrently with the execution of this
Agreement, which, among other things, will identify exceptions to Acquiror's
representations and warranties contained in Article V by specific section
references.
"Affiliate" will, with respect to any Person, mean any other Person that
controls, is controlled by or is under common control with the former.
"Agreement" will mean this Agreement and Plan of Merger made and entered
into as of November 23, 1998 by and among Acquiror, Newco and the Company,
including any amendments hereto and Schedules hereto (including Acquiror's
Disclosure Schedule and the Company's Disclosure Schedules but excluding the
Annexes hereto).
"Business Day" will mean any day other than a day on which banks in the
States of Virginia or California are authorized or obligated to be closed.
"Business Segment" will mean either of the Company's two business segments:
its Enterprise business segment and its Netcenter business segment.
"Certificate of Merger" will have the meaning ascribed to such term in
Section 2.2.
"Closing" will mean a meeting, which will be held in accordance with
Section 3.3, of all Persons interested in the transactions contemplated by this
Agreement at which all documents necessary to evidence the fulfillment or waiver
of all conditions precedent to the consummation of the transactions contemplated
by this Agreement are executed and delivered.
"Closing Date" will mean the date the Closing occurs.
"Company Common Stock" will mean the common stock, par value $0.0001 per
share, of the Company and, unless the context requires otherwise, includes the
associated Company Rights.
"Company Option Plans" will mean collectively the following stock option
plans of the Company: the Company's 1994 Stock Option Plan, as amended; the
Company's 1995 Stock Plan; the Company's 1998 Stock Option Plan; the Company's
1995 Director Option Plan; the Collabra Software, Inc. 1993 Incentive Stock
Plan; the Insoft, Inc. 1993 Stock Option Plan; the Netcode Corp. 1996 Stock
Plan; the DigitalStyle Corp. 1995 Stock Option/Stock Issuance Plan; the Portola
Communications, Inc. 1996 Stock Option Plan; the Kiva Software Corp. 1995 Stock
Option Plan; and the Mosaic Communications Corporation 1994 Stock Option Plan.
A-6
<PAGE> 100
"Company Rights" will mean rights to purchase shares of the preferred stock
of the Company pursuant to the Company Rights Agreement.
"Company Rights Agreement" will mean the agreement of the Company, entered
into as of November 23, 1998 between the Company and BankBoston N.A., as Rights
Agent.
"Company Stockholders' Meeting" will have the meaning ascribed to such term
in Section 4.16.
"Company Stock Purchase Plan" will mean the Company's 1995 Employee Stock
Purchase Plan.
"Company's Disclosure Schedule" will mean a schedule of even date herewith
delivered by the Company to the Acquiror Companies concurrently with the
execution of this Agreement, which, among other things, will identify exceptions
to the Company's representations and warranties contained in Article IV by
specific section and subsection references.
"Confidentiality Agreement" will mean the Confidential Non-Disclosure
Agreement by and between Acquiror and the Company dated as of September 16,
1998, as amended.
"control" (including the terms "controlled," "controlled by" and "under
common control with") will mean the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of stock or as
trustee or executor, by contract or credit arrangement or otherwise.
"Court" will mean any court or arbitration tribunal of the United States,
any domestic state, or any foreign country, and any political subdivision
thereof.
"DGCL" will mean the Delaware General Corporation Law, as amended.
"Effective Time" will mean the date and time of the completion of the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with Section 2.2.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (a) the presence, release or disposal of any Hazardous Materials at any
location, whether or not owned or operated by the Company, or (b) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law.
"Environmental Law" will mean any Law pertaining to: (i) the protection of
health, safety and the indoor or outdoor environment; (ii) the conservation,
management or use of natural resources and wildlife; (iii) the protection or use
of surface water and ground water; (iv) the management, manufacture, possession,
presence, use, generation, transportation, treatment, storage, disposal,
release, threatened release, abatement, removal, remediation or handling of, or
exposure to, any Hazardous Material; or (v) pollution (including any release to
air, land, surface water and ground water); and includes, without limitation,
the Comprehensive Environmental, Response, Compensation, and Liability Act of
1980, as amended, and the Regulations promulgated thereunder and the Solid Waste
Disposal Act, as amended, 42 U.S.C. sec. 6901 et seq.
"Exchange Act" will mean the Securities Exchange Act of 1934, as amended,
and the Regulations promulgated thereunder.
A-7
<PAGE> 101
"Exchange Agent" will mean a bank or trust company organized under the Laws
of the United States or any of the states thereof and having a net worth in
excess of $100 million designated and appointed to act in the capacities
required under Section 3.2.
"Foreign Competition Laws" will mean foreign statutes, rules, Regulations,
Orders, decrees, administrative and judicial directives, and other foreign Laws,
that are designed or intended to prohibit, restrict or regulate actions having
the purpose or effect of monopolization, lessening of competition or restraint
of trade.
"GAAP" will have the meaning ascribed to such term in Section 4.7(b).
"Governmental Authority" will mean any governmental agency or authority
(other than a Court) of the United States, any domestic state, or any foreign
country, and any political subdivision or agency thereof, and will include any
authority having governmental or quasi-governmental powers.
"Hazardous Material" will mean any substance, chemical, compound, product,
solid, gas, liquid, waste, by-product, pollutant, contaminant or material which
is hazardous or toxic and is regulated under any Environmental Law, and includes
without limitation, asbestos or any substance containing asbestos,
polychlorinated biphenyls or petroleum (including crude oil or any fraction
thereof).
"Intellectual Property" will mean: trademarks, service marks, trade names,
URLs and Internet domain names, designs, slogans and general intangibles of like
nature, together with all goodwill related to the foregoing (collectively,
"Trademarks"); patents (including any registrations, continuations,
continuations in part, renewals and applications for any of the foregoing);
copyrights (including any registrations and applications therefor); computer
software; databases; technology, trade secrets and other confidential
information, know-how, proprietary processes, formulae, algorithms, models, user
interfaces, customer lists, inventions, source codes, object codes,
methodologies and, with respect to all of the foregoing, related confidential
documentation (collectively, "Trade Secrets").
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of such
fact or other matter, or (b) such fact or matter is reflected in one or more
documents (including e-mails) in such individual's files. A Person (other than
an individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who on the date hereof is serving as a director,
executive officer (including any Senior Vice President), in-house counsel, and,
in the case of the Company, the Vice-President of Website Development, of such
Person has Knowledge of such fact or other matter.
"Law" will mean all laws, statutes, ordinances and Regulations of any
Governmental Authority including all decisions of Courts having the effect of
law.
"Lien" will mean any mortgage, pledge, security interest, attachment,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing); provided, however, that the term "Lien" shall not include (i)
statutory liens for Taxes, which are not yet due and payable or are being
contested in good faith by appropriate proceedings, (ii) statutory or common law
liens to secure landlords, lessors or renters under leases or rental agreements
confined to the premises rented, (iii) deposits or pledges made in connection
with, or to secure payment of, workers' compensation, unemployment insurance,
old age pension or other social security programs mandated under applicable
Laws, (iv) statutory or common law liens in favor of carriers, warehousemen,
mechanics and materialmen, to secure claims for labor, materials or supplies and
other like liens, and
A-8
<PAGE> 102
(v) restrictions on transfer of securities imposed by applicable state and
federal securities Laws.
"Litigation" will mean any suit, action, arbitration, cause of action,
claim, complaint, criminal prosecution, investigation, demand letter,
governmental or other administrative proceeding, whether at law or at equity,
before or by any Court or Governmental Authority or before any arbitrator.
"Material Adverse Effect" will mean, with respect to a specified Person
(including, for purposes of this definition as used in Section 4.9 and Section
8.2(a)(ii), a Business Segment), any change, event or effect that individually
or in the aggregate (taking into account all other such changes, events or
effects) has had, or would be reasonably likely to have, a material adverse
effect on the consolidated business, results of operations, or financial
condition of such Person and its Subsidiaries, if any, taken as a whole, except
to the extent that any such change, event or effect is attributable to or
results from (i) the direct effect of the public announcement or pendency of the
transactions contemplated hereby on current or prospective customers or revenues
of the Company, (ii) changes in general economic conditions or changes affecting
the industry generally in which such Person operates or (iii) shareholder class
action litigation arising from allegations of a breach of fiduciary duty
relating to this Agreement; provided, however, that with respect to clause (i)
of this sentence, the Company shall bear the burden of proof in any proceeding
before a Court with regard to establishing that any change, event or effect is
attributable to or results from the direct effect of the public announcement or
pendency of the transactions contemplated hereby.
"Merger" will mean the merger of Newco with and into the Company provided
for in this Agreement.
"Newco" will mean Apollo Acquisition Corp., a newly-formed Delaware
corporation and a wholly owned direct Subsidiary of Acquiror.
"Order" will mean any judgment, order or decree of any Court or
Governmental Authority.
"Permit" will mean any and all permits, licenses, authorizations, Orders,
certificates, registrations or other approvals granted by any Governmental
Authority.
"Person" will mean an individual, partnership, limited liability company,
corporation, joint stock company, trust, estate, joint venture, association or
unincorporated organization, or any other form of business or professional
entity, but will not include a Governmental Authority.
"Repurchase Rights" will mean the Company's rights to repurchase stock
under any of the Company Option Plans pursuant to the terms of the applicable
Company Option Plans.
"Regulation" will mean any rule or regulation of any Governmental Authority
having the effect of Law.
"SEC" will mean the Securities and Exchange Commission.
"Securities Act" will mean the Securities Act of 1933, as amended, and the
Regulations promulgated thereunder.
A "Subsidiary" of a specified Person will be any corporation, partnership,
limited liability company, joint venture or other legal entity of which the
specified Person (either alone or through or together with any other Subsidiary)
owns, directly or indirectly, fifty
A-9
<PAGE> 103
percent (50%) or more of the stock or other equity or partnership interests the
holders of which are generally entitled to vote for the election of the Board of
Directors or other governing body of such corporation or other legal entity.
"Tax Returns" will mean any declaration, return, report, schedule,
certificate, statement or other similar document (including relating or
supporting information) required to be filed with a Governmental Authority, or
where none is required to be filed with a Governmental Authority, the statement
or other document issued by a Governmental Authority in connection with any Tax,
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
"Taxes" will mean any and all federal, state, local, foreign, provincial,
territorial or other taxes, imposts, tariffs, fees, levies or other similar
assessments or liabilities and other charges of any kind, including income
taxes, ad valorem taxes, excise taxes, withholding taxes, stamp taxes or other
taxes of or with respect to gross receipts, premiums, real property, personal
property, windfall profits, sales, use, transfers, licensing, employment, social
security, workers' compensation, unemployment, payroll and franchises imposed by
or under any Law; and such terms will include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any such tax or any contest or dispute thereof.
ARTICLE II
TERMS OF MERGER
Section 2.1 Statutory Merger. Subject to the terms and conditions and in
reliance upon the representations, warranties, covenants and agreements
contained herein, Newco will merge with and into the Company at the Effective
Time. The terms and conditions of the Merger and the mode of carrying the same
into effect will be as set forth in this Agreement. As a result of the Merger,
the separate corporate existence of Newco will cease and the Company will
continue as the Surviving Corporation and shall succeed to and assume all of the
rights and obligations of Newco in accordance with the DGCL. The Merger shall
have the effect set forth in the DGCL.
Section 2.2 Effective Time. As soon as practicable after the satisfaction
or, if permissible, waiver of the conditions set forth in Article VIII, the
parties hereto will cause the Merger to be consummated by filing a certificate
of merger (the "Certificate of Merger") with the Secretary of State of the State
of Delaware, in such form as required by, and executed in accordance with the
relevant provisions of, the DGCL. The Merger shall become effective at the time
at which the Certificate of Merger has been duly filed with the Secretary of
State of the State of Delaware (the time the Merger becomes effective in
accordance with the foregoing being referred to as the "Effective Time").
Section 2.3 Certificate of Incorporation; Bylaws. At the Effective Time,
the certificate of incorporation of the Company shall be amended and restated by
deleting its provisions and substituting therefore the provisions of the
certificate of incorporation of Newco except that from and after the Effective
Time Article First of the certificate of incorporation will read in its entirety
substantially as follows: The name of the corporation is "Netscape
Communications Corporation." At the Effective Time, the by-laws of Newco, as in
effect immediately prior to the Effective Time, shall be the by-laws of the
Surviving Corporation until thereafter amended as provided by Law and the
certificate of incorporation of the Surviving Corporation and such by-laws.
A-10
<PAGE> 104
Section 2.4 Directors and Officers. The directors of Newco immediately
prior to the Effective Time will be the directors of the Surviving Corporation,
each to hold office in accordance with the certificate of incorporation and
by-laws of the Surviving Corporation, and the officers of the Company
immediately prior to the Effective Time will be the officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualify for such election.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 3.1 Merger Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of the holders of any of the following securities:
(a) Subject to the other provisions of this Article III, each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (excluding any Company Common Stock described in Section 3.1(c)) will be
converted into the right to receive 0.45 (the "Exchange Ratio") shares of
Acquiror Common Stock (the "Merger Consideration"). Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time the
outstanding shares of Acquiror Common Stock or Company Common Stock shall have
been changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization, split,
conversion, consolidation, combination or exchange of shares, the Exchange Ratio
will be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, conversion, consolidation,
combination or exchange of shares.
(b) Subject to the other provisions of this Article III, all shares of
Company Common Stock will, upon conversion thereof into shares of Acquiror
Common Stock at the Effective Time, cease to be outstanding and will
automatically be cancelled and retired, and each certificate previously
evidencing Company Common Stock outstanding immediately prior to the Effective
Time (other than Company Common Stock described in Section 3.1(c)) will
thereafter represent only the right to receive (i) the number of whole shares of
Acquiror Common Stock and (ii) as provided in Section 3.2(e), cash in lieu of
fractional shares into which the shares of Company Common Stock represented by
such certificate have been converted pursuant to this Section 3.1(b). The
holders of certificates previously evidencing Company Common Stock will cease to
have any rights with respect to such Company Common Stock except as otherwise
provided herein or by Law.
(c) Notwithstanding any provision of this Agreement to the contrary,
each share of Company Common Stock held in the treasury of the Company and each
share of Company Common Stock, if any, owned by Acquiror or any direct or
indirect wholly owned Subsidiary of Acquiror or of the Company immediately prior
to the Effective Time will be cancelled.
(d) Each share of common stock, par value $.01 per share, of Newco
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.
A-11
<PAGE> 105
Section 3.2 Exchange of Certificates.
(a) Exchange Fund. On the day of the Effective Time, Acquiror will
deposit, or cause to be deposited, with the Exchange Agent, for the benefit of
the former holders of Company Common Stock, for exchange in accordance with this
Article III, through the Exchange Agent, certificates representing shares of
Acquiror Common Stock issuable pursuant to Section 3.1 in exchange for
certificates representing Company Common Stock immediately prior to the
Effective Time (such shares of Acquiror Common Stock so deposited, together with
cash realized and held by the Exchange Agent for the benefit of such former
holders of Company Common Stock in accordance with Section 3.2(e), being
referred to as the "Exchange Fund"). Thereafter, Acquiror will deposit, or cause
to be deposited, with the Exchange Agent, for the benefit of any former holders
of Company Common Stock who have not yet surrendered their shares of Company
Common Stock for exchange, at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender, payable with respect to any shares of Acquiror Common
Stock remaining in the Exchange Fund on such record date. The Exchange Agent
will, pursuant to irrevocable instructions from Acquiror, deliver Acquiror
Common Stock and any such dividends or distributions related thereto, in
exchange for certificates theretofore evidencing Company Common Stock
surrendered to the Exchange Agent pursuant to Section 3.2(c).
(b) Letter of Transmittal. Promptly after the Effective Time, Acquiror
will cause the Exchange Agent to mail to each record holder of a certificate or
certificates representing Company Common Stock immediately prior to the
Effective Time (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the certificates formerly
representing Company Common Stock shall pass, only upon delivery of such
certificates to the Exchange Agent and shall be in such form and have such other
provisions, including appropriate provisions with respect to back-up
withholding, as Acquiror may reasonably specify, and (ii) instructions for use
in effecting the surrender of the certificates formerly representing Company
Common Stock. Upon surrender of a certificate formerly representing Company
Common Stock for cancellation to the Exchange Agent, together with such letter
of transmittal, duly executed and completed in accordance with the instructions
thereto, the holder thereof shall be entitled to receive in exchange therefor
that portion of the Exchange Fund which such holder has the right to receive
pursuant to the provisions of this Article III, after giving effect to any
required withholding Tax, and the certificate formerly representing Company
Common Stock so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash to be paid which is in the Exchange Fund.
(c) Exchange Procedures. Promptly after the Effective Time, the
Exchange Agent will distribute to each former holder of Company Common Stock,
upon surrender to the Exchange Agent for cancellation of one or more
certificates, accompanied by a duly executed letter of transmittal that
theretofore evidenced shares of Company Common Stock, certificates evidencing
the appropriate number of shares of Acquiror Common Stock into which such shares
of Company Common Stock were converted pursuant to the Merger and any dividends
or distributions related thereto which such former holder of Company Common
Stock is entitled to receive pursuant to the provisions of this Article III. If
shares of Acquiror Common Stock are to be issued to a Person other than the
Person in whose name the surrendered certificate or certificates are registered,
it will be a condition of issuance of Acquiror Common Stock that the surrendered
certificate or certificates shall be properly endorsed, with signatures
guaranteed by a member firm of the New York Stock Exchange or a bank chartered
under the Laws of the United States, or
A-12
<PAGE> 106
otherwise in proper form for transfer and that the Person requesting such
payment shall pay any transfer or other Taxes required by reason of the issuance
of Acquiror Common Stock to a Person other than the registered holder of the
surrendered certificate or certificates or such Person shall establish to the
satisfaction of Acquiror that any such Tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
will be liable to any former holder of Company Common Stock for any Acquiror
Common Stock or cash or dividends or distributions thereon delivered to a public
official pursuant to any applicable escheat Law.
(d) Distributions with Respect to Unexchanged Shares of Company Common
Stock. No dividends or other distributions declared or made with respect to
Acquiror Common Stock on or after the Effective Time will be paid to the holder
of any certificate that theretofore evidenced shares of Company Common Stock
until the holder of such certificate shall surrender such certificate. Subject
to the effect of any applicable escheat Law, following surrender of any such
certificate, there will be paid from the Exchange Fund to the holder of the
certificates evidencing whole shares of Acquiror Common Stock issued in exchange
therefor, without interest, (i) promptly, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Acquiror Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions, with a
record date after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole shares of Acquiror
Common Stock.
(e) No Fractional Shares.
(i) No certificates or scrip representing fractional shares of
Acquiror Common Stock shall be issued upon the surrender for exchange of
certificates formerly representing shares of Company Common Stock pursuant to
this Article III; no dividend, stock split or other change in the capital
structure of Acquiror shall relate to any fractional security; and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a security holder.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent will determine the excess of (A) the number of whole shares of
Acquiror Common Stock delivered to the Exchange Agent by Acquiror pursuant to
Section 3.2(a) over (B) the aggregate number of whole shares of Acquiror Common
Stock to be distributed to holders of Company Common Stock pursuant to Section
3.2(c) (such excess being herein called the "Excess Shares"). Following the
Effective Time, the Exchange Agent will, on behalf of former stockholders of the
Company, sell the Excess Shares at then-prevailing prices on the New York Stock
Exchange, Inc. (the "NYSE"), all in the manner provided in Section 3.2(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent will be
executed on the NYSE through one or more member firms of the NYSE and will be
executed in round lots to the extent practicable. The Exchange Agent will use
reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales in light
of prevailing market conditions. Until the net proceeds of such sale or sales
have been distributed to the holders of Company Common Stock, the Exchange Agent
will hold such proceeds in trust for the former holders of Company Common Stock
(the "Common Shares Trust"). The Surviving Corporation will pay all commissions,
transfer taxes and other out-of-pocket transaction costs, including the expenses
and compensation of the Exchange Agent incurred in connection with such sale
A-13
<PAGE> 107
of the Excess Shares. The Exchange Agent will determine the portion of the
Common Shares Trust to which each former holder of Company Common Stock is
entitled, if any, by multiplying the amount of the aggregate net proceeds
comprising the Common Shares Trust by a fraction, the numerator of which is the
amount of the fractional share interest to which such former holder of Company
Common Stock is entitled (after taking into account all shares of Company Common
Stock held at the Effective Time by such holder) and the denominator of which is
the aggregate amount of fractional share interests to which all holders of
Company Common Stock are entitled. For purposes of this Section 3.2(e), shares
of Company Common Stock of any former holder represented by two or more
certificates may be aggregated and in no event shall any holder be paid an
amount of cash in respect of more than one share of Acquiror Common Stock.
(iv) As soon as practicable after the determination of the amount
of cash, if any, to be paid to the former holders of Company Common Stock with
respect to any fractional share interests, the Exchange Agent will hold such
cash amounts for the benefit of, and pay such cash amounts to, such former
holders of Company Common Stock subject to and in accordance with the terms of
Section 3.2(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains unclaimed by the former holders of Company Common Stock for twelve
months after the Effective Time will be delivered to Acquiror, upon demand, and
any former holders of Company Common Stock who have not theretofore complied
with this Article III will, subject to applicable abandoned property, escheat
and other similar Laws, thereafter look only to Acquiror for Acquiror Common
Stock and any cash to which they are entitled.
(g) Withholding of Tax. Acquiror or the Exchange Agent will be entitled
to deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any former holder of Company Common Stock such amounts as Acquiror
(or any Affiliate thereof) or the Exchange Agent are required to deduct and
withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign Tax Law. To the extent that amounts are so
withheld by Acquiror or the Exchange Agent, such withheld amounts will be
treated for all purposes of this Agreement as having been paid to the former
holder of Company Common Stock in respect of whom such deduction and withholding
was made by Acquiror.
(h) Lost Certificates. If any certificate evidencing Company Common
Stock shall have been lost, stolen or destroyed, upon the making of an affidavit
of that fact by the Person claiming such certificate to be lost, stolen or
destroyed and, if required by Acquiror, the posting by such Person of a bond, in
such reasonable amount as Acquiror may direct, as indemnity against claims that
may be made against it with respect to such certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed certificate of Acquiror
Common Stock to which the holder may be entitled pursuant to this Article III
and cash and any dividends or other distributions to which the holder thereof
may be entitled pursuant to Section 3.2(d) or Section 3.2(e).
Section 3.3 Closing. The Closing will take place at the offices of
Skadden, Arps, Slate, Meagher & Flom LLP, One Beacon Street, 31st Floor, Boston,
Massachusetts at 10:00 a.m. on the second Business Day following the date on
which the conditions to the Closing have been satisfied or waived or at such
other place, time and date as the parties hereto may agree. At the conclusion of
the Closing on the Closing Date, the parties hereto will cause the Certificate
of Merger to be filed with the Secretary of State of the State of Delaware.
A-14
<PAGE> 108
Section 3.4 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company will be closed and there will be no further
registration of transfers of shares of Company Common Stock thereafter on the
records of the Company. If, after the Effective Time, certificates formerly
representing Company Common Stock are presented to the Surviving Corporation,
they shall be cancelled and exchanged for certificates representing Acquiror
Common Stock.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Acquiror Companies,
subject to the exceptions set forth in the Company's Disclosure Schedule (which
exceptions shall specifically identify a Section, Subsection or clause of a
single Section or Subsection hereof, as applicable, to which such exception
relates, it being understood and agreed that each such exception shall be deemed
to be disclosed both under such Section, Subsection or clause hereof and any
other Section, Subsection or clause hereof to which such disclosure reasonably
relates) that:
Section 4.1 Organization and Qualification; Subsidiaries. The Company and
each Subsidiary of the Company are legal entities duly organized, validly
existing and in good standing under the Laws of their respective jurisdictions
of incorporation or organization, have all requisite power and authority to own,
lease and operate their respective properties and to carry on their business as
it is now being conducted and are duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
them or the ownership or leasing of their respective properties makes such
qualification necessary. Section 4.1 of the Company's Disclosure Schedule sets
forth, as of the date of this Agreement, a true and complete list of all the
Company's directly or indirectly owned Subsidiaries, together with the
jurisdiction of incorporation of each Subsidiary and the percentage of each
Subsidiary's outstanding capital stock or other equity interests owned by the
Company or another Subsidiary of the Company. Neither the Company nor any of its
Subsidiaries owns an equity interest in any partnership or joint venture
arrangement or other business entity that is material to the Company.
Section 4.2 Certificate of Incorporation; Bylaws. The Company has
furnished or made available to Acquiror complete and correct copies of the
certificate of incorporation and the bylaws or the equivalent organizational
documents, in each case as amended or restated to the date hereof, of the
Company and each of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is in violation of any of the provisions of its certificate of
incorporation or bylaws or equivalent organizational documents.
Section 4.3 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
200,000,000 shares of Company Common Stock of which, as of November 23, 1998,
99,938,928 shares were issued and outstanding, all of which are duly authorized,
validly issued, fully paid and nonassessable and were not issued in violation of
any preemptive or similar rights of any Person and (ii) 5,000,000 shares of
preferred stock, par value $.0001 per share, of which, as of November 23, 1998,
none were issued.
(b) Except for the Company Rights, as of the date hereof, no shares of
Company Common Stock are reserved for issuance, and there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to offer,
sell, issue or grant any shares of, or any options, warrants or rights of any
kind to acquire any shares of, or any
A-15
<PAGE> 109
securities that are convertible into or exchangeable for any shares of, capital
stock of the Company, (ii) to redeem, purchase or acquire, or offer to purchase
or acquire, any outstanding shares of, or any outstanding options, warrants or
rights of any kind to acquire any shares of, or any outstanding securities that
are convertible into or exchangeable for any shares of, capital stock of the
Company or (iii) to grant any Lien on any shares of capital stock of the
Company.
(c) The authorized, issued and outstanding capital stock of, or other
equity interests in, each of the Company's Subsidiaries and the names of the
holders of record of the capital stock or other equity interests of each such
Subsidiary, in each case, as of the date hereof, are set forth in Section 4.3(c)
of the Company's Disclosure Schedule. The issued and outstanding shares of
capital stock of, or other equity interests in, each of the Subsidiaries of the
Company that are owned by the Company or any of its Subsidiaries have been duly
authorized and are validly issued, and, with respect to capital stock, are fully
paid and nonassessable, and were not issued in violation of any preemptive or
similar rights of any Person. All such issued and outstanding shares or other
equity interests, that are indicated as owned by the Company or one of its
Subsidiaries in Section 4.3(c) of the Company's Disclosure Schedule, are owned
beneficially as set forth therein and free and clear of all Liens. No shares of
capital stock of, or other equity interests in, any Subsidiary of the Company
are reserved for issuance, and there are no contracts, agreements, commitments
or arrangements obligating the Company or any of its Subsidiaries (i) to offer,
sell, issue, grant, pledge, dispose of or encumber any shares of capital stock
of, or other equity interests in, or any options, warrants or rights of any kind
to acquire any shares of capital stock of, or other equity interests in, or any
securities that are convertible into or exchangeable for any shares of capital
stock of, or other equity interests in, any of the Subsidiaries of the Company,
(ii) to redeem, purchase or acquire, or offer to purchase or acquire, any
outstanding shares of capital stock of, or other equity interests in, or any
outstanding options, warrants or rights of any kind to acquire any shares of
capital stock of, or other equity interest in, or any outstanding securities
that are convertible into or exchangeable for, any shares of capital stock of,
or other equity interests in, any of the Subsidiaries of the Company or (iii) to
grant any Lien on any outstanding shares of capital stock of, or other equity
interest in, any of the Subsidiaries of the Company.
(d) There are no voting trusts, proxies or other similar agreements or
understandings to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound with respect to the voting
of any shares of capital stock of the Company or any of its Subsidiaries or,
except for the Option Agreement, with respect to the registration of the
offering, sale or delivery of any shares of capital stock of the Company or any
of its Subsidiaries under the Securities Act.
Section 4.4 Authorization of Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Agreement, the Option
Agreement and each instrument required hereby to be executed and delivered by it
at the Closing, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by the Company of this Agreement, the Option Agreement and each
instrument required hereby to be executed and delivered by it at the Closing and
the performance of its obligations hereunder and thereunder have been duly and
validly authorized by all requisite corporate action on the part of the Company
other than, with respect to the Merger, the approval and adoption of this
Agreement by the stockholders of the Company, which approval and adoption in
accordance with the DGCL and the Company's certificate of incorporation shall
require the affirmative vote of the holders of at least a majority of the
outstanding shares of
A-16
<PAGE> 110
Company Common Stock. This Agreement and the Option Agreement have been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery hereof by the Acquiror Companies, this Agreement constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium or similar Laws now or hereafter in effect relating
to creditors' rights generally or to general principles of equity.
Section 4.5 Approvals. Except for the applicable requirements, if any, of
(a) the Securities Act, (b) the Exchange Act, (c) state securities or blue sky
Laws, (d) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (e) Foreign Competition Laws, (f) the filing and recordation of
appropriate merger documents as required by the DGCL and (g) those Laws,
Regulations and Orders noncompliance with which would not in the aggregate
materially impair the ability of the Company to perform its obligations under
this Agreement or be material in any respect to the Company, no filing or
registration with, no waiting period imposed by and no Permit, Order,
authorization, consent or approval of, any Court or Governmental Authority is
required under any Law, Regulation or Order applicable to the Company or any of
its Subsidiaries to permit the Company to execute, deliver or perform this
Agreement or any instrument required hereby to be executed and delivered by it
at the Closing.
Section 4.6 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Permits or Orders of, Courts and/or Governmental
Authorities indicated as required in Section 4.5 and receipt of the approval of
this Agreement by the stockholders of the Company as required by the DGCL,
neither the execution and delivery by the Company of this Agreement or any
instrument required hereby to be executed and delivered by it at the Closing,
nor the performance by the Company of its obligations hereunder, nor the
execution, delivery and performance of the Voting Agreement by the parties
thereto, will (a) violate or breach the terms of or cause a default, or
accelerate the performance of any obligation of the Company or any Company
Subsidiary or give rise to any payment obligation of any such Person, or give
rise to any right of termination (any of the foregoing a "Change of Control
Effect"), or require any consent, approval or waiver (any of the foregoing a
"Change of Control Consent") of any third party that is not a Governmental
Authority, under, (i) any Law, Regulation or Order applicable to the Company or
(ii) the certificate of incorporation or bylaws of the Company or (b) with the
passage of time or the giving of notice have any of the effects set forth in
clause (a) of this Section, except in the case of matters referred to in clauses
(a)(i) or (b) (in the case of (b), solely with respect to clause (a)(i)) of this
Section that would not, individually or in the aggregate, have a material
adverse effect upon the ability of the Company to perform its obligations under
this Agreement or be material in any respect to the Company. Prior to the
execution of this Agreement, the Board of Directors of the Company has taken all
requisite action to cause this Agreement and the transactions contemplated
hereby (including those contemplated by the Option Agreement and the Voting
Agreement) to be exempt from the provisions of Section 203 of the DGCL.
Section 4.7 Reports; Financial Statements.
(a) The Company has timely filed all reports required to be filed by it
with the SEC since January 1, 1997 pursuant to the Exchange Act, which reports
complied, at the time of filing in all material respects with applicable
requirements of the Exchange Act, (collectively, the "Company SEC Reports").
None of the Company SEC Reports, as of
A-17
<PAGE> 111
their respective dates, contained or, if filed after the date hereof, will
contain, any untrue statement of a material fact or omitted, or, if filed after
the date hereof, will omit, 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, except to the extent
superseded by a Company SEC Report filed subsequently and prior to the date
hereof.
(b) The consolidated statements of financial position and the related
consolidated statements of operations, stockholders' equity and cash flows
(including the related notes thereto) of the Company included in the Company SEC
Reports complied in all material respects with applicable accounting
requirements and the published rules and Regulations of the SEC with respect
thereto, have been prepared in conformity with United States generally accepted
accounting principles ("GAAP") (except, in the case of unaudited statements, as
permitted by Form 10-Q of the SEC) applied on a basis consistent with prior
periods (except as otherwise noted therein), and present fairly the consolidated
financial position of the Company as at their respective dates, and the
consolidated results of its operations and its cash flows for the periods
presented therein subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments that have not been and are not
expected to be material in amount.
Section 4.8 No Undisclosed Liabilities. Neither the Company nor any of
its Subsidiaries has any liabilities or obligations of any nature, whether or
not accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in the Company SEC Reports through the date of the filing of the
Company's Quarterly Report on Form 10-Q in respect of the fiscal quarter ending
July 31, 1998, (b) liabilities or obligations incurred in the ordinary course of
business consistent with past practice since July 31, 1998 which are not, and
will not have, individually or in the aggregate, a Material Adverse Effect on
the Company and (c) liabilities or obligations which are not and will not have,
individually or in the aggregate, a Material Adverse Effect on the Company.
Section 4.9 Absence of Certain Changes or Events.
Since July 31, 1998, there is not and has not been a Material Adverse
Effect on any Business Segment.
Section 4.10 Title to Properties. The Company or its Subsidiaries,
individually or together, have good, valid and marketable title to or a valid
leasehold in, all of the properties and assets (real, personal and mixed,
tangible and intangible) that are necessary to the conduct of the business of
the Company and its Subsidiaries as it is currently being conducted, including
all of the properties and assets reflected in the Company's consolidated balance
sheet as at July 31, 1998, which was filed with the SEC as part of its report on
Form 10-Q, other than any such properties or assets that have been sold or
otherwise disposed of in the ordinary course of business since July 31, 1998.
None of such properties are securities pledged for interest rate swap, cap or
floor contracts. The Company or its Subsidiaries, individually or together, hold
under valid lease agreements all real and personal properties being held by the
Company or its Subsidiaries under capitalized leases, and all real and personal
property held by the Company or its Subsidiaries that is subject to operating
leases, and enjoy peaceful and undisturbed possession of such properties under
such leases, other than (i) any properties as to which such leases have expired
in accordance with their terms without any liability of any party thereto and
(ii) any immaterial properties. Neither the Company nor any of its Subsidiaries
has received any written notice or has Knowledge of any adverse claim to the
title to any properties owned by them or with respect to any lease under which
any
A-18
<PAGE> 112
properties are held by them, other than any claims that, individually or in the
aggregate, are immaterial to the Company. Notwithstanding anything to the
contrary, nothing in this Section 4.10 shall be construed to relate to
Intellectual Property (it being understood that Section 4.20 contains
representations and warranties relating to Intellectual Property).
Section 4.11 Material Contracts. Each Material Contract (as defined
herein) is in full force and effect, and is a legal, valid and binding
obligation of the Company or a Subsidiary and, to the Knowledge of the Company,
each of the other parties thereto, enforceable in accordance with its terms,
except (a) that the enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law) and (b) as would not, individually or in the aggregate,
materially adversely impact any Business Segment. No condition exists or event
has occurred which (whether with or without notice or lapse of time or both, or
the happening or occurrence of any other event) would constitute a default by
the Company or a Subsidiary or, to the Knowledge of the Company, any other party
thereto under, or result in a right in termination of, any Material Contract,
except as would not, individually or in the aggregate, materially adversely
impact any Business Segment. The term "Material Contract" shall mean any
contract which is material to the Company and its Subsidiaries taken as a whole
or to any Business Segment.
Section 4.12 Insurance. The Company and its Subsidiaries self-insure or
maintain with third parties policies of fire and casualty, liability and other
forms of insurance in such amounts, with such deductibles and retained amounts,
and against such risks and losses, as are consistent with industry practice and
as are reasonable for the conduct of the business as conducted on the date
hereof and for the assets of the Company and its Subsidiaries.
Section 4.13 Permits; Compliance. The Company and its Subsidiaries have
obtained all material Permits that are necessary to carry on their businesses as
currently conducted. Such Permits are in full force and effect in all material
respects, have not been violated in any material respect, and, to the Knowledge
of the Company, no suspension, revocation or cancellation thereof has been
threatened and there is no Litigation pending or, to the Knowledge of the
Company, threatened regarding suspension, revocation or cancellation of any of
such Permits.
Section 4.14 Litigation. As of the date hereof, there is no Litigation
pending, or to the Knowledge of the Company, threatened against the Company or
any Subsidiary of the Company, which if adversely determined would be or have a
Material Adverse Effect on the Company. As of the Closing, there will be no
Litigation pending, or to the Knowledge of the Company, threatened against the
Company or any Subsidiary of the Company that would be or have a Material
Adverse Effect on the Company.
Section 4.15 Compliance with Laws. Neither the Company nor any Subsidiary
is subject to any written agreement, written directive, memorandum of
understanding or Order with or by any Court or Governmental Authority
restricting in any material respect its operation or requiring any materially
adverse actions by the Company. The Company and its Subsidiaries are in
compliance in all material respects with all applicable Laws and Regulations and
are not in default in any material respect with respect to any material Order
applicable to the Company or any of its Subsidiaries.
A-19
<PAGE> 113
Section 4.16 Registration Statement; Proxy Statement/Prospectus. The
information supplied by the Company or required to be supplied by the Company
(except to the extent revised or superseded by amendments or supplements) for
inclusion in the registration statement on Form S-4, or any amendment or
supplement thereto, pursuant to which the shares of Acquiror Common Stock to be
issued in the Merger will be registered with the SEC (including any amendments
or supplements, the "Registration Statement") shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by the Company or
required to be supplied by the Company (except to the extent revised or
superseded by amendments or supplements) for inclusion in the proxy
statement/prospectus or any amendment or supplement thereto to be sent to the
stockholders of the Company in connection with the meeting of the Company's
stockholders to consider the Merger (the "Company Stockholders' Meeting") (such
proxy statement/prospectus, as amended or supplemented, is referred to herein as
the "Proxy Statement") shall not, on the date the Proxy Statement is first
mailed to the Company's stockholders, at the time of the Company Stockholders'
Meeting and at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they are made, not false or misleading; or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies by or on behalf of the
Company for the Company Stockholders' Meeting which has become false or
misleading. The Proxy Statement will comply in all material respects with the
provisions of the Exchange Act. Notwithstanding the foregoing, the Company makes
no representation, warranty or covenant with respect to any information supplied
or required to be supplied by Acquiror which is contained in or omitted from any
of the foregoing documents.
Section 4.17 Employee Benefit Plans.
(a) Section 4.17 of the Company's Disclosure Schedule contains a true
and complete list of each deferred compensation, incentive compensation, stock
purchase, stock option and other equity compensation plan, "welfare" plan, fund
or program (within the meaning of Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); each "pension" plan, fund or
program (within the meaning of Section 3(2) of ERISA); each employment,
termination or severance agreement with individuals whose annual compensation is
at a base rate exceeding $125,000, and each other material employee benefit
plan, fund, program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by the Company or
any entity, that together with the Company would be deemed a "single employer"
within the meaning of Section 4001(b) of ERISA (an "ERISA Affiliate"), or to
which the Company or an ERISA Affiliate is a party, whether written or oral, for
the benefit of any employee or former employee of the Company or any of its
Subsidiaries (the "Company Plans").
(b) With respect to each Company Plan, the Company has heretofore
delivered or made available to Acquiror true and complete copies of the Company
Plan and any amendments thereto (or if the Company Plan is not a written Company
Plan, a description thereof), any related trust or other funding vehicle, any
reports or summaries required under ERISA or the Code and the most recent
determination letter received from the
A-20
<PAGE> 114
Internal Revenue Service with respect to each Company Plan intended to qualify
under Section 401 of the Code.
(c) No material liability under Title IV or Section 302 of ERISA has
been incurred by the Company or any ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to the Company or
any ERISA Affiliate of incurring any such liability.
(d) No Company Plan is subject to Title IV of ERISA or Section 412 of
the Code, nor is any Company Plan a "multiemployer pension plan", as defined in
Section 3(37) of ERISA, or subject to Section 302 of ERISA.
(e) Except as would not be materially adverse to the Company, each
Company Plan has been operated and administered in all respects in accordance
with its terms and applicable Law, including ERISA and the Code.
(f) Each Company Plan intended to be "qualified" within the meaning of
Section 401(a) of the Code and the trusts maintained thereunder that are
intended to be exempt from taxation under Section 501(a) of the Code have
received a favorable determination or other letter indicating that they are so
qualified, and, to the Knowledge of the Company, no event has occurred since the
date of said letter(s) that will adversely affect the qualification of such
Company Plan.
(g) No Company Plan provides material medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees or former employees of the Company or any of its Subsidiaries for
periods extending beyond their retirement or other termination of service, other
than (i) coverage mandated by applicable Law, (ii) death benefits under any
"pension plan", or (iii) benefits the full cost of which is borne by the current
or former employee (or his beneficiary).
(h) No amounts payable under the Company Plans will fail to be
deductible for federal income Tax purposes by virtue of Section 280G of the
Code.
(i) The execution, delivery and performance of, and consummation of the
transactions contemplated by, this Agreement, the Option Agreement or the Voting
Agreement will not (i) entitle any current or former employee or officer of the
Company or any ERISA Affiliate to severance pay, unemployment compensation or
any other payment, except as expressly provided in this Agreement, (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer, or (iii) assuming the Acquiror
takes the action specified in Section 7.12(a), accelerate the vesting of any
stock option or of any shares of restricted stock.
(j) Except as would not be material in any respect to the Company, there
are no pending or, to the Knowledge of the Company, any threatened or
anticipated claims by or on behalf of any Company Plan, by any employee or
beneficiary covered under any such Company Plan, or otherwise involving any such
Company Plan (other than routine claims for benefits).
Section 4.18 Taxes. Except as set forth in Section 4.18 of the Company's
Disclosure Schedule, the Company represents and warrants as follows:
(a) Except as would not be materially adverse to the Company, all
federal, state, local and foreign Tax Returns required to be filed (taking into
account extensions) by or on behalf of the Company, each of its Subsidiaries,
and each affiliated, combined, consolidated or unitary group of which the
Company or any of its Subsidiaries is or has
A-21
<PAGE> 115
been a member have been timely filed, and all such Tax Returns are true,
complete and correct.
(b) Except as would not be materially adverse to the Company, all Taxes
payable by or with respect to the Company or any Subsidiary of the Company have
been timely paid, or adequately reserved for in accordance with GAAP. No
deficiencies for any Taxes have been proposed, asserted or assessed either
orally or in writing against the Company or any of its Subsidiaries that are not
adequately reserved for in accordance with GAAP. All assessments for Taxes due
and owing by or with respect to the Company or any Subsidiary of the Company
with respect to completed and settled examinations or concluded Litigation have
been paid.
(c) Prior to the date of this Agreement, the Company has provided
Acquiror with written schedules setting forth the taxable years of the Company
for which the statutes of limitations with respect to federal and material state
income Taxes have not expired and with respect to federal and material state
income Taxes, those years for which examinations have been completed and those
years for which examinations are presently being conducted.
(d) Except as would not be materially adverse to the Company, the
Company and each of its Subsidiaries have complied in all material respects with
all rules and Regulations relating to the payment and withholding of Taxes
(including, without limitation, withholding of Taxes pursuant to Sections 1441
and 1442 of the Code or similar provisions under any foreign Laws) and have,
within the time and in the manner required by law, withheld from employee wages
and paid over to the proper Governmental Authorities all material amounts
required to be so withheld and paid over under all applicable Laws.
(e) Neither the Company nor any of its Subsidiaries (i) has waived any
statutory period of limitations in respect of its or their Taxes or Tax Returns
or (ii) is a party to, bound by, or has any obligation under any Tax sharing,
allocation, indemnity, or similar contract or arrangement.
(f) The net operating losses ("NOL") of the Company or any Subsidiary of
the Company are not, as of the date hereof, subject to Section 382 or 269 of the
Code, Regulation Section 1.1502-21T(c), or any similar provisions or Regulations
otherwise limiting the use of the NOL's of the Company or the Subsidiaries of
the Company.
(g) No property of the Company or any of the Subsidiaries of the Company
is "tax-exempt use property" (as such term is defined in Section 168 of the
Code).
(h) None of the Company or any of the Subsidiaries of the Company has
filed a consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a "Subsection (f) asset" (as
such term is defined in Section 341(f)(4) of the Code) owned by the Company or
any of the Subsidiaries of the Company.
(i) The Company is not, and has not been for the five years preceding
the Closing, a "United States real property holding company" (as such term is
defined in Section 897(c)(2) of the Code).
Section 4.19 Environmental Laws and Regulations. Except as would not be
or result in a Material Adverse Effect on the Company: (a) the Company and its
Subsidiaries are and have been in compliance with all applicable Environmental
Laws; (b) the Company and its Subsidiaries have obtained all Permits required by
any applicable
A-22
<PAGE> 116
Environmental Law and all such permits are in full force and effect; (c) neither
the Company nor any of its Subsidiaries has, and the Company has no Knowledge of
any other Person who has, caused any release, threatened release or disposal of
any Hazardous Material at any properties or facilities previously or currently
owned, leased or occupied by the Company or its Subsidiaries; (d) the Company
has no Knowledge that any of its or its Subsidiaries' properties or facilities
are adversely affected by any release, threatened release or disposal of a
Hazardous Material originating or emanating from any other property; (e) neither
the Company nor any of its Subsidiaries (i) has any liability for response or
corrective action, natural resources damage, or any other harm pursuant to any
Environmental Law, (ii) is subject to, has notice or Knowledge of, or is
required to give any notice of any environmental claim or (iii) has Knowledge of
any condition or occurrence which could form the basis of an Environmental claim
against the Company, any Subsidiary or any of their properties or facilities;
(f) the Company and its Subsidiaries' properties and facilities are not subject
to any, and the Company has no Knowledge of any, imminent restriction on the
ownership, occupancy, use or transferability of their properties and facilities
arising from any (i) Environmental Law or (ii) release, threatened release or
disposal of any Hazardous Material; and (g) there is no Environmental Claim
pending, or, to the Company's knowledge, threatened, against the Company or, to
the Company's knowledge, against any Person whose liability for any
Environmental Claim the Company has or may have retained or assumed either
contractually or by operation of law.
Section 4.20 Intellectual Property.
(a) Section 4.20(a) of the Company's Disclosure Schedule sets forth, for
the Intellectual Property owned by the Company or its Subsidiaries, a complete
and accurate list of all United States and foreign (a) patents and patent
applications; (b) Trademark registrations (including material Internet domain
registrations) and applications and material unregistered Trademarks; (c)
copyright registrations and applications, indicating for each, the applicable
jurisdiction, registration number (or application number), and date issued (or
date filed).
(b) Section 4.20(b) of the Company's Disclosure Schedule sets forth a
complete and accurate list of all material license agreements granting to the
Company or any of its Subsidiaries any material right to use or practice any
rights under any Intellectual Property other than Intellectual Property which is
used for infrastructural purposes and is commercially available on reasonable
terms, (collectively, the "License Agreements"), indicating for each the title
and the parties thereto.
(c) Except as would not be materially adverse to the Company or any
Business Segment:
(i) the Company or its Subsidiaries own, free and clear of
Liens, Orders and arbitration awards, all owned Intellectual Property used in
the Company's business, and have a valid and enforceable right to use all of the
Intellectual Property licensed to the Company and used in the Company's
business;
(ii) the Company has taken reasonable steps to protect the
Intellectual Property of the Company;
(iii) the conduct of the Company's and its Subsidiaries'
businesses as currently conducted does not infringe upon any rights owned or
controlled by any third party;
A-23
<PAGE> 117
(iv) there is no Litigation pending or to the Company's
Knowledge threatened or any written claim from any Person (A) alleging that the
Company's activities or the conduct of its businesses or that of any of its
Subsidiaries infringes upon, violates, or constitutes the unauthorized use of
the Intellectual Property rights of any third party or (B) challenging the
ownership, use, validity or enforceability of any Company Intellectual Property;
(v) to the Knowledge of the Company and its Subsidiaries, no
third party is misappropriating, infringing, diluting, or violating any
Intellectual Property owned by the Company or any of its Subsidiaries and no
such claims have been brought against any third party by the Company or any of
its Subsidiaries;
(vi) the execution, delivery and performance by the Company of
this Agreement, the Option Agreement and the Voting Agreement, and the
consummation of the transactions contemplated hereby and thereby, will not
result in the loss or impairment of, or give rise to any right of any third
party to terminate, any of the Company's or any of its Subsidiaries' rights to
own any of its Intellectual Property or their respective rights under the
License Agreements, nor require the consent of any Governmental Authority or
third party in respect of any such Intellectual Property; and
(vii) The Software owned or purported to be owned by the
Company or any of its Subsidiaries, was either (i) developed by employees of
Company or any of its Subsidiaries within the scope of their employment; (ii)
developed by independent contractors who have assigned their rights to the
Company or any of its Subsidiaries pursuant to written agreements; or (iii)
otherwise acquired by the Company or a Subsidiary from a third party. For
purposes of this Section 4.20(c)(vii), "Software" means any and all (i) computer
programs, including any and all software implementations of algorithms, models
and methodologies, whether in source code or object code, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, (iv)
the technology supporting any Internet site(s) operated by or on behalf of the
Company or any of its Subsidiaries, and (iv) all documentation, including user
manuals and training materials, relating to any of the foregoing.
(d) All material Trademarks registered in the United States have been in
continuous use by the Company or its Subsidiaries. To the Knowledge of the
Company and its Subsidiaries, there has been no prior use of such Trademarks by
any third party which would confer upon said third party superior rights in such
Trademarks; the Company and its Subsidiaries have adequately policed the
Trademarks against third party infringement; and the material Trademarks
registered in the United States have been continuously used in the form
appearing in, and in connection with the goods and services listed in, their
respective registration certificates.
(e) Except as would not be materially adverse to the Company or any
Business Segment, the Company has taken reasonable steps in accordance with
normal industry practice to protect the Company's rights in confidential
information and Trade Secrets of the Company. Without limiting the foregoing and
except as would not be materially adverse to the Company or any Business
Segment, the Company enforces a policy of requiring each relevant employee,
consultant and contractor to execute proprietary information, confidentiality
and assignment agreements substantially in the Company's standard forms, and,
except under confidentiality obligations, there has been no disclosure by the
Company or any Subsidiary of material confidential information or Trade Secrets.
A-24
<PAGE> 118
(f) Except as would not be materially adverse to the Company or any
Business Segment, the Company has taken reasonable steps with the intent of
ensuring that its products (including existing products and technology and
products and technology currently under development) will, when used in
accordance with associated documentation on a specified platform or platforms,
be capable upon installation of accurately processing, providing, and receiving
date data from, into, and between the Twentieth and Twenty-First centuries,
including the years 1999 and 2000, and making leap-year calculations, provided
that all other non-Company products (e.g., hardware, software and firmware) used
in or in combination with the Company's products, properly exchange data with
the Company's products.
Section 4.21 Pooling; Tax Matters. As of the date hereof, to the
Knowledge of the Company, neither the Company nor any of its Affiliates has
taken or agreed to take any action or failed to take any action that would
prevent (a) the Merger from being treated for financial accounting purposes as a
"pooling of interests" in accordance with GAAP and the Regulations and
interpretations of the SEC or (b) the Merger from constituting a reorganization
within the meaning of Section 368(a) of the Code.
Section 4.22 Affiliate Letters. Section 4.22 of the Company's Disclosure
Schedule contains a true and complete list of all Persons who, as of the date
hereof, to the Knowledge of the Company, may be deemed to be Affiliates of the
Company, excluding all its Subsidiaries but including all directors and
executive officers of the Company.
Section 4.23 Certain Business Practices. Neither the Company nor any of
its Subsidiaries nor any director, officer, employee or agent of the Company or
any of its Subsidiaries has (i) used any funds for unlawful contributions,
gifts, entertainment or other unlawful payments relating to political activity,
(ii) made any unlawful payment to any foreign or domestic government official or
employee or to any foreign or domestic political party or campaign or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, (iii)
consummated any transaction, made any payment, entered into any agreement or
arrangement or taken any other action in violation of Section 1128B(b) of the
Social Security Act, as amended, or (iv) made any other unlawful payment except
for the foregoing matters that are not material in any respect to the Company.
Section 4.24 Brokers. No broker, finder, investment banker or other
Person (other than Morgan Stanley Dean Witter & Co.) is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Prior to the date of this Agreement, the Company has
made available to Acquiror a complete and correct copy of all agreements between
the Company and Morgan Stanley Dean Witter & Co. pursuant to which such firm
will be entitled to any payment relating to the transactions contemplated by
this Agreement.
Section 4.25 Opinion of Financial Advisor. The Board of Directors of the
Company has received the opinion of Morgan Stanley Dean Witter & Co., the
Company's financial advisor, substantially to the effect that the consideration
to be received by the holders of the Company Common Stock in the Merger is fair
to such holders from a financial point of view, a copy of which has been, or
promptly will be, provided to Acquiror.
Section 4.26 Interest Rate and Foreign Exchange Contracts. All material
interest rate swaps, caps, floors and option agreements and other interest rate
risk management arrangements and foreign exchange contracts to hedge its
investments in foreign subsidiaries, whether entered into for the account of the
Company or one of its
A-25
<PAGE> 119
Subsidiaries, were entered into in the ordinary course of business and, to the
Company's Knowledge, in accordance with prudent business practice and applicable
rules, Regulations and policies of any Governmental Authority and with
counterparties believed to be financially responsible at the time, and in all
material respects are valid and binding obligations of the Company or one of its
Subsidiaries enforceable in accordance with their terms (except as may be
limited by bankruptcy, insolvency, moratorium, reorganization or similar Laws
affecting the rights of creditors generally and the availability of equitable
remedies), and are in full force and effect in all material respects. The
Company and each of its Subsidiaries have duly performed in all material
respects their material obligations thereunder to the extent that such
obligations to perform have accrued, and, to the Company's Knowledge, there are
no material breaches, violations or defaults or allegations or assertions of
such by any other party thereunder.
Section 4.27 Company Rights Agreement. The Company has taken all action
such that (i) (A) no "Shares Acquisition Date" (as defined in the Company Rights
Agreement) shall occur and neither Acquiror nor its Affiliates, individually or
taken together, shall become an "Acquiring Person" (as defined in the Company
Rights Agreement) and (B) the Company Rights Agreement and the Company Rights
shall not apply to Acquiror or any of its Affiliates, individually or taken
together, in the case of (A) or (B), solely as a result of this Agreement, the
Option Agreement, the Voting Agreement or the transactions contemplated hereby
and thereby and (ii) all Company Rights issued under the Company Rights
Agreement shall, immediately prior to the Effective Time, be cancelled, void and
of no further force or effect.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR COMPANIES
The Acquiror Companies hereby represent and warrant to the Company, subject
to the exceptions set forth in the Acquiror's Disclosure Schedule (which
exceptions shall specifically identify a Section, Subsection or clause of a
single Section or Subsection hereof, as applicable, to which such exception
relates, it being understood and agreed that each such exception shall be deemed
to be disclosed both under such Section, Subsection or clause hereof and any
other Section, Subsection or clause hereof to which such disclosure reasonably
relates) that:
Section 5.1 Organization and Qualification; Subsidiaries. The Acquiror
Companies are legal entities duly organized, validly existing and in good
standing under the Laws of their respective jurisdictions of incorporation or
organization, have all requisite power and authority to own, lease and operate
their respective properties and to carry on their business as it is now being
conducted and are duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by them or the
ownership or leasing of their respective properties makes such qualification
necessary.
Section 5.2 Certificate of Incorporation; Bylaws. The Acquiror has
furnished or made available to the Company complete and correct copies of the
certificate of incorporation and the bylaws in each case as amended or restated
to the date hereof, of Acquiror and Newco. Neither the Acquiror nor Newco is in
violation of any of the provisions of its certificate of incorporation or
bylaws.
Section 5.3 Capitalization.
(a) As of the date hereof, the authorized capital stock of Acquiror
consists of (i) 1,800,000,000 shares of Acquiror Common Stock of which, as of
November 17, 1998,
A-26
<PAGE> 120
459,333,610 shares were issued and outstanding, and (ii) 5,000,000 shares of
preferred stock, par value $.01 per share, of which none are issued. All of the
outstanding shares of Acquiror Common Stock are, and all shares to be issued as
part of the Merger Consideration will be, when issued in accordance with the
terms hereof, duly authorized, validly issued, fully paid and nonassessable.
(b) As of the date hereof, no shares of Acquiror Common Stock are
reserved for issuance, and there are no contracts, agreements, commitments or
arrangements obligating Acquiror (i) to offer, sell, issue or grant any shares
of, or any options, warrants or rights of any kind to acquire any shares of, or
any securities that are convertible into or exchangeable for any shares of,
capital stock of Acquiror, (ii) to redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding shares of, or any outstanding options,
warrants or rights of any kind to acquire any shares of, or any outstanding
securities that are convertible into or exchangeable for any shares of, capital
stock of Acquiror or (iii) to grant any Lien on any shares of capital stock of
Acquiror.
Section 5.4 Authorization of Agreement. Each of the Acquiror Companies
has all requisite corporate power and authority to execute and deliver this
Agreement and, in the case of Acquiror, the Option Agreement, and each
instrument required hereby to be executed and delivered by the Acquiror
Companies at the Closing, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by the Acquiror Companies of this Agreement and, in the
case of Acquiror, the Option Agreement, and each instrument required hereby to
be executed and delivered by the Acquiror Companies at the Closing and the
performance of their respective obligations hereunder and thereunder have been
duly and validly authorized by the Board of Directors of each of Acquiror and
Newco and by Acquiror as the sole stockholder of Newco. Except for filing of the
Certificate of Merger, no other corporate proceedings on the part of Acquiror or
Newco are necessary to authorize the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
of the Acquiror Companies and, assuming due authorization, execution and
delivery hereof by the Company, constitutes a legal, valid and binding
obligation of each of the Acquiror Companies, enforceable against each of the
Acquiror Companies in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium or similar Laws now or hereafter in
effect relating to creditors' rights generally or to general principles of
equity.
Section 5.5 Approvals. Except for the applicable requirements, if any, of
(a) the Securities Act, (b) the Exchange Act, (c) state securities or blue sky
Laws, (d) the HSR Act, (e) Foreign Competition Laws, (f) the New York Stock
Exchange, (g) the filing and recordation of appropriate merger documents as
required by the DGCL and (h) those Laws, Regulations and Orders noncompliance
with which would not in the aggregate materially impair the ability of Acquiror
or Newco to perform its obligations under this Agreement or be material in any
respect to Acquiror, no notices to, consents or approvals of, or filings or
registrations with any Court or Governmental Authority is required under any
Law, Regulation or Order applicable to Acquiror or Newco to permit Acquiror or
Newco to execute, deliver or perform this Agreement or the Option Agreement or
any instrument required hereby to be executed and delivered by it at the
Closing.
Section 5.6 No Violation. Assuming effectuation of all filings and
registrations with, termination or expiration of any applicable waiting periods
imposed by and receipt of all Permits or Orders of, Courts and/or Governmental
Authorities indicated as required in Section 5.5, neither the execution and
delivery by Acquiror or Newco of this Agreement,
A-27
<PAGE> 121
or any instrument required hereby to be executed and delivered by Acquiror or
Newco at the Closing nor the performance by Acquiror or Newco of their
respective obligations hereunder or thereunder will (a) violate or breach the
terms of or cause a default under (i) any Law, Regulation or Order applicable to
Acquiror or Newco, (ii) the articles of incorporation or by-laws of Acquiror or
Newco or (iii) any contract, note, bond, mortgage, indenture, license, agreement
or other instrument to which Acquiror or any of its Subsidiaries is a party or
by which it or any of its properties or assets is bound, or (b) with the passage
of time, the giving of notice or the taking of any action by a third Person,
have any of the effects set forth in clause (a) of this Section, except in any
such case for any matters described in this Section 5.6 that would not in the
aggregate have a material adverse effect upon the ability of Acquiror or Newco
to perform its obligations under this Agreement or be material in any respect to
Acquiror.
Section 5.7 Reports.
(a) Acquiror has timely filed all reports required to be filed by it
with the SEC since January 1, 1997 pursuant to the Exchange Act which complied,
at the time of filing, in all material respects with applicable requirements of
the Exchange Act (collectively, the "Acquiror SEC Reports"). None of Acquiror
SEC Reports, as of their respective dates, contained or, if filed after the date
hereof, will contain any untrue statement of a material fact or omitted or, if
filed after the date hereof, will omit 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, except to the
extent superseded by an Acquiror SEC Report filed subsequently and prior to the
date hereof.
(b) The consolidated statements of financial position and the related
consolidated statements of operations, stockholders' equity and cash flows
(including the related notes thereto) of Acquiror included in the Acquiror SEC
Reports complied in all material respects with applicable accounting
requirements and the published rules and Regulations of the SEC with respect
thereto, have been prepared in conformity with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a basis
consistent with prior periods (except as otherwise noted therein), and present
fairly the consolidated financial position of Acquiror as at their respective
dates, and the consolidated results of its operations and its cash flows for the
periods presented therein subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments that have not been and are
not expected to be material in amount.
Section 5.8 Absence of Certain Changes or Events. Since September 30,
1998 there is not and has not been a Material Adverse Effect on Acquiror.
Section 5.9 Registration Statement; Proxy Statement/Prospectus. The
information supplied by Acquiror or required to be supplied by the Acquiror
(except to the extent revised or superseded by amendments or supplements) for
inclusion in the Registration Statement, or any amendment or supplement thereto,
shall not, at the time the Registration Statement (including any amendments or
supplements thereto) is declared effective by the SEC, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The information
supplied by Acquiror or required to be supplied by the Acquiror (except to the
extent revised or superseded by amendments or supplements) for inclusion in the
Proxy Statement shall not, on the date the Proxy Statement is first mailed to
the Company's stockholders, at the time of the Company Stockholders' Meeting and
at the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any
A-28
<PAGE> 122
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies by or on behalf of the Company for the Company
Stockholders' Meeting which has become false or misleading. The Registration
Statement will comply as to form in all material respects with the provisions of
the Securities Act. Notwithstanding the foregoing, Acquiror makes no
representation, warranty or covenant with respect to any information supplied or
required to be supplied by the Company which is contained in or omitted from any
of the foregoing documents.
Section 5.10 Pooling; Tax Matters. As of the date hereof, to the
Knowledge of Acquiror, neither Acquiror nor any of its Affiliates has taken or
agreed to take any action or failed to take any action that would prevent (a)
the Merger from being treated for financial accounting purposes as a "pooling of
interests" in accordance with GAAP and the Regulations and interpretations of
the SEC or (b) the Merger from constituting a reorganization within the meaning
of Section 368(a) of the Code.
Section 5.11 Affiliates. Section 5.11 of Acquiror's Disclosure Schedule
contains a true and complete list of all Persons who, as of the date hereof, to
the Knowledge of Acquiror, may be deemed to be Affiliates of Acquiror, excluding
all its Subsidiaries but including all directors and executive officers of
Acquiror.
ARTICLE VI
COVENANTS RELATING TO THE CONDUCT OF BUSINESS
Section 6 Conduct of Business of the Company. Except as set forth in
Section 6 of the Company's Disclosure Schedule, during the period from the date
of this Agreement to the Closing Date (unless Acquiror shall otherwise consent
in writing and except as otherwise expressly contemplated or permitted by this
Agreement), the Company will, and will cause the Subsidiaries of the Company to,
to the extent permitted by this Agreement, operate their businesses in good
faith with the goal of preserving intact their assets and current business
organizations, keeping available the services of their current officers and
employees, maintaining their Material Contracts and preserving their
relationships with customers, suppliers, creditors, brokers, agents and others
having business dealings with them, it being understood that the failure to so
preserve, keep or maintain shall not be a breach of this Section 6 so long as
such businesses are operated in good faith as aforesaid. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
this Agreement, or as set forth in Section 6 of the Company's Disclosure
Schedule, or as agreed to in writing by Acquiror, the Company agrees as to
itself and its Subsidiaries that:
(a) Issuance and Redemption of Securities. Except as required by the
Option Agreement or the Company Rights Agreement, and, subject to Section
7.6(e)(ii), except for grants of stock options in the ordinary course consistent
with past practice pursuant to the Company Option Plans or Company Stock
Purchase Plan, in each case as in effect on the date hereof, or issuance of
Company Common Stock pursuant to the exercise of options granted thereunder or
the exercise or conversion of other securities outstanding on the date hereof,
the Company and its Subsidiaries shall not issue, sell or grant any shares of
capital stock of any class, or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for any shares of capital
stock, or any rights, warrants, options, calls, commitments or any other
agreements of any character to purchase or
A-29
<PAGE> 123
acquire any shares of capital stock or any securities or rights convertible
into, exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock or any other securities in respect of, in lieu of, or in
substitution for, shares outstanding on the date hereof. In no event shall the
vesting or exercisability of any Company stock option or shares of restricted
Company Common Stock granted or issued under any Company Plan be accelerated as
a result of or in connection with the execution, delivery or performance of this
Agreement, the Option Agreement or the Voting Agreement or the consummation of
the transactions contemplated hereby and thereby, except to the extent required
under the terms of the applicable Company Plan or applicable individual
agreement as in effect on the date hereof (or if entered into after the date
hereof in compliance with this Section 6(a), such agreement which shall be in
the standard form thereof as in effect on the date hereof).
(b) Dividends. The Company shall not, nor shall it permit any of its
Subsidiaries to (i) split, combine, subdivide or reclassify any shares of its
capital stock or (ii) declare, set aside for payment or pay any dividend, or
make any other distribution in respect of, any of its capital stock, or redeem
or repurchase any of its capital stock or any outstanding options, warrants or
rights of any kind to acquire any shares of, or any outstanding securities that
are convertible into or exchangeable for any shares of, capital stock of the
Company or any of the Company's Subsidiaries, except for (A) the distribution of
the Rights pursuant to the Company Rights Agreement, (B) dividends by a wholly
owned Subsidiary of the Company to the Company or another wholly owned
Subsidiary of the Company and (C) repurchases of unvested shares in connection
with the termination of a relationship with any employee, consultant or director
pursuant to stock option or purchase agreements in effect on the date hereof or
approved by Acquiror.
(c) Restructuring. The Company and its Subsidiaries shall not adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any
Subsidiary.
(d) Governing Documents. Except as required by the Company Rights
Agreement, the Company and its Subsidiaries shall not adopt any amendments to
their articles or certificates of incorporation, as the case may be, or their
bylaws or other equivalent organizational documents, or alter through merger,
liquidation, reorganization, restructuring or in any other fashion the corporate
structure or ownership of the Company or any such Subsidiary.
(e) Indebtedness. The Company and its Subsidiaries shall not incur any
indebtedness for money borrowed other than in the ordinary course of business or
guarantee any such indebtedness of another Person (other than the Company or any
other Subsidiary of the Company), enter into any "keep well" or other agreement
to maintain any financial condition of another Person (other than the Company or
any Subsidiary of the Company) or enter into any arrangement having the economic
effect of any of the foregoing in each case, other than (i) in connection with
the financing of ordinary course trade payables in the ordinary course of
business, (ii) pursuant to existing credit facilities in the ordinary course of
business or (iii) the guarantee by the Company of any indebtedness of any
Subsidiary of the Company.
(f) No Acquisitions. The Company and its Subsidiaries shall not acquire
or agree to acquire (i) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, limited liability company, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that, individually or in the aggregate, are material to the
A-30
<PAGE> 124
Company and its Subsidiaries except (without limitation of paragraph (h) below
but subject to paragraph (i) below), in the ordinary course of business
consistent with past practice.
(g) No Dispositions. Except in the ordinary course of business, the
Company and its Subsidiaries shall not sell, lease, license or otherwise
encumber or subject to any Lien or otherwise dispose of any of the properties or
assets of the Company or any of its Subsidiaries that, individually or in the
aggregate, are material, in nature or amount, to any Business Segment.
(h) Capital Expenditures. The Company and its Subsidiaries shall not
make or agree to make any capital expenditures relating to a single project in
excess of $5 million or in the aggregate in excess of $25 million.
(i) Contracts. Except in the ordinary course of business, the Company
and its Subsidiaries shall not (A) enter into any Material Contract, or (B)
modify, amend or transfer in any material respect or terminate any Material
Contract (other than the Company Rights Agreement) to which the Company or any
of its Subsidiaries is a party or waive, release or assign any material rights
or claims thereunder. Without limitation of the previous sentence, without the
consent of Acquiror not to be unreasonably withheld or delayed (notwithstanding
the last sentence of the first paragraph of this Section 6), the Company and its
Subsidiaries will not enter into any Netcenter agreement or commitment
(including any extension, amendment, renewal or modification to any existing
agreement) (i) having a term of more than one year from the date hereof
(including if the other party or parties thereto have the unilateral right to
extend such term beyond one year from the date hereof) and (A) providing any of
the following restrictions on the Company: exclusivity across Netcenter or any
channels within Netcenter, "most favored nations" or rights of first refusal or
first offer or (B) providing inventory commitments on Netcenter with respect to
twelve and one-half percent (12.5%) or more of the saleable inventory on either
the Netcenter home page or NetSearch page during the term of the applicable
agreement, or (ii) providing for or allowing the termination thereof upon the
Merger, or upon a "change in control" of Acquiror or the sale or spin-off of the
Company or portions of its business after the Effective Time.
(j) Employee Matters. Except as required by Law or in the ordinary
course of business, or in accordance with this Agreement, the Company and its
Subsidiaries shall not (i) increase the compensation or fringe benefits of any
of their respective employees, (ii) enter into any contract with any of their
respective employees, officers or directors regarding his or her employment,
compensation or benefits, or (iii) adopt any plan, arrangement or policy which
would become a Company Plan or amend any Company Plan to the extent such
adoption or amendment would create or increase any liability or obligation on
the part of the Company or its Subsidiaries.
(k) Accounting Policies and Procedures. The Company and its
Subsidiaries shall not make any change to their accounting methods, principles
or practices, except as may be required by GAAP, Regulation S-X promulgated by
the SEC or applicable statutory accounting principles.
(l) Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur or assume any material Lien on any of their
material assets.
(m) Claims. The Company and its Subsidiaries shall not settle any
material Litigation or waive, assign or release any material rights or claims
except in either case (i) in the ordinary course of business and (ii) for any
such settlement which (A) would
A-31
<PAGE> 125
not impose either material restrictions on the conduct of the business of the
Company or any of its Subsidiaries or (B) for Litigation items settled for
money, involve in the aggregate in excess of $10,000,000 in cost to the Company
or any of its Subsidiaries. The Company and its Subsidiaries shall not pay,
discharge or satisfy any liabilities or obligations (absolute, accrued, asserted
or unasserted, contingent or otherwise), except in the ordinary course of
business or in accordance with their terms.
(n) Interest Rate and Foreign Exchange. Except in the ordinary course
of business, the Company and its Subsidiaries shall not materially restructure
or materially change its gap position, through purchases, sales, hedges, swaps,
caps or collars or otherwise or the manner in which any current hedges are
classified or reported.
(o) Taxes. The Company and its Subsidiaries shall not make any Tax
election or settle or compromise any material Tax liability, except in respect
of ongoing matters or in the ordinary course of business.
(p) No Agreements. The Company and its Subsidiaries shall not
authorize, recommend, propose or announce an intention to do any of the
foregoing, or agree or enter into any contract to do any of the foregoing.
(q) Insurance. The Company shall, and shall cause its Subsidiaries to,
use commercially reasonable efforts to maintain in full force and effect all
self-insurance or insurance, as the case may be, currently in effect.
(r) Y2K Compliance Plan. The Company shall, and shall cause its
Subsidiaries to, use commercially reasonable efforts to carry forward in all
material respects the Y2K Review and Assessment Report and Recommendations dated
November 13, 1998, previously made available by the Company to Acquiror.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 No Solicitation. From the date hereof until the Effective
Time or, if earlier, the termination of this Agreement pursuant to Article IX,
the Company shall not (whether directly or indirectly through advisors, agents
or other intermediaries), and the Company shall cause its respective officers,
directors, advisors, representatives or other agents of the Company not to, (a)
solicit, initiate or knowingly encourage any Acquisition Proposal (as defined
herein) or (b) engage in discussions or negotiations with, or disclose any
non-public information relating to the Company or its Subsidiaries or afford
access to the properties, books or records of the Company or its Subsidiaries
to, any Person that has made an Acquisition Proposal or has advised the Company
that it is interested in making an Acquisition Proposal; provided that, if and
only if (i) the Company's Board of Directors believes in good faith, based on
such matters as it deems relevant, including the advice of the Company's
financial advisor, that such Acquisition Proposal is a Financially Superior
Proposal (as defined herein) and (ii) the Company's Board of Directors
determines in good faith, based on such matters as it deems relevant, including
consultation with the Company's outside legal counsel, that the failure to
engage in such negotiations or discussions or provide such information is a
breach of the fiduciary duties of the Board of Directors of the Company under
applicable Law, then the Company may engage in any act otherwise proscribed by
clause (b) above. The Company shall as promptly as practicable provide Acquiror
with a copy of any written Acquisition Proposal received and a written statement
with respect to any nonwritten Acquisition Proposal received, which statement
shall include the identity of the Person making the Acquisition Proposal and the
A-32
<PAGE> 126
material terms thereof. The Company shall inform Acquiror as promptly as
practicable of any change in the price, structure, form of consideration or
material terms and conditions regarding the Acquisition Proposal. For purposes
of this Agreement, "Acquisition Proposal" means any offer or proposal for a
merger, consolidation, recapitalization, liquidation or other business
combination involving the Company or any of its Material Subsidiaries (as
defined herein) or the acquisition or purchase of 20% or more of any class of
equity securities of the Company or any of its Material Subsidiaries, or any
tender offer or exchange offer, that, if consummated, would result in any Person
(other than Acquiror and its affiliates) beneficially owning 20% or more of any
class of equity securities of the Company or any of its Material Subsidiaries,
or the acquisition, license or purchase of a substantial portion of the
technology, business or assets of the Company and its Subsidiaries, other than
the transactions contemplated by this Agreement and other than in the ordinary
course of business. As used herein, a "Financially Superior Proposal" shall mean
an Acquisition Proposal which in the reasonable judgment of the Company's Board
of Directors, based on such matters as it deems relevant, including the advice
of the Company's financial advisor, (i) will result in a transaction providing
aggregate value greater than that provided pursuant to this Agreement and (ii)
is reasonably capable of being financed by the Person making such Acquisition
Proposal. As used herein, "Material Subsidiary" means any Subsidiary of the
Company whose consolidated revenues, net income or assets constitute 20% or more
of the revenues, net income or assets of the Company and its Subsidiaries, taken
as a whole. Nothing in this Agreement, including Section 6(g), shall prohibit
the Company or the Company's Board of Directors from taking and disclosing to
the Company's stockholders a position with respect to a tender or exchange offer
by a third party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the
Exchange Act or from making any disclosure required by an applicable Law.
Section 7.2 Access and Information. Each of the parties will, and will
cause its Subsidiaries to, (i) afford to the other party and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Representatives") full access at reasonable
times upon reasonable prior notice to the officers, employees, agents,
properties, offices and other facilities of such party and its Subsidiaries and
to their books and records, (ii) furnish promptly to the other party and its
Representatives such information concerning the business, properties, contracts,
records and personnel of such party and its Subsidiaries (including financial,
operating and other data and information) as may be reasonably requested, from
time to time, by or on behalf of the other party. No investigation by any party
hereto shall affect any representation or warranty in this Agreement of any
party hereto or any condition to the obligations of the parties hereto. All
information obtained by Acquiror or the Company pursuant to this Section 7.2
shall be kept confidential in accordance with the Confidentiality Agreement.
Section 7.3 Meeting of Stockholders. The Company, acting through its
Board of Directors, shall, in accordance with the DGCL and its certificate of
incorporation and bylaws, promptly and duly call, give notice of, convene and
hold as soon as practicable following the date upon which the Registration
Statement becomes effective, the Company Stockholders' Meeting, and the Company
shall consult with Acquiror in connection therewith. Unless the Board of
Directors determines, based on such matters as it deems relevant, including
consultation with the Company's outside legal counsel, that to do so is a breach
of the fiduciary duties of the Board of Directors of the Company under
applicable Law, the Board of Directors of the Company shall declare that this
Agreement is advisable and recommend that the Agreement and the transactions
contemplated hereby be approved and adopted by the stockholders of the Company
and include in the Registration
A-33
<PAGE> 127
Statement and Proxy Statement a copy of such recommendations; provided, however,
that, the Board of Directors of the Company shall submit this Agreement to the
Company's stockholders, whether or not the Board of Directors of the Company at
any time subsequent to the date hereof determines that this Agreement is no
longer advisable or recommends that the stockholders of the Company reject it.
Unless the Board of Directors of the Company has withdrawn its recommendation of
this Agreement in compliance herewith, the Company shall use reasonable efforts
to solicit from stockholders of the Company proxies in favor of the approval and
adoption of this Agreement and the Merger and to secure the vote or consent of
stockholders required by the DGCL and its certificate of incorporation and
bylaws to approve and adopt this Agreement and the Merger.
Section 7.4 Registration Statement; Proxy Statement.
(a) As promptly as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC a preliminary proxy or information
statement relating to the Merger and this Agreement and obtain and furnish the
information required to be included by the SEC in the Proxy Statement and, after
consultation with Acquiror, respond promptly to any comments made by the SEC
with respect to the Proxy Statement to be mailed to its stockholders at the
earliest practicable date after the Registration Statement is declared effective
by the SEC, provided that no amendment or supplement to the Proxy Statement will
be made by the Company without consultation with Acquiror and its counsel.
(b) Acquiror shall prepare and file with the SEC the Registration
Statement, in which the Proxy Statement shall be included as a prospectus, and
shall use reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable. Acquiror shall obtain and
furnish the information required to be included in the Registration Statement
and, after consultation with the Company, respond promptly to any comments made
by the SEC with respect to the Registration Statement and cause the prospectus
included therein, including any amendment or supplement thereto, to be mailed to
the Company's stockholders at the earliest practicable date after the
Registration Statement is declared effective by the SEC, provided that no
amendment or supplement to the Registration Statement will be made by Acquiror
without consultation with the Company and its counsel. Acquiror shall also take
any action required to be taken under state blue sky or other securities Laws in
connection with the issuance of Acquiror Common Stock in the Merger.
Section 7.5 Appropriate Action; Consents; Filings.
(a) The Company and Acquiror will each use reasonable efforts (i) to
take, or to cause to be taken, all appropriate action, and to do, or to cause to
be done, all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the transactions contemplated by this
Agreement, unless the Board of the Directors of the Company has withdrawn its
recommendation of this Agreement in compliance herewith, (ii) to obtain from any
Governmental Authorities any Permits or Orders required to be obtained by
Acquiror or the Company or any of their Subsidiaries in connection with the
authorization, execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, including the Merger,
(iii) to make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities Laws, (B) the HSR Act (C) Foreign Competition Laws and (D) any
other applicable Law; provided that Acquiror and the Company will cooperate with
each other in connection with the making
A-34
<PAGE> 128
of all such filings, including providing copies of all such documents to the
nonfiling party and its advisors prior to filings and, if requested, will accept
all reasonable additions, deletions or changes suggested in connection therewith
and (iv) to furnish all information required for any application or other filing
to be made pursuant to any applicable Law or any applicable Regulations of any
Governmental Authority (including all information required to be included in the
Proxy Statement or the Registration Statement) in connection with the
transactions contemplated by this Agreement provided, however, that neither
Acquiror nor any of its Affiliates shall be under any obligation to make
proposals, execute or carry out agreements or submit to Orders providing for the
sale or other disposition or holding separate (through the establishment of a
trust or otherwise) of any material (in nature or amount) assets or categories
of material (in nature or amount) assets of Acquiror, any of its Affiliates or
the Company or the holding separate of the shares of Company Common Stock or
imposing or seeking to impose any material limitation on the ability of Acquiror
or any of its Subsidiaries or Affiliates to conduct their business or own such
assets or to acquire, hold or exercise full rights of ownership of the shares of
Company Common Stock.
(b) Each of the Company and Acquiror will give prompt notice to the
other of (i) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the Merger, (ii)
any notice or other communication from any Governmental Authority in connection
with the Merger, (iii) any Litigation, relating to or involving or otherwise
affecting the Company, Acquiror or their Subsidiaries that relates to the
consummation of the Merger; and (iv) any change that is reasonably likely to
have a Material Adverse Effect on the Company or Acquiror.
(c) Each of the Company and Acquiror will give (or will cause their
respective Subsidiaries to give) any notices to third Persons, and use, and
cause their respective Subsidiaries to use, reasonable efforts to obtain any
consents from third Persons necessary, proper or advisable (as determined in
good faith by Acquiror with respect to such notices or consents to be delivered
or obtained by the Company) to consummate the transactions contemplated by this
Agreement.
(d) To the extent requested by Acquiror, the Company shall cooperate
with Acquiror to identify any "Encumbrances" that may adversely affect the
Company's or its Subsidiaries' right to sublicense any Intellectual Property
rights owned or licensed by the Company (including the right to further
sublicense such rights) in the Company's or its Subsidiaries' client or server
software (including without limitation development tools, tests and other
development components) which will exist as of the Closing Date, and any
maintenance upgrades and new releases of such software, if any, which will be
already in progress at the Company as of the Closing Date, and/or any components
of the foregoing (collectively, the "Software Products"). Such cooperation shall
include, upon Acquiror's written request, granting Acquiror full access, subject
to existing or other reasonable confidentiality restrictions, to the Company's
technology licenses, acquisition agreements and Intellectual Property claims
relating to the Software Products. "Encumbrance" means any restriction or limit
that would prevent or materially limit or restrict the Company's ability to
sublicense any Intellectual Property right owned or licensed by the Company
(including the right to further sublicense such rights) with respect to the
Software Products, including, without limitation, limitations on source code
access and sublicensing rights, as well as prohibitions or required consents to
assignment of rights from the Company to the Acquiror upon the Closing Date,
which rights, if not available, would constitute an Encumbrance. The Company
shall use reasonable efforts in consultation with Acquiror to remove, limit or
diminish such Encumbrances in a reasonable priority order
A-35
<PAGE> 129
designated by Acquiror, with the goal of removing or minimizing as soon as
practicable all such Encumbrances and having no ongoing financial obligations in
connection therewith.
Section 7.6 Affiliates; Pooling; Tax Treatment.
(a) The Company will use reasonable efforts to obtain an executed letter
agreement substantially in the form of Annex C hereto from (i) each Person
identified in Section 4.22 of the Company's Disclosure Schedule within 15 days
following the execution and delivery of this Agreement and (ii) from any Person
who, to the Company's Knowledge, may be deemed to have become an Affiliate of
the Company after the date of this Agreement and prior to the Effective Time as
soon as practicable after attaining such status.
(b) Acquiror will use reasonable efforts to obtain an executed letter
agreement substantially in the form of Annex D hereto from (i) each Person
identified in Section 5.11 of Acquiror's Disclosure Schedule within 15 days
following the execution and delivery of this Agreement and (ii) from any Person
who, to Acquiror's Knowledge, may be deemed to have become an Affiliate of
Acquiror after the date of this Agreement and prior to the Effective Time as
soon as practicable after attaining such status.
(c) Acquiror Companies will not be required to maintain the
effectiveness of the Registration Statement for the purpose of resale by
stockholders of the Company who may be Affiliates of the Company pursuant to
Rule 145 under the Securities Act.
(d) Acquiror and the Company will each use reasonable efforts before and
after the Closing to cause the Merger to qualify as a reorganization within the
meaning of Section 368(a) of the Code, and will not take, and will use
reasonable efforts to prevent any Affiliate of such party from taking, any
actions which could prevent the Merger from qualifying as such a reorganization,
and will take such action as is available and may be reasonably required to
negate the impact of any past actions by such party or its respective Affiliates
which would reasonably be expected to adversely impact the qualification of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
Acquiror and the Company will each use reasonable efforts to obtain executed
representation letters described in Sections 8.2(d) and 8.3(c), respectively,
substantially in the respective forms attached hereto as Annexes E and F.
(e) (i) Acquiror will not knowingly take, or knowingly permit any
controlled Affiliate of Acquiror to take, any actions which could prevent the
Merger from being treated for financial accounting purposes as a "pooling of
interests" under GAAP, it being understood and agreed that if Ernst & Young LLP,
Acquiror's independent accountants, advises Acquiror that an action would not
prevent the Merger from being so treated, such action will be conclusively
deemed not to constitute a breach of this Section 7.6(e)(i).
(ii) The Company will not knowingly take, or knowingly permit any
controlled Affiliate of the Company to take, any actions which could prevent the
Merger from being treated for financial accounting purposes as a "pooling of
interests" under GAAP, it being understood and agreed that if Ernst & Young LLP,
the Company's independent accountants, advises the Company that an action would
not prevent the Merger from being so treated, such action will be conclusively
deemed not to constitute a breach of this Section 7.6(e)(ii).
Section 7.7 Public Announcements. The parties will consult with each
other and will mutually agree upon any press release or public announcement
pertaining to the Merger and shall not issue any such press release or make any
such public announcement
A-36
<PAGE> 130
prior to such consultation and agreement, except as may be required by
applicable Law or by obligations pursuant to any listing agreement with any
national securities exchange or national automated quotation system, in which
case the party proposing to issue such press release or make such public
announcement shall use reasonable efforts to consult in good faith with the
other party before issuing any such press release or making any such public
announcement. Notwithstanding the foregoing, in the event the Company's Board of
Directors withdraws its recommendation of this Agreement in compliance herewith,
the Company will no longer be required to consult with or obtain the agreement
of Acquiror or Newco in connection with any press release or public
announcement.
Section 7.8 Stock Exchange Listing. Acquiror will use reasonable efforts
to cause the shares of Acquiror Common Stock to be issued in the Merger to be
approved for listing (subject to official notice of issuance) on the New York
Stock Exchange prior to the Effective Time.
Section 7.9 Employee Benefit Plans.
(a) Acquiror agrees that individuals who are employed by the Company or
any Subsidiary of the Company immediately prior to the Effective Time shall
become employees of the Surviving Corporation or one of its Subsidiaries
following the Effective Time (each such employee, an "Affected Employee");
provided, however, that this Section 7.9(a) shall not be construed to limit the
ability of the applicable employer to terminate the employment of any Affected
Employee at any time.
(b) Acquiror will, or will cause the Surviving Corporation to, give
Affected Employees full credit for purposes of eligibility (including service
and waiting period requirements), vesting, benefit accrual and determination of
the level of benefits under any employee benefit plans or arrangements
maintained by the Acquiror, the Surviving Corporation or any Subsidiary of the
Acquiror for such Affected Employees' service with the Company or any Subsidiary
of the Company to the same extent recognized by the Company or any Subsidiary of
the Company immediately prior to the Effective Time.
(c) Acquiror will, or will cause the Surviving Corporation to, (i) waive
all limitations as to preexisting conditions, exclusions and waiting periods and
service requirements with respect to participation and coverage requirements
applicable to the Affected Employees under any welfare benefit plans that such
employees may be eligible to participate in after the Effective Time, other than
limitations, waiting periods or service requirements that are already in effect
with respect to such employees and that have not been satisfied as of the
Effective Time under any welfare plan maintained for the Affected Employees
immediately prior to the Effective Time, and (ii) provide each Affected Employee
with credit for any co-payments and deductibles paid prior to the Effective Time
(as shown on the Company's records) in satisfying any applicable deductible or
out-of-pocket requirements under any welfare plans that such employees are
eligible to participate in after the Effective Time.
(d) For a period of six months immediately following the Effective Time,
the coverage and benefits provided to Affected Employees pursuant to employee
benefit plans or arrangements maintained by Acquiror, the Company or any
Subsidiary of the Company, or any Subsidiary of the Acquiror shall be, in the
aggregate, not less favorable than those provided to such employees immediately
prior to the Effective Time.
A-37
<PAGE> 131
Section 7.10 Indemnification of Directors and Officers; Directors &
Officers Insurance.
(a) From and after the Effective Time, Acquiror will fulfill and honor
and will cause the Surviving Corporation to fulfill and honor in all respects
the obligations of the Company pursuant to any indemnification agreements
between the Company and its directors and officers as of or prior to the date
hereof (or indemnification agreements in the Company's customary form for
directors joining the Company's Board of Directors prior to the Effective Time)
and any indemnification provisions under the Company's certificate of
incorporation or bylaws as in effect immediately prior to the Effective Time.
(b) For a period of six years after the Effective Time, Acquiror will
maintain or cause the Surviving Corporation to maintain in effect, if available,
directors' and officers' liability insurance covering those Persons who, as of
immediately prior to the Effective Time, are covered by the Company's directors'
and officers' liability insurance policy (the "Insured Parties") on terms no
less favorable to the Insured Parties than those of the Company's present
directors' and officers' liability insurance policy; provided, however, that in
no event will Acquiror or the Surviving Corporation be required to expend in
excess of 150% of the annual premium currently paid by the Company for such
coverage (or such coverage as is available for 150% of such annual premium).
(c) The provisions of this Section 7.10 are intended to be for the
benefit of, and will be enforceable by, each Person entitled to indemnification
hereunder and the heirs and representatives of such Person. Acquiror will not
permit the Surviving Corporation to merge or consolidate with any other Person
unless the Surviving Corporation will ensure that the surviving or resulting
entity assumes the obligations imposed by this Section 7.10.
Section 7.11 Event Notices. From and after the date of this Agreement
until the Effective Time, each party hereto will promptly notify the other party
hereto of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any condition to the obligations
of such party to effect the Merger and the other transactions contemplated by
this Agreement not to be satisfied and (ii) the failure of such party to comply
with any covenant or agreement to be complied with by it pursuant to this
Agreement which would be likely to result in any condition to the obligations of
such party to effect the Merger and the other transactions contemplated by this
Agreement not to be satisfied. No delivery of any notice pursuant to this
Section 7.11 will cure any breach of any representation or warranty of such
party contained in this Agreement or otherwise limit or affect the remedies
available hereunder to the party receiving such notice.
Section 7.12 Assumption of Obligations to Issue Stock.
(a) Simultaneously with the Merger, (i) each outstanding option or
warrant to purchase or acquire a share of Company Common Stock under any Company
Option Plan or otherwise shall, in accordance with the terms thereof, be
converted into an option or warrant to purchase the number of shares of Acquiror
Common Stock equal to the Exchange Ratio times the number of shares of Company
Common Stock which could have been obtained prior to the Effective Time upon the
exercise of each such option or warrant (rounded down to the nearest whole
share), at an exercise price per share equal to the exercise price for each such
share of Company Common Stock (rounded up to the nearest whole cent) subject to
such option or warrant divided by the Exchange Ratio, and all references in each
such option or warrant to the Company shall be deemed to refer to Acquiror,
where appropriate, and (ii) Acquiror shall assume the obligations of the
A-38
<PAGE> 132
Company under the Company Option Plans. The other terms of each such option or
warrant and any Company Option Plans under which they were issued, shall
continue to apply in accordance with their terms, including any provisions
providing for acceleration.
(b) Simultaneously with the Merger, each outstanding award (including
restricted stock, stock equivalents and stock units) ("Company Award") under any
employee incentive or benefit plans, programs or arrangements presently
maintained by the Company or any Company Subsidiary which provide for grants of
equity-based awards shall be amended or converted into a similar instrument of
Acquiror, in each case with such adjustments to the terms of such Company Awards
as are appropriate to preserve the value inherent in such Company Awards with no
detrimental effects on the holders thereof. The other terms of each Company
Award, and the plans or agreements under which they were issued, shall continue
to apply in accordance with their terms, including any provisions providing for
acceleration.
(c) The Company and Acquiror agree that each of their respective
employee incentive or benefit plans, programs and arrangements shall be amended,
to the extent necessary and appropriate, to reflect the transactions
contemplated by this Agreement, including, but not limited to the conversion of
shares of Company Common Stock held or to be awarded or paid pursuant to such
benefit plans, programs or arrangements into shares of Acquiror Common Stock on
a basis consistent with the transactions contemplated by this Agreement.
(d) Acquiror shall (i) reserve for issuance the number of shares of
Acquiror Common Stock that will become subject to the benefit plans, programs,
arrangements and warrants referred to in this Section 7.12 and (ii) issue or
cause to be issued the appropriate number of shares of Acquiror Common Stock
pursuant to such plans, programs, arrangements and warrants, upon the exercise
or maturation of rights existing thereunder at the Effective Time or thereafter
granted or awarded.
(e) The parties will use their reasonable efforts to mutually agree with
respect to the treatment of the Company Stock Purchase Plan in the Merger on
terms not inconsistent with the Company Stock Purchase Plan or the terms of this
Agreement; provided, however, that in no event may Company Common Stock be
purchased under the Company Stock Purchase Plan after the Effective Time.
(f) Acquiror agrees to file a registration statement on Form S-8 for the
shares of Acquiror Common Stock issuable with respect to options under any
Company Option Plan at or prior to the Effective Time and shall use its
commercially reasonable efforts to maintain the effectiveness of such
registration statement thereafter for as long as any of such options remain
outstanding, to the same extent as Acquiror maintains the effectiveness of its
existing Form S-8.
(g) The Company hereby assigns all Repurchase Rights to the Surviving
Corporation as of the Effective Time.
Section 7.13 Conveyance Taxes. Acquiror and the Company shall cooperate
in the preparation, execution and filing of all returns, questionnaires,
applications, or other documents regarding (i) any real property transfer gains,
sales, use, transfer, value-added, stock transfer (subject to Section 3.2(c)),
and stamp Taxes (ii) any recording, registration and other fees, and (iii) any
similar Taxes or fees that become payable in connection with the transactions
contemplated hereby. The Taxes described in clause (i) above shall be paid by
the Company.
A-39
<PAGE> 133
Section 7.14 Voting Agreement. The Company shall use reasonable efforts,
on behalf of Acquiror and pursuant to the request of Acquiror, to cause each
Company stockholder named on the signature pages to the Voting Agreement to
execute and deliver to Acquiror the Voting Agreement concurrently with the
execution of this Agreement.
Section 7.15 Option Agreement. Concurrently with the execution of this
Agreement, the Company shall deliver to Acquiror an executed Option Agreement in
the form of Annex B attached hereto. The Company agrees to fully perform to the
fullest extent permitted under applicable Law its obligations under the Option
Agreement.
Section 7.16 Rights Agreement. The Company covenants and agrees with
Acquiror that the Company shall not take any action which would cause (A) a
"Shares Acquisition Date" to occur, or Acquiror or any of its Affiliates,
individually or taken together, to be or be deemed to be an "Acquiring Person"
under the Company Rights Agreement, or (B) the Company Rights Agreement or the
Company Rights to apply to Acquiror or any of its Affiliates, individually or
taken together, in the case of (A) or (B), solely as a result of this Agreement,
the Option Agreement, the Voting Agreement or the transactions contemplated
hereby and thereby. The Company agrees to take all actions as are required to
prevent any event described in (A) or (B) from occurring, in any such case
solely as a result of this Agreement, the Option Agreement, the Voting Agreement
or the transactions contemplated hereby and thereby.
Section 7.17 Reasonable Efforts and Further Assurances. Subject to the
terms and conditions hereof, each of the parties to this Agreement shall use
reasonable efforts to effectuate the transactions contemplated hereby and to
fulfill and cause to be fulfilled the conditions to Closing under this
Agreement. Subject to the terms and conditions hereof, each party hereto, at the
reasonable request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
ARTICLE VIII
CLOSING CONDITIONS
Section 8.1 Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger and
the other transactions contemplated hereby will be subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived by the party entitled to the benefit thereof, in whole or in
part, to the extent permitted by applicable Law:
(a) Effectiveness of the Registration Statement. The Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act; no stop Order suspending the effectiveness of the Registration
Statement shall be in effect; and no proceedings for that purpose shall be
pending before or threatened by the SEC.
(b) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company in
accordance with the DGCL and the certificate of incorporation and bylaws of the
Company.
(c) No Order. No Court or Governmental Authority having jurisdiction
over the Company or Acquiror shall have enacted, issued, promulgated, enforced
or entered any Law, Regulation or Order (whether temporary, preliminary or
permanent) which is then in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger substantially on the
terms contemplated by this Agreement.
A-40
<PAGE> 134
(d) Regulatory Approvals. All approvals and consents of applicable
Courts and/or Governmental Authorities required to consummate the Merger shall
have been received, and all applicable waiting periods under the HSR Act and
Foreign Competition Laws shall have expired or been terminated.
(e) Stock Exchange Listing. The shares of Acquiror Common Stock to be
issued pursuant to the Merger shall have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange.
(f) Pooling of Interests. Acquiror shall have been advised in writing
by Ernst & Young LLP as of the date upon which the Effective Time is to occur,
in a form and in substance reasonably acceptable to Acquiror and the Company,
that the transactions contemplated by this Agreement, if consummated, can
properly be accounted for as a "pooling of interests" business combination in
accordance with GAAP and the criteria of Accounting Principles Board Opinion No.
16 and the Regulations of the SEC. It is understood and agreed that (i) the
obligations of the Company to effect the Merger shall not be subject to the
condition set forth in this Section 8.1(f) to the extent that the Company shall
have breached Section 4.21(a) or Section 7.6(e)(ii) hereof, but only if but for
such breach the condition set forth in this Section 8.1(f) could have been
satisfied (and provided that (A) if such breach is curable the Company shall
have the opportunity, for up to 10 calendar days following satisfaction or
waiver of all other conditions to the Company's obligations to effect the Merger
(and during such period this Section 8.1(f) condition shall remain in effect as
a condition to the Company's obligation to effect the Merger), to cure such
breach and thereby continue this condition in effect as a condition to the
Company's obligation to effect the Merger and (B) if such breach is not curable,
or shall not have been cured at the end of such 10-day period, this Section
8.1(f) condition shall cease to be in effect as a condition to the Company's
obligation to effect the Merger); and (ii) the obligations of the Acquiror
Companies to effect the Merger hereby shall not be subject to the condition set
forth in this Section 8.1(f) to the extent that either of the Acquiror Companies
shall have breached Section 5.10(a) or Section 7.6(e)(i) hereof, but only if but
for such breach the condition set forth in this Section 8.1(f) could have been
satisfied (and provided that (A) if such breach is curable Acquiror shall have
the opportunity, for up to 10 calendar days following satisfaction or waiver of
all other conditions to Acquiror's obligations to effect the Merger (and during
such period this Section 8.1(f) condition shall remain in effect as a condition
to Acquiror's obligation to effect the Merger), to cure such breach and thereby
continue this Section 8.1(f) condition in effect as a condition to Acquiror's
obligation to effect the Merger and (B) if such breach is not curable, or shall
not have been cured at the end of such 10-day period, this Section 8.1(f)
condition shall cease to be in effect as a condition to Acquiror's obligation to
effect the Merger).
Section 8.2 Additional Conditions to Obligations of the Acquiror
Companies. The obligations of the Acquiror Companies to effect the Merger and
the other transactions contemplated hereby shall be subject to the satisfaction
at or prior to the Effective Time of the following additional conditions, any or
all of which may be waived by the Acquiror Companies, in whole or in part, to
the extent permitted by applicable Law:
(a) Representations and Warranties.
(i) Each of the representations and warranties of the Company
contained in this Agreement shall be true and correct as of the date hereof and
at and as of the Closing Date as if made at and as of such time, except that, to
the extent such representations and warranties address matters only as of a
particular date, such representations and warranties shall, to such extent, be
true and correct at and as of such particular date as if made at
A-41
<PAGE> 135
and as of such particular date; provided that if any of such representations and
warranties shall not be true and correct as aforesaid, then the condition
contained in this Section 8.2(a)(i) (but not the condition contained in Section
8.2(a)(ii)) shall nevertheless be deemed satisfied if the cumulative effect of
all inaccuracies of such representations and breaches of such warranties shall
not be or have a Material Adverse Effect on the Company. The Acquiror Companies
shall have received a certificate of an executive officer of the Company, dated
the date of the Effective Time, to such effect.
(ii) The representations and warranties of the Company contained in
Section 4.20 shall be true and correct as of the date hereof and at and as of
the Closing Date as if made at and as of such time, except that to the extent
such representations and warranties address matters only as of a particular
date, such representations and warranties shall, to such extent, be true and
correct at and as of such particular date as if made at and as of such
particular date; provided that if any of such representations and warranties
shall not be true and correct as aforesaid, then the condition contained in this
Section 8.2(a)(ii) shall nevertheless be deemed satisfied if the cumulative
effect of all inaccuracies of such representations and breaches of such
warranties shall not be or have a Material Adverse Effect on any Business
Segment.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the
Closing. The Acquiror Companies shall have received a certificate of an
executive officer of the Company, dated the Closing Date, to such effect.
(c) Third Party Consents. All Change of Control Consents of third
parties required in order for a Change of Control Effect not to occur under any
contract, note, bond, mortgage, indenture, license, agreement or other
instrument to which the Company or any of its Subsidiaries is a party or by
which it is bound and which is material to any Business Segment shall have been
obtained, except where the failure to obtain such Change of Control Consents,
either individually or in the aggregate, shall not have or be a Material Adverse
Effect on the Company.
(d) Tax Opinion. Acquiror shall have received the opinion of its tax
counsel, Skadden, Arps, Slate, Meagher & Flom LLP, dated as of the Closing Date,
to the effect that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code; provided, however, that if such firm does
not render such opinion, this condition shall nonetheless be deemed satisfied if
such opinion, dated as of the Closing Date, is rendered to Acquiror by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, tax counsel to the Company.
The issuance of such opinion shall be conditioned on the receipt by such tax
counsel rendering such opinion of representation letters from each of Acquiror,
Newco and the Company, in each case, in form and substance reasonably
satisfactory to such tax counsel. The specific provisions of each such
representation letter shall be in form and substance reasonably satisfactory to
such tax counsel rendering such opinion, and each such representation letter
shall be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
(e) Affiliate Agreements. Each of the parties identified by the Company
as being an Affiliate of the Company shall have delivered to Acquiror an
executed Affiliate Agreement, in the form attached hereto as Annex C, which
shall be in full force and effect.
(f) Rights Plan. The provisions of the Company Rights Agreement and the
Rights shall not apply to Acquiror or any of its Affiliates, individually or
taken together, as a result of this Agreement, the Option Agreement, the Voting
Agreement or the transactions contemplated hereby or thereby, or to the Merger,
and all Company Rights
A-42
<PAGE> 136
issued thereunder shall, immediately prior to the Effective Time, be canceled,
void and of no further force or effect.
Section 8.3 Additional Conditions to Obligations of the Company. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of the following additional conditions, any or all of which may
be waived by the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Representations and Warranties. Each of the representations and
warranties of the Acquiror Companies contained in this Agreement shall be true
and correct as of the date hereof and at and as of the Closing Date as if made
at and as of such time, except that to the extent such representations and
warranties address matters only as of a particular date, such representations
and warranties shall, to such extent, be true and correct as of the date hereof
and at and as of such particular date as if made at and as of such particular
date; provided that if any of such representations and warranties shall not be
true and correct as aforesaid, then this condition shall nevertheless be deemed
satisfied if the cumulative effect of all inaccuracies of such representations
and breaches of such warranties shall not be or have a Material Adverse Effect
on Acquiror. The Company shall have received a certificate of an executive
officer of each of the Acquiror Companies, dated the date of the Effective Time,
to such effect.
(b) Agreements and Covenants. The Acquiror Companies shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing. The Company shall have received a certificate of an executive
officer of each of the Acquiror Companies, dated the Closing Date, to such
effect.
(c) Tax Opinion. The Company shall have received the opinion of its tax
counsel, Wilson Sonsini Goodrich & Rosati, Professional Corporation, dated as of
the Closing Date, to the effect that the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code; provided, however, that if
such firm does not render such opinion, this condition shall nonetheless be
deemed satisfied if such opinion, dated as of the Closing Date, is rendered to
the Company by Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to
Acquiror. The issuance of such opinion shall be conditioned on the receipt by
such tax counsel rendering such opinion of representation letters from each of
Acquiror, Newco and the Company, in each case, in form and substance reasonably
satisfactory to such tax counsel. The specific provisions of each such
representation letter shall be in form and substance reasonably satisfactory to
such tax counsel rendering such opinion, and each such representation letter
shall be dated on or before the date of such opinion and shall not have been
withdrawn or modified in any material respect.
ARTICLE IX
TERMINATION, AMENDMENT AND EXPENSES
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Merger by the stockholders of the Company:
(a) by mutual consent of Acquiror and the Company;
(b) by Acquiror, upon a material breach of any covenant or agreement on
the part of the Company set forth in this Agreement, or if any representation or
warranty of the Company hereunder shall be or become untrue or inaccurate, in
any case such that the
A-43
<PAGE> 137
conditions set forth in Section 8.2(a) or Section 8.2(b) would not be satisfied
(a "Terminating Company Breach"); provided that, if such Terminating Company
Breach is curable by the Company through the exercise of its reasonable efforts,
and the Company continues to exercise such reasonable efforts, Acquiror may not
terminate this Agreement under this Section 9.1(b) if such Terminating Company
Breach has been cured prior to June 30, 1999;
(c) by the Company, upon material breach of any covenant or agreement on
the part of the Acquiror Companies set forth in this Agreement, or if any
representation or warranty of the Acquiror Companies shall be or become untrue
or inaccurate, in any case such that the conditions set forth in Section 8.3(a)
or Section 8.3(b) would not be satisfied (a "Terminating Acquiror Breach");
provided that, if such Terminating Acquiror Breach is curable by the Acquiror
Companies through the exercise of their reasonable efforts, and the Acquiror
Companies continue to exercise such reasonable efforts, the Company may not
terminate this Agreement under this Section 9.1(c) if such Terminating Acquiror
Breach has been cured prior to June 30, 1999;
(d) by either Acquiror or the Company, if there shall be any Order of a
Court or Governmental Authority having jurisdiction over a party hereto which is
final and nonappealable permanently enjoining, restraining or prohibiting the
consummation of the Merger, unless the party relying on such Order has not
complied with its obligations under Section 7.5;
(e) by either Acquiror or the Company, if the Merger shall not have been
consummated before June 30, 1999 (the "Termination Date"); provided, however,
that the right to terminate this Agreement under this Section 9.1(e) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been a cause of, or resulted in, the failure of the Effective Time
to occur on or before the Termination Date;
(f) by either Acquiror or the Company, if this Agreement shall fail to
receive the requisite vote for approval and adoption by the stockholders of the
Company at the Company Stockholders' Meeting;
(g) by Acquiror (i) if the Board of Directors of the Company fails to
recommend approval and adoption of this Agreement and the Merger by the
stockholders of the Company or withdraws or modifies (or publicly announces an
intention to withdraw or modify) in any adverse manner its approval or
recommendation of this Agreement or the Merger; (ii) if the Board of Directors
of the Company makes any public recommendation with respect to any Acquisition
Proposal other than a recommendation to reject such Acquisition Proposal; (iii)
if the Company takes any action prohibited by Section 7.1; (iv) if the Company
breaches in any material respect the Option Agreement; or (v) if the Board of
Directors of the Company resolves to take any of the actions specified above.
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.1 will remain operative and in full force and effect regardless of any
investigation made by or on behalf of any party hereto, any Person controlling
any such party or any of their respective officers, directors, representatives
or agents, whether prior to or after the execution of this Agreement.
Section 9.2 Effect of Termination.
(a) Except as provided in this Section 9.2, in the event of the
termination of this Agreement pursuant to Section 9.1, this Agreement will
forthwith become void, and there will be no liability on the part of the
Acquiror Companies or the Company or any of their respective officers or
directors to the other and all rights and obligations of any party
A-44
<PAGE> 138
hereto will cease, except that nothing herein will relieve any party from
liability for any breach, prior to termination of this Agreement in accordance
with its terms, of any representation, warranty, covenant or agreement contained
in this Agreement.
(b) If this Agreement is terminated (i) by Acquiror pursuant to Section
9.1(g) or (ii) by Acquiror or Company pursuant to Section 9.1(f) hereof because
of the failure to obtain the required approval from the Company stockholders
and, in the case of termination pursuant to this clause (ii), if (A) at or prior
to the Company Stockholders' Meeting an Acquisition Proposal shall have been
publicly announced or disclosed (whether or not such offer, proposal,
announcement or agreement shall have been rejected or shall have been withdrawn
prior to the time of such termination or of the Company Stockholders' Meeting)
and (B)(1) a third party or "group" (within the meaning of Rule 13d-5 under the
Exchange Act), directly or indirectly, acquires Company Common Stock which
results in such third party or "group" having beneficial ownership of 35% or
more of the then outstanding Company Common Stock (excluding an underwriter who
acquires such beneficial ownership pursuant to a bonafide underwritten offering)
or (2) a sale, transfer or license (having a similar effect as a sale or
transfer) of 35% or more of the fair market value of the assets of the Company
is consummated with a third party or "group" (within the meaning of Rule 13d-5
under the Exchange Act), other than in the ordinary course of business, or (3) a
definitive agreement with respect to any transaction referred to in (1) or (2)
is executed by the Company or any of its Subsidiaries, in the case of (1), (2)
or (3), within 6 months following termination of the Agreement pursuant to this
clause (ii), then, in the case of clause (i), the Company shall pay to Acquiror
by wire transfer of same day funds promptly but not later than two Business Days
after the date of such termination a termination fee of $100 million (the
"Termination Fee"), and, in the case of clause (ii), the Company shall pay the
Termination Fee to Acquiror by wire transfer of same day funds promptly but not
later than two Business Days after satisfaction of all conditions to the payment
thereof set forth in clause (ii).
Section 9.3 Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; provided, however, that, after approval
of the Merger by the stockholders of the Company, no amendment may be made which
would reduce the amount or change the type of consideration into which each
share of Company Common Stock will be converted pursuant to this Agreement upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
Section 9.4 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver will be valid only if set forth in an instrument in writing signed by the
party or parties to be bound thereby. For purposes of this Section 9.4, Acquiror
Companies will be deemed to be one party.
Section 9.5 Expenses. Except as set forth in Section 9.2, all expenses
incurred by the parties hereto will be borne solely and entirely by the party
which has incurred such expenses; provided, however, that the Company and
Acquiror shall each pay fifty percent of expenses related to printing, filing
and mailing the Registration Statement and the Proxy Statement and all SEC and
other regulatory filing fees incurred in connection with the Registration
Statement and the Proxy Statement.
A-45
<PAGE> 139
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Interpretation.
(a) When a reference is made in this Agreement to a section or article,
such reference shall be to a section or article of this Agreement unless
otherwise clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof", "hereby", "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified.
(d) The plural of any defined term shall have a meaning correlative to
such defined term, and words denoting any gender shall include all genders.
Where a word or phrase is defined herein, each of its other grammatical forms
shall have a corresponding meaning.
(e) A reference to any legislation or to any provision of any
legislation shall include any modification or re-enactment thereof, any
legislative provision substituted therefor and all Regulations and statutory
instruments issued thereunder or pursuant thereto.
(f) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
Section 10.2 Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 10.2(b) of this Agreement, the
representations, warranties and agreements of each party hereto will remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any other party hereto, any Person controlling any such party or
any of their officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations and warranties in this Agreement will terminate
at the Effective Time; provided, however, this Section 10.2(b) shall in no way
limit any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time or after the termination of this Agreement
pursuant to Article IX.
Section 10.3 Notices. Any notice, request, instruction or other document
to be given hereunder by any party to another party shall be in writing and
shall be deemed given when delivered personally, upon receipt of a transmission
confirmation (with a confirming copy sent by overnight courier) if sent by
facsimile or like transmission, and on
A-46
<PAGE> 140
the next Business Day when sent by Federal Express, United Parcel Service,
Express Mail or other reputable overnight courier, as follows:
(a) If to either of the Acquiror Companies, to:
America Online, Inc.
22000 America Online Way
Dulles, Virginia 20166-9323
Attention: Stephen M. Case
President & CEO
Facsimile No.: (703) 265-1422
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108-3194
Attention: Louis A. Goodman, Esq.
Facsimile: No.: (617) 573-4822
(b) If to the Company, to:
Netscape Communications Corporation
501 E. Middlefield Road
Mountain View, California 94043
Attention: James L. Barksdale
President and CEO
Facsimile No.: (650) 528-4126
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Jim Strawbridge
and Marty Korman
Facsimile No.: (650) 493-6811
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. Nothing in this section shall be deemed to
constitute consent to the manner and address for service of process in
connection with any legal proceeding (including Litigation arising out of or in
connection with this Agreement), which service shall be effected as required by
applicable Law.
Section 10.4 Headings. The headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
Section 10.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
A-47
<PAGE> 141
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 10.6 Entire Agreement. This Agreement (not including Annexes A,
C, D, E and F, but including the Company's Disclosure Schedule and Acquiror's
Disclosure Schedule) and the Option Agreement constitute the entire agreement of
the parties, and supersede all prior agreements and undertakings (other than
that certain Confidentiality Agreement which will remain in full force and
effect until the Effective Time, at which time it will terminate), both written
and oral, among the parties, with respect to the subject matter hereof and
thereof.
Section 10.7 Assignment. This Agreement may not be assigned by operation
of Law or otherwise.
Section 10.8 Parties in Interest. This Agreement will be binding upon and
inure solely to the benefit of each party hereto, and, other than pursuant to
Section 7.10, hereof, nothing in this Agreement, express or implied, is intended
to or will confer upon any other Person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
Section 10.9 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder will impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, agreement or
covenant herein, nor will any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive to,
and not exclusive of, any rights or remedies otherwise available.
Section 10.10 Governing Law. This Agreement and the agreements,
instruments and documents contemplated hereby will be governed by and construed
in accordance with the Laws of the state of Delaware (exclusive of conflicts of
law principles). Courts within the state of Delaware will have jurisdiction over
any and all disputes between the parties hereto, whether in law or equity,
arising out of or relating to this agreement and the agreements, instruments and
documents contemplated hereby. The parties consent to and agree to submit to the
jurisdiction of such Courts. Each of the parties hereby waives, and agrees not
to assert in any such dispute, to the fullest extent permitted by applicable
Law, any claim that (i) such party is not personally subject to the jurisdiction
of such Courts, (ii) such party and such party's property is immune from any
legal process issued by such Courts or (iii) any Litigation commenced in such
Courts is brought in an inconvenient forum.
Section 10.11 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
A-48
<PAGE> 142
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed as of the date first written above by their respective officers
thereunto duly authorized.
AMERICA ONLINE, INC.
By: /s/ KENNETH J. NOVACK
-----------------------------------
Name: Kenneth J. Novack
Title: Vice Chairman
APOLLO ACQUISITION CORP.
By: /s/ SHEILA A. CLARK
-----------------------------------
Name: Sheila A. Clark
Title: Vice President and
Secretary
NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ JAMES L. BARKSDALE
-----------------------------------
Name: James L. Barksdale
Title: President and Chief
Executive Officer
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
A-49
<PAGE> 143
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (this "Agreement"), dated as of November 23,
1998, between Netscape Communications Corporation, a Delaware corporation (the
"Company"), and America Online, Inc., a Delaware corporation ("Grantee").
WHEREAS, the Company, Grantee and Apollo Acquisition Corp., a Delaware
corporation and a newly-formed wholly owned direct subsidiary of Grantee
("Newco"), have contemporaneously with the execution of this Agreement entered
into an Agreement and Plan of Merger dated as of November 23, 1998 (the "Merger
Agreement") which provides, among other things, that Newco shall be merged with
and into the Company pursuant to the terms and conditions thereof; and
WHEREAS, as an essential condition and inducement to Grantee's entering
into the Merger Agreement and in consideration therefor, the Company has agreed
to grant Grantee the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein and in the Merger Agreement, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereby agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Grantee an
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 19,887,317 shares (such shares being referred to herein as the "Option
Shares") of fully paid and nonassessable common stock, par value $0.0001 per
share, of the Company ("Company Common Stock"), equal to approximately nineteen
and nine-tenths percent (19.9%) of the number of shares of Company Common Stock
issued and outstanding (before giving effect to the exercise of the Option) as
of the date hereof, at a purchase price of $33.94 per share, as adjusted in
accordance with the provisions of Section 8 of this Agreement (such price, as
adjusted if applicable, the "Option Price").
2. (a) EXERCISE OF OPTION. Grantee may exercise the Option, in whole
or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) shall have occurred prior to the occurrence of an Option
Termination Event (as hereinafter defined), provided that Grantee shall have
sent the written notice of such exercise (as provided in Section 2(e) hereof) on
or prior to the last date of the one (1) year period following such Triggering
Event (the "Option Expiration Date"). The right to exercise the Option shall
terminate upon the first to occur of the Option Expiration Date or an Option
Termination Event.
(b) TRIGGERING EVENTS. The term "Triggering Event" shall mean the
occurrence of the date, if any, upon or after termination of the Merger
Agreement (Grantee at the time of such termination not being in breach of the
Merger Agreement, or if Grantee is then in breach, the effect of such breach not
being materially adverse to the Company), other than termination pursuant to
Section 9.1(g)(iv) thereof, on which Acquiror's right, pursuant to Section
9.2(b) of the Merger Agreement, to receive the Termination Fee first arises.
B-1
<PAGE> 144
(c) OPTION TERMINATION EVENTS. The term "Option Termination
Event" shall mean any of the following events:
(i) the Effective Time; or
(ii) the termination of the Merger Agreement other than
under circumstances which constitute (or upon satisfaction of the conditions to
payment of the Termination Fee set forth in clause (ii) of Section 9.2(b) of the
Merger Agreement would constitute) a Triggering Event under this Agreement; or
(iii) the occurrence of the date which is six (6) months
after termination of the Merger Agreement under circumstances which, if the
conditions to payment of the Termination Fee set forth in clause (ii) of Section
9.2(b) of the Merger Agreement were satisfied, would constitute a Triggering
Event under this Agreement, provided no such Triggering Event resulting from the
satisfaction of such conditions has occurred prior to the occurrence of such
date.
(d) NOTICE OF TRIGGERING EVENT. The Company shall notify
Grantee in writing as promptly as practicable following its becoming aware of
the occurrence of any Triggering Event, it being understood that the giving of
such notice by the Company shall not be a condition to the right of Grantee to
exercise the Option or for a Triggering Event to have occurred and that the
failure to give such notification shall not itself be deemed to be a breach of
this Agreement for purposes of Section 9.1(g)(iv) of the Merger Agreement.
(e) NOTICE OF EXERCISE; CLOSING. In the event that Grantee is
entitled to and desires to exercise the Option, it shall send to the Company a
written notice (such notice being herein referred to as an "Exercise Notice" and
the date of issuance of an Exercise Notice being herein referred to as the
"Notice Date") specifying (i) the total number of shares (or other Option
Securities (as hereinafter defined)) it will purchase pursuant to such exercise
and (ii) a place and date not earlier than three (3) Business Days nor later
than forty (40) Business Days from the Notice Date for the closing of such
purchase (the "Option Closing Date"); provided, that if the closing of the
purchase and sale pursuant to the Option (the "Option Closing") cannot be
consummated, by reason of any applicable Order, the period of time that
otherwise would run pursuant to this Section shall run instead from the date on
which such restriction on consummation has expired or been terminated; and
provided further, without limiting the foregoing, that if, in the reasonable
opinion of Grantee, prior notification to or approval of any regulatory agency
is required in connection with such purchase, the Company or Grantee, as the
case may be, shall promptly file the required notice or application for approval
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed.
(f) PURCHASE PRICE. At the Option Closing, Grantee shall pay
to the Company the aggregate Option Price in immediately available funds by wire
transfer to a bank account designated by the Company; provided that failure or
refusal of the Company to designate such a bank account shall not preclude
Grantee from exercising the Option.
(g) ISSUANCE OF COMPANY COMMON STOCK. At the Option Closing,
simultaneously with the delivery of immediately available funds as provided in
Section 2(f) hereof, the Company shall deliver to Grantee a certificate or
certificates representing the number of shares of Company Common Stock (or other
Option
B-2
<PAGE> 145
Securities) purchased by Grantee and, if the Option should be exercised in part
only, a new Option evidencing the rights of Grantee thereof to purchase the
balance of the shares (or other Option Securities) purchasable hereunder. If at
the time of issuance of any Option Shares pursuant to an exercise of all or part
of the Option hereunder, the Company shall have issued any rights or other
securities which are attached to or otherwise associated with the Company Common
Stock, then each Option Share issued pursuant to such exercise shall also
represent such rights or other securities with terms substantially the same as
and at least as favorable to Grantee as are provided under any shareholder
rights agreement or similar agreement of the Company then in effect.
(h) LEGEND. Certificates for Company Common Stock (or other
Option Securities) delivered at a closing hereunder may be endorsed with a
restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
resale restrictions arising under the Securities Act of 1933, as amended."
It is understood and agreed that the reference to the resale restrictions of the
Securities Act of 1933, as amended (the "Securities Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if Grantee shall have delivered to the Company a copy of a letter from the staff
of the SEC, or an opinion of counsel, reasonably satisfactory to the Company, to
the effect that such legend is not required for purposes of the Securities Act.
(i) RECORD GRANTEE; EXPENSES. Upon the delivery by Grantee to
the Company of the Exercise Notice and the tender of the applicable Option Price
in immediately available funds, Grantee shall be deemed to be the holder of
record of the shares of Company Common Stock (or other Option Securities)
issuable upon such exercise, notwithstanding that the stock transfer books of
the Company shall then be closed or that certificates representing such shares
of Company Common Stock (or other Option Securities) shall not then be actually
delivered to Grantee or the Company shall have failed or refused to designate
the bank account described in Section 2(f). The Company shall pay all expenses
that may be payable in connection with the preparation, issuance and delivery of
stock certificates under this Section 2 in the name of Grantee. The Grantee
shall pay all expenses that may be payable in connection with the issuance and
delivery of stock certificates or a substitute option agreement in the name of
any assignee, transferee or designee of Grantee.
(j) CONSENTS. The obligation of the Company to issue Option
Shares to Grantee hereunder is subject to the conditions that (i) any waiting
period under the HSR Act applicable to the issuance of the Option Shares
hereunder shall have expired or been terminated; (ii) all material consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any Federal, state or local administrative agency or commission or
other Federal, state or local governmental authority or instrumentality, if any,
required in connection with the issuance of the Option Shares hereunder shall
have been obtained or made, as the case may be; and (iii) no preliminary or
permanent injunction or other order by any court of competent jurisdiction
prohibiting or otherwise restraining such issuance shall be in effect. It is
understood and agreed that at any time during which the Option is exercisable,
the parties will use their respective best efforts to satisfy all such
conditions to closing, so that an Option Closing may take place as promptly as
practicable; provided that neither the Company nor Grantee nor any subsidiary or
affiliate thereof will be required to agree to any divestiture by itself or any
of its affiliates of shares of capital stock or of any business, assets or
property, or the imposition of any
B-3
<PAGE> 146
material limitation on the ability of any of them to conduct their businesses or
to own or exercise control of such assets, properties and stock.
3. EVALUATION OF INVESTMENTS. Grantee, by reason of its knowledge and
experience in financial and business matters, believes itself capable of
evaluating the merits and risks of an investment in the Option and the
securities to be purchased/sold pursuant to this Agreement (collectively the
"Option Securities.")
4. DOCUMENTS DELIVERED. Grantee acknowledges receipt of copies of the
following documents:
a. The Company's Annual Report on Form 10-K for the year
ended December 31, 1997;
b. The Company's Proxy Statement for the meeting of the
Company's stockholders held May 29, 1998;
c. The Company's Quarterly Reports on Form 10-Q filed since
December 31, 1997; and
d. Current Reports on Form 8-K filed since December 31, 1997.
5. INVESTMENT INTENT. Grantee represents and warrants that it is
entering into this Agreement and is acquiring and/or will acquire the Option
Securities for its own account and not with a view to resale or distribution of
all or any part of the Option Securities in violation of applicable Law.
6. RESERVATION OF SHARES. The Company agrees (i) that it shall at all
times maintain, free from preemptive rights, sufficient authorized but unissued
or treasury shares of Company Common Stock (and other Option Securities)
issuable pursuant to this Agreement so that the Option may be exercised without
additional authorization of Company Common Stock (or such other Option
Securities) after giving effect to all other options, warrants, convertible
securities and other rights to purchase Company Common Stock (or such other
Option Securities); (ii) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants to be observed or performed hereunder by the Company; and (iii)
promptly to take all action as may from time to time be required in order to
permit Grantee to exercise the Option and the Company to duly and effectively
issue shares of Company Common Stock (or other Option Securities) pursuant
hereto.
7. DIVISION OF OPTION; LOST OPTIONS. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of Grantee,
upon presentation and surrender of this Agreement at the principal office of the
Company, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Company Common Stock purchasable hereunder. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, the Company will execute and
deliver a new Agreement of like tenor and date.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. The number of shares of
Company Common Stock purchasable upon the exercise of the Option shall be
subject to adjustment from time to time as provided in this Section 8.
B-4
<PAGE> 147
(a) TRANSACTION ADJUSTMENT. In the event of any change in
Company Common Stock by reason of stock dividends, splits, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or other similar transactions, then that which is then purchasable upon exercise
hereof shall be appropriately adjusted so that Grantee shall receive upon
exercise of the Option and payment of the aggregate Option Price hereunder the
number and class of shares or other securities or property (including cash) that
Grantee would have owned or been entitled to receive after the happening of any
of the events described above if the Option had been exercised immediately prior
to such event, or the record date therefor, as applicable.
(b) OPTION PRICE ADJUSTMENT. Whenever the number of shares of
Company Common Stock subject to this Option are adjusted pursuant to Section
8(a) the Option Price shall be appropriately adjusted, if applicable, by
multiplying the Option Price by a fraction, the numerator of which shall be
equal to the aggregate number of shares of Company Common Stock purchasable
under the Option prior to the adjustment and the denominator of which shall be
equal to the aggregate number of shares of Company Common Stock purchasable
under the Option immediately after the adjustment.
9. REGISTRATION RIGHTS. The Company will, if requested by the Grantee
at any time and from time to time within two (2) years of a Triggering Event
(the "Registration Period"), in order to permit the sale or other disposition of
shares of Company Common Stock that have been acquired by or are issuable to the
Grantee upon exercise of the Option ("Registrable Securities") pursuant to a
bona fide firm commitment underwritten public offering in which the Grantee and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use reasonable efforts to
prevent any person or group from purchasing through such offering shares
representing more than 2% of the outstanding Company Common Stock on a fully
diluted basis (a "Permitted Offering"); provided, however, that any such
Registration Notice must relate to a number of shares equal to at least 2% of
the outstanding shares of Company Common Stock on a fully diluted basis and that
any rights to require registration hereunder shall terminate with respect to any
shares that may be sold pursuant to Rule 144(k) under the Securities Act. The
Company will use all reasonable efforts to qualify such shares or other Option
Securities under any applicable state securities Laws; provided, however, that
the Company shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
Without the Grantee's prior written consent, no other securities may be included
in any such registration. The Company will use reasonable efforts to cause each
such registration statement to become effective, to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective for such period not in excess of seventy-five
(75) days from the day such registration statement first becomes effective as
may be reasonably necessary to effect such sale or other disposition. The
obligations of the Company hereunder to file a registration statement and to
maintain its effectiveness may be suspended for one or more periods of time not
exceeding ninety (90) days in the aggregate if the Board of Directors of the
Company shall have determined in good faith that the filing of such registration
or the maintenance of its effectiveness would require disclosure of nonpublic
information that would materially and adversely affect the Company or the
Company is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement.
The expenses associated with the preparation and filing of any such registration
statement pursuant to this Section 9 and any sale covered thereby (including any
fees related to blue sky qualifications and filing
B-5
<PAGE> 148
fees in respect of the SEC or the National Association of Securities Dealers,
Inc.) ("Registration Expenses") will be for the account of the Company except
for underwriting discounts or commissions or brokers' fees in respect of shares
of Company Common Stock to be sold by the Grantee and the fees and disbursements
of the Grantee's counsel; provided, however, that the Company will not be
required to pay for any Registration Expenses with respect to such registration
if the registration request is subsequently withdrawn at the request of the
Grantee unless the Grantee agrees to forfeit its right to request one
registration; provided further, however, that, if at the time of such withdrawal
the Grantee has learned of a material adverse change in the results of
operations, condition, business or prospects of the Company from that known to
the Grantee at the time of its request and has withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Grantee will not be required to pay any of such
expenses and will retain all remaining rights to request registration. The
Grantee will provide all information reasonably requested by the Company for
inclusion in any registration statement to be filed hereunder. If during the
Registration Period the Company shall propose to register under the Securities
Act the offering, sale and delivery of Company Common Stock for cash for its own
account or for any other stockholder of the Company pursuant to a firm
underwriting, it will, in addition to the Company's other obligations under this
Section 9, allow the Grantee the right to participate in such registration
provided that the Grantee participates in the underwriting; provided, however,
that, if the managing underwriter of such offering advises the Company in
writing that in its opinion the number of shares of Company Common Stock
requested to be included in such registration exceeds the number which it would
be in the best interests of the Company to sell in such offering, the Company
will, after fully including therein all shares of Company Common Stock to be
sold by the Company, include the shares of Company Common Stock requested to be
included therein by Grantee pro rata (based on the number of shares of Company
Common Stock intended to be included therein) with the shares of Company Common
Stock intended to be included therein by Persons other than the Company and
Persons to whom the Company owes a contractual obligation not to make such a
cut-back. In connection with any offering, sale and delivery of Company Common
Stock pursuant to a registration statement effected pursuant to this Section 9,
the Company and the Grantee will provide each other and each underwriter of the
offering with customary representations, warranties and covenants, including
covenants of indemnification and contribution. For purposes of determining
whether two requests have been made under this Section 9, only requests relating
to a registration statement that has become effective under the Securities Act
will be counted. The registration rights granted under this Section 9 are
subject to and are limited by any registration rights previously granted by the
Company and the Grantee acknowledges the registration rights granted under this
Section 9 shall be construed subject to any such limitations.
10. COMPANY CALL.
If Grantee has acquired Option Shares pursuant to exercise of the Option
(the date of any Option Closing relating to any such exercise herein referred to
as an "Exercise Date"), then, at any time after the date seven (7) months
following such Exercise Date and prior to the date nineteen (19) months
following such Exercise Date (the "Purchase Period"), the Company may require
Grantee, upon delivery to Grantee of written notice, to sell to the Company any
Option Shares held by Grantee as of the day that is ten (10) business days after
the date of such notice, up to a number of shares equal to the number of Option
Shares acquired by Grantee pursuant to exercise of the Option in connection with
such Exercise Date. The per share purchase price for such sale (the
B-6
<PAGE> 149
"Company Call Price") shall be equal to the higher of (i) the Option Price less
any dividends paid on the Option Shares to be purchased by the Company pursuant
to this Section 10 plus an amount equal to a return at the rate of ten percent
(10%) of the Option Price per year from the Exercise Date and (b) an amount
equal to the average of the high and low trading prices per share of Company
Common Stock for the thirty (30) trading day period ending one trading day prior
to the delivery of the Company's notice exercising call rights pursuant to this
Section 10. The closing of any sale of Option Shares pursuant to this Section 10
shall take place at the principal offices of the Company at a time and on a date
designated by the Company in the aforementioned notice to Grantee, which date
shall be no more than twenty (20) and no less than two (2) business days from
the date of such notice. The Company Call Price shall be paid in immediately
available funds.
11. REPURCHASE OF OPTION AND OPTION SHARES.
(a) REPURCHASE OFFER. Within ten (10) Business Days following
the occurrence of a Repurchase Event (as defined herein), the Company shall (i)
deliver an offer (an "Option Repurchase Offer") to repurchase the Option from
Grantee at a price (the "Option Repurchase Price") equal to the amount by which
(A) the Competing Transaction Price (as defined below) exceeds (B) the Option
Price, multiplied by the maximum number of shares for which the Option may then
be exercised by the Grantee, and (ii) deliver an offer (an "Option Share
Repurchase Offer") to repurchase any Option Shares held by Grantee at a price
(the "Option Share Repurchase Price") equal to the amount by which (A) the
Competing Transaction Price exceeds (B) the Option Price, multiplied by the
number of Option Shares then held by Grantee. The term "Competing Transaction
Price" shall mean, as of any date for the determination thereof, the price per
share of Common Stock paid pursuant to the consummation of any Competing
Transaction or, in the event of a Competing Transaction by way of a sale of
assets of the Company, the last per share sale price of Company Common Stock on
the fourth trading day following the announcement of such sale. For purposes of
this Agreement, "Competing Transaction" shall mean any of the following, other
than the transactions with Grantee contemplated by the Merger Agreement: (a) a
merger, consolidation, recapitalization, liquidation or other business
combination to which the Company or its subsidiary is a party pursuant to which
the stockholders of the Company immediately preceding such transaction hold less
than 50% of the equity interests in the surviving or resulting entity of such
transaction, (b) the acquisition or purchase from the Company of 50% or more of
the total outstanding voting securities of the Company, or (c) the acquisition
or purchase of all or substantially all of the assets of the Company. If the
consideration paid or received in the Competing Transaction shall be other than
in cash, the per share value of such consideration (on a fully diluted basis)
shall be determined by a nationally recognized investment banking firm selected
by Grantee and reasonably acceptable to the Company, which determination shall
be conclusive for all purposes of this Agreement.
(b) REPURCHASE REQUEST. Upon the occurrence of a Repurchase
Event and whether or not the Company shall have made an Option Repurchase Offer
or Option Share Repurchase Offer under Section 11(a), at the request (the date
of such request being the "Option Repurchase Request Date") of Grantee delivered
prior to the Option Termination Date, the Company (i) shall repurchase the
Option from Grantee at the Option Repurchase Price and (ii) shall repurchase
such number of the Option Shares (to the extent clearly identifiable as such)
from the Grantee as the Grantee shall designate at the Option Share Repurchase
Price.
B-7
<PAGE> 150
(c) REPURCHASE PROCEDURES. Grantee may (i) accept the
Company's Option Repurchase Offer or Option Share Repurchase Offer under Section
11(a) or (ii) exercise its right to require the Company to repurchase the Option
or any Option Shares, as the case may be, pursuant to Section 11(b) by a written
notice or notices stating that Grantee elects to accept such offer or to require
the Company to repurchase the Option or the Option Shares in accordance with the
provisions of this Section 11. As promptly as practicable, and in any event
within five (5) Business Days, after the surrender to the Company of this
Agreement or Certificates for Option Shares, as applicable, following receipt of
a notice under this Section 11(c), the Company shall deliver or cause to be
delivered to Grantee the Option Repurchase Price or the Option Share Repurchase
Price, as the case may be.
(d) REGULATORY APPROVALS. The Company hereby undertakes to
use its best efforts to obtain all required regulatory and legal approvals and
to file any required notices as promptly as practicable in order to accomplish
any repurchase contemplated by this Section 11. Nonetheless, to the extent that
the Company is prohibited under applicable Law from repurchasing the Option or
any Option Shares in full, the Company shall immediately so notify Grantee and
thereafter deliver or cause to be delivered, from time to time, to Grantee, the
portion of the Option Repurchase Price and the Option Share Repurchase Price,
respectively, that it is required to deliver pursuant hereto and that it is no
longer prohibited from delivering, within five (5) Business Days after the date
on which the Company is no longer so prohibited; provided, however, that if the
Company at any time after delivery of a notice of repurchase pursuant to Section
11(b) hereof is prohibited under applicable Law, from delivering to Grantee the
Option Repurchase Price or the Option Share Repurchase Price, respectively, in
full, Grantee may revoke its notice of repurchase of the Option or the Option
Shares, respectively, either in whole or in part whereupon, in the case of a
revocation in part, the Company shall promptly (i) deliver to Grantee that
portion of the Option Repurchase Price or the Option Share Repurchase Price that
the Company is not prohibited from delivering after taking into account any such
revocation and (ii) deliver, as appropriate, to Grantee either (A) a new
Agreement evidencing the right of Grantee to purchase that number of shares of
Company Common Stock equal to the number of shares of Company Common Stock
purchasable immediately prior to the delivery of the notice of repurchase less
the number of shares of Company Common Stock covered by the portion of the
Option repurchased or (B) a certificate for the number of Option Shares covered
by the revocation. If an Option Termination Event shall have occurred prior to
the date of the notice by the Company described in the second sentence of this
Section 11(d), or shall be scheduled to occur at any time after an Option
Repurchase Request Date or valid acceptance of the Company's Option Repurchase
Offer but before the expiration of a period ending on the thirtieth day after
such notice date, Grantee shall nonetheless have the right to exercise the
Option until the expiration of such thirty (30) day period.
(e) DEFINITION. The term "Repurchase Event" shall mean a
Triggering Event followed by the consummation of any transaction included in the
definition of Competing Transaction.
(f) REPRESENTATIONS. In connection with any purchase/sale of
the Option or the Option Shares pursuant to this Section 11, the Grantee will be
required to represent and warrant to the Company that such Person is the owner
of the Option/Option Shares being purchased, free and clear of all adverse
claims and that such Person will deliver good title to such Option/Option Shares
to the Company, free and clear of all adverse claims, upon consummation of any
purchase/sale pursuant to this Section 11.
B-8
<PAGE> 151
12. EXTENSION OF TIME FOR REGULATORY APPROVALS. The periods related to
exercise of the Option and the other rights of Grantee hereunder shall be
extended (i) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and for the expiration of all statutory waiting periods
and (ii) to the extent necessary to avoid liability under Section 10(b) of the
Exchange Act by reason of such exercise.
13. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Grantee as follows:
(a) AUTHORITY. The Company has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of the Company and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by the Company.
(b) CORPORATE ACTION. The Company has taken all necessary
corporate action to authorize and reserve and to permit it to issue, and at all
times from the date hereof through the termination of this Agreement in
accordance with its terms will have reserved for issuance upon the exercise of
the Option, that number of shares of Company Common Stock equal to the maximum
number of shares of Company Common Stock at any time and from time to time
issuable hereunder, and all such shares of Company Common Stock, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all Liens created by the
Company and not subject to any preemptive rights.
(c) NO CONFLICT. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation pursuant to any provisions of the
certificate of incorporation or bylaws of the Company or any Subsidiary of the
Company, or of any loan or credit agreement, note, mortgage, indenture, lease,
plan or other agreement, contractual obligation, instrument, permit, concession,
franchise or license applicable to the Company or any Subsidiary of the Company
or their respective properties or assets, except for any such conflict or
violation that would not, either individually or in the aggregate, have or be a
Material Adverse Effect.
(d) ANTI-TAKEOVER STATUTES. The provisions of Section 203 of
the General Corporation Law of the State of Delaware will not, prior to the
termination of this Agreement, apply to this Agreement or the transactions
contemplated hereby and thereby. The Company has taken, and will in the future
take, all steps necessary to irrevocably exempt the transactions contemplated by
this Agreement from any other applicable state takeover law and from any
applicable charter provision containing change of control or anti-takeover
provisions.
14. ASSIGNMENT. The Company may not assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
Person, without the express written consent of Grantee. Grantee may not assign
any of its rights or obligations under this Agreement or the Option created
hereunder to any other Person.
15. APPLICATION FOR REGULATORY APPROVAL. Each of Grantee and the
Company will use its reasonable efforts to make all filings with, and to obtain
consents of, all third parties and Governmental Authorities necessary to the
consummation of the transactions
B-9
<PAGE> 152
contemplated by this Agreement, including without limitation making application
to list the shares of Company Common Stock issuable hereunder on the Nasdaq
National Market of The Nasdaq Stock Market, Inc. upon official notice of
issuance; provided that neither the Company nor Grantee nor any subsidiary or
affiliate thereof will be required to agree to any divestiture by itself or any
of its affiliates of shares of capital stock or of any business, assets or
property, or the imposition of any material limitation on the ability of any of
them to conduct their businesses or to own or exercise control of such assets,
properties and stock.
16. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
17. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
18. NOTICES. All notices, claims, demands and other communications
hereunder shall be deemed to have been duly given or made when delivered in
person, by registered or certified mail (postage prepaid, return receipt
requested), by overnight courier or by facsimile at the respective addresses of
the parties set forth in the Merger Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the Laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed to be an original, but all of which
shall constitute one and the same agreement.
21. DEFINITIONS. Capitalized terms used and not defined herein shall
have the meanings set forth in the Merger Agreement.
22. EXPENSES. Except as otherwise expressly provided herein or in the
Merger Agreement, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
23. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or
in the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to confer upon any party, other than the parties hereto, and their
respective
B-10
<PAGE> 153
successors and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein. Any provision of this Agreement may be waived only in writing at any
time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
24. FIRST REFUSAL. If the Grantee shall desire to sell, assign,
transfer or otherwise dispose of all or any of the shares of Company Common
Stock or other Option Securities acquired by it pursuant to the Option, it will
give the Company written notice of the proposed transaction (an "Offeror's
Notice"), identifying the proposed transferee, accompanied by a copy of a
binding offer to purchase such shares of Company Common Stock, Options or other
Option Securities signed by such transferee and setting forth the terms of the
proposed transaction. An Offeror's Notice will be deemed an offer by the Grantee
to the Company, which may be accepted, in whole but not in part, within ten (10)
Business Days of the receipt of such Offeror's Notice, on the same terms and
conditions and at the same price at which the Grantee is proposing to transfer
such shares of Company Common Stock, Options or other Option Securities to such
transferee. The purchase of any such shares of Company Common Stock, Options or
other Option Securities by the Company will be settled within ten (10) Business
Days of the date of the acceptance of the offer and the purchase price will be
paid to the Grantee in immediately available funds. In the event of the failure
or refusal of the Company to purchase all the shares of Company Common Stock,
Options or other Option Securities covered by an Offeror's Notice, the Grantee
may, within sixty (60) days from the date of the Offeror's Notice, sell all, but
not less than all, of such shares of Company Common Stock, Options or other
Option Securities to the proposed transferee at no less than the price specified
and on terms no more favorable than those set forth in the Offeror's Notice;
provided, however, that the provisions of this sentence will not limit the
rights the Grantee may otherwise have if the Company has accepted the offer
contained in the Offeror's Notice and wrongfully refuses to purchase the shares
of Company Common Stock, Options or other Option Securities subject thereto. The
requirements of this Section 24 will not apply to (a) any disposition as a
result of which the proposed transferee would own beneficially not more than 2%
of the outstanding voting power of the Company, (b) any disposition of Company
Common Stock or other Option Securities by a Person to whom the Grantee has
assigned its rights under the Option with the consent of the Company or (c) any
transfer to a wholly owned Subsidiary of the Grantee which agrees in writing to
be bound by the terms hereof.
25. FURTHER ASSURANCES. In the event of any exercise of the Option by
Grantee, the Company and Grantee shall execute and deliver all other documents
and instruments and take all other action that may be reasonably necessary to
the fullest extent permitted by Law in order to consummate the transactions
provided for by such exercise. Nothing contained in this Agreement shall be
deemed to authorize the Company or Grantee to breach any provision of the Merger
Agreement.
B-11
<PAGE> 154
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ JAMES L. BARKSDALE
-----------------------------------
Name: James L. Barksdale
Title: President and Chief
Executive Officer
AMERICA ONLINE, INC.
By: /s/ KENNETH J. NOVACK
-----------------------------------
Name: Kenneth J. Novack
Title: Vice Chairman
SIGNATURE PAGE TO STOCK OPTION AGREEMENT
B-12
<PAGE> 155
ANNEX C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of November 23, 1998 (this "Voting Agreement"),
by and among America Online, Inc., a Delaware corporation ("Acquiror"), and each
of the parties identified on Schedule A hereto (individually a "Stockholder" and
collectively the "Stockholders").
WHEREAS, Netscape Communications Corporation, a Delaware corporation
("Company"), Acquiror and Apollo Acquisition Corp., a Delaware corporation and a
newly-formed wholly owned direct subsidiary of Acquiror ("Newco"), have
contemporaneously with the execution of this Voting Agreement, entered into an
Agreement and Plan of Merger dated as of November 23, 1998 (the "Merger
Agreement") which provides, among other things, that Newco shall be merged (the
"Merger") with and into the Company pursuant to the terms and conditions
thereof;
WHEREAS, as an essential condition and inducement to Acquiror to enter into
the Merger Agreement and in consideration therefor, the undersigned Stockholders
and the Acquiror have agreed to enter into this Voting Agreement; and
WHEREAS, as of the date hereof, the Stockholders own of record and
beneficially the shares of common stock, par value $0.0001 per share, of the
Company (the "Company Common Stock") set forth opposite their respective names
on Schedule A hereto and desire to enter into this Agreement with respect to
such shares of Company Common Stock;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein and in the Merger Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
Voting of Shares
Section 1.1 Voting Agreement. Each Stockholder hereby agrees to (a)
appear, or cause the holder of record on any applicable record date (the "Record
Holder") to appear for the purpose of obtaining a quorum at any annual or
special meeting of stockholders of the Company and at any adjournment thereof at
which matters relating to the Merger, Merger Agreement or any transaction
contemplated thereby are considered and (b) vote, or cause the Record Holder to
vote, in person or by proxy all of the shares of the Company Common Stock owned
by Stockholder, or with respect to which such Stockholder has or shares voting
power or control, and all of the shares of Company Common Stock which shall, or
with respect to which voting power or control shall, hereafter be acquired by
such Stockholder (collectively, the "Shares") in favor of the Merger, the Merger
Agreement and the transactions contemplated by the Merger Agreement.
Section 1.2 No Ownership Interest. Nothing contained in this Voting
Agreement shall be deemed to vest in Acquiror any direct or indirect ownership
or incidence of ownership of or with respect to any Shares. All rights,
ownership and economic benefits of and relating to the Shares shall remain and
belong to the Stockholders, and Acquiror shall have no authority to manage,
direct, superintend, restrict, regulate, govern, or administer
C-1
<PAGE> 156
any of the policies or operations of the Company or exercise any power or
authority to direct the Stockholders in the voting of any of the Shares, except
as otherwise provided herein, or the performance of the Stockholders' duties or
responsibilities as stockholders of the Company.
Section 1.3 Evaluation of Investment. Each Stockholder, by reason of its
knowledge and experience in financial and business matters, believes itself
capable of evaluating the merits and risks of the investment in shares of common
stock, par value $.01 per share, of Acquiror ("Acquiror Common Stock"),
contemplated by the Merger Agreement.
Section 1.4 Documents Delivered. Each Stockholder acknowledges receipt of
copies of the following documents:
(a) the Merger Agreement and all Annexes thereto;
(b) the Option Agreement;
(c) Acquiror's Annual Report on Form 10-K for the fiscal year ended June
30, 1998;
(d) Acquiror's Proxy Statement dated September 28, 1998; and
(e) each report filed with the Securities and Exchange Commission by the
Acquiror on Forms 8-K and 10-Q since June 30, 1998.
Each Stockholder also acknowledges that he possesses the information relating to
the Company which he deems relevant to his investment in the Acquiror Common
Stock should the Merger be consummated.
Section 1.5 No Inconsistent Agreements. Each Stockholder hereby covenants
and agrees that, except as contemplated by this Voting Agreement and the Merger
Agreement, the Stockholder (a) has not entered, and shall not enter at any time
while this Voting Agreement remains in effect, into any voting agreement and (b)
has not granted, and shall not grant at any time while this Voting Agreement
remains in effect, a proxy or power of attorney, in either case which is
inconsistent with this Agreement.
ARTICLE II
Transfer
Section 2.1 Transfer of Title.
(a) Each Stockholder hereby covenants and agrees that such Stockholder
will not, prior to the termination of this Voting Agreement, either
directly or indirectly, offer or otherwise agree to sell, assign,
pledge, hypothecate, transfer, exchange, or dispose of any Shares or
options to purchase Company Common Stock ("Options") or any other
securities or rights convertible into or exchangeable for shares of
Company Common Stock, owned either directly or indirectly by such
Stockholder or with respect to which such Stockholder has the power
of disposition, whether now or hereafter acquired, without the prior
written consent of Acquiror (provided nothing contained herein will
be deemed to restrict the exercise of Options), unless the Person to
whom Shares or Options have been sold, assigned, pledged,
hypothecated, transferred, exchanged or disposed agrees to be bound
by this Voting Agreement as if a party hereto.
C-2
<PAGE> 157
(b) The Stockholder hereby agrees and consents to the entry of stop
transfer instructions by the Company against the transfer of any
Shares consistent with the terms of Section 2.1(a) hereof.
ARTICLE III
Representations and Warranties
of the Stockholders
Each Stockholder hereby severally and not jointly represents and warrants
to Acquiror as follows:
Section 3.1 Authority Relative to This Agreement. Such Stockholder is
competent to execute and deliver this Voting Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
This Voting Agreement has been duly and validly executed and delivered by such
Stockholder and, assuming the due authorization, execution and delivery by
Acquiror, constitutes a legal, valid and binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms.
Section 3.2 No Conflict. The execution and delivery of this Voting
Agreement by such Stockholder does not, and the performance of this Voting
Agreement by such Stockholder shall not, result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance, on any of the Shares or Options pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which such Stockholder is a party or by which
such Stockholder or the Shares or Options are bound or affected.
Section 3.3 Title to the Shares. The Shares and Options held by such
Stockholder are owned free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on such
Stockholder's voting rights, charges and other encumbrances of any nature
whatsoever, and such Stockholder has not appointed or granted any proxy, which
appointment or grant remains effective, with respect to the Shares.
ARTICLE IV
Miscellaneous
Section 4.1 No Solicitation. From the date hereof until the Effective
Time or, if earlier, the termination of the Merger Agreement, the Stockholder
shall not (whether directly or indirectly through advisors, agents or other
intermediaries) (a) solicit, initiate or encourage any Acquisition Proposal or
(b) engage in discussions or negotiations with, or disclose any non-public
information relating to the Company or its Subsidiaries to any Person that has
made an Acquisition Proposal or has advised the Stockholder, or to his
Knowledge, any other Stockholder or the Company, that such Person is interested
in making an Acquisition Proposal.
Section 4.2 Termination. This Agreement shall terminate upon the earliest
to occur of (a) the termination of the Merger Agreement in accordance with its
terms or (b) the Effective Time. Upon such termination, no party shall have any
further obligations or liabilities hereunder, provided that no such termination
shall relieve any party from liability for any breach of this Voting Agreement
prior to such termination.
C-3
<PAGE> 158
Section 4.3 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Voting Agreement were not performed in accordance with its specified terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Voting
Agreement and to specific performance of the terms and provisions hereof in
addition to any other remedy to which they are entitled at law or in equity.
Section 4.4 Successors and Affiliates. This Voting Agreement shall inure
to the benefit of and shall be binding upon the parties hereto and their
respective heirs, legal representatives and permitted assigns. If any
Stockholder shall at any time hereafter acquire ownership of, or voting power
with respect to, any additional Shares in any manner, whether by the exercise of
any Options or any securities or rights convertible into or exchangeable for
shares of Company Common Stock, by operation of law or otherwise, such Shares
shall be held subject to all of the terms and provisions of this Voting
Agreement. Without limiting the foregoing, each Stockholder specifically agrees
that the obligations of such Stockholder hereunder shall not be terminated by
operation of law, whether by death or incapacity of the Stockholder or
otherwise.
Section 4.5 Entire Agreement. This Voting Agreement together with the
Affiliates Agreements, in the form attached as Annex C to the Merger Agreement,
if and to the extent entered into by each of the Stockholders and Acquiror
constitutes the entire agreement among Acquiror and the Stockholders with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, among Acquiror and the Stockholders with
respect to the subject matter hereof.
Section 4.6 Captions and Counterparts. The captions in this Voting
Agreement are for convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Voting
Agreement. This Voting Agreement may be executed in several counterparts, each
of which shall constitute one and the same instrument.
Section 4.7 Amendment. This Voting Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
Section 4.8 Waivers. Except as provided in this Voting Agreement, no
action taken pursuant to this Voting Agreement, including without limitation any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Voting Agreement. The
waiver by any party hereto of a breach of any provision hereunder shall not
operate or be construed as a wavier of any prior or subsequent breach of the
same or any other provision hereunder.
Section 4.9 Severability. If any term or other provision of this Voting
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Voting Agreement
shall nevertheless remain in full force and effect. Upon such determination that
any term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Voting Agreement
so as to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in a mutually acceptable manner in
order that the terms of this Voting Agreement remain as originally contemplated
to the fullest extent possible.
C-4
<PAGE> 159
Section 4.10 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made and shall be effective upon receipt, if delivered personally, upon
receipt of a transmission confirmation if sent by facsimile (with a confirming
copy sent by overnight courier) and on the next business day if sent by Federal
Express, United Parcel Service, Express Mail or other reputable overnight
courier to the parties at the following addresses (or at such other address for
a party as shall be specified by notice):
If to a Stockholder:
At the address set forth opposite such Stockholder's name on
Schedule A hereto
With a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Jim Strawbridge
and Marty Korman
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
If to Acquiror or Newco:
America Online, Inc.
22000 America Online Way
Dulles, Virginia 20166-9323
Attention: Stephen M. Case
President & CEO
Facsimile No.: (703) 265-1422
with a copy to:
Louis A. Goodman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
31st Floor
Boston, Massachusetts 02108
Telephone: (617) 573-4800
Fax: (617) 573-4822
Section 4.11 Governing Law. This Voting Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware regardless
of the laws that might otherwise govern under applicable principles of conflicts
of law.
Section 4.12 Definitions. Capitalized terms used and not defined herein
shall have the meaning set forth in the Merger Agreement.
Section 4.13 Obligations of Stockholders. The obligations of the
Stockholders hereunder shall be "several" and not "joint" or "joint and
several." Without limiting the generality of the foregoing, under no
circumstances will any Stockholder have any liability or obligation with respect
to any misrepresentation or breach of covenant of any other Stockholder.
C-5
<PAGE> 160
Section 4.14 Officers and Directors. No person who is or becomes (during
the term hereof) a director or officer of the Company makes any agreement or
understanding herein in his or her capacity as such director or officer, and
nothing herein will limit or affect, or give rise to any liability to
Stockholder by virtue of, any actions taken by any Stockholder in his or her
capacity as an officer or director of the Company in exercising its rights under
the Merger Agreement.
Section 4.15 Interpretation. The parties have participated jointly in the
negotiation of this Voting Agreement. In the event that an ambiguity or question
of intent or interpretation arises, this Voting Agreement shall be construed as
if drafted jointly by the parties, and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of the
provisions of this Voting Agreement.
C-6
<PAGE> 161
IN WITNESS WHEREOF, each of the parties hereto have caused this Voting
Agreement to be duly executed as of the date first written above.
AMERICA ONLINE, INC.
By: /s/ KENNETH J. NOVACK
-----------------------------------
Name: Kenneth J. Novack
Title: Vice Chairman
/s/ JAMES L. BARKSDALE
--------------------------------------
Name: James L. Barksdale
/s/ MARC L. ANDREESSEN
--------------------------------------
Name: Marc L. Andreessen
/s/ JAMES H. CLARK
--------------------------------------
Name: James H. Clark
MARC L. ANDREESSEN LIVING
TRUST DTD 02/01/96
By: /s/ MARC L. ANDREESSEN
-----------------------------------
Marc L. Andreessen, Trustee
ANDREESSEN 1996 CHARITABLE
REMAINDER TRUST DTD 2/01/96
By:
-----------------------------------
Michael G. Mohr, Co-Trustee
/s/ MARC L. ANDREESSEN
--------------------------------------
Marc L. Andreessen, Co-Trustee
ANDREESSEN 1996 CHARITABLE
REMAINDER TRUST DTD 2/21/96
By:
-----------------------------------
Michael G. Mohr, Co-Trustee
By: /s/ MARC L. ANDREESSEN
-----------------------------------
Marc L. Andreessen, Co-Trustee
C-7
<PAGE> 162
MONACO PARTNERS LP
By: /s/ JAMES H. CLARK
-----------------------------------
Name: James H. Clark
Title: President
CLARK VENTURES INC.
By: /s/ JAMES H. CLARK
-----------------------------------
Name: James H. Clark
Title: President
MARC ANDREESSEN 1996 LIVING
TRUST UTA DTD 2/1/96
By: /s/ MARC L. ANDREESSEN
-----------------------------------
Marc L. Andreessen, Trustee
SIGNATURE PAGE TO VOTING AGREEMENT
C-8
<PAGE> 163
ANNEX D
OPINION OF MORGAN STANLEY & CO. INCORPORATED
November 22, 1998
Board of Directors
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, CA 94043
Members of the Board:
We understand that Netscape Communications Corporation ("Netscape"), America
Online, Inc. ("America Online") and Apollo Acquisition Corp., a wholly-owned
subsidiary of America Online ("Merger Sub"), propose to enter into an Agreement
and Plan of Merger, substantially in the form of the draft dated November 20,
1998 (the "Merger Agreement") which provides, among other things, for the merger
(the "Merger") of Merger Sub with and into Netscape. Pursuant to the Merger,
Netscape will become a wholly owned subsidiary of America Online, and each
outstanding share of common stock, par value $0.0001 per share of Netscape (the
"Netscape Common Stock"), other than shares held in treasury or held by America
Online or any affiliate of America Online, will be converted into the right to
receive 0.450 shares (the "Exchange Ratio") of common stock, par value $0.01 per
share of America Online (the "America Online Common Stock"). The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of shares
of Netscape Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other information of Netscape and America Online,
respectively;
(ii) reviewed the reported prices and trading activity for the
Netscape Common Stock and the America Online Common Stock;
(iii) compared the financial performance of Netscape and America
Online and the prices and trading activity of the Netscape
Common Stock and the America Online Common Stock with that of
certain other publicly-traded companies and their securities;
(iv) reviewed certain internal financial statements and other
financial and operating data concerning Netscape and America
Online prepared by the managements of Netscape and America
Online, respectively;
(v) discussed the past and current operations and financial
condition and the prospects of Netscape and America Online,
including information relating to certain strategic, financial
and operational benefits anticipated from the Merger, with
senior executives of Netscape and America Online,
respectively;
(vi) reviewed the pro forma impact of the Merger on America Online;
D-1
<PAGE> 164
(vii) reviewed the financial terms, to the extent publicly
available, of certain comparable acquisition transactions;
(viii) discussed the strategic rationale for the Merger with the
senior managements of Netscape and America Online,
respectively;
(ix) participated in discussions and negotiations among
representatives of Netscape and America Online and their
financial and legal advisors;
(x) reviewed the draft Merger Agreement and certain related
agreements; and
(xi) performed such other analyses and considered such other
factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the internal financial statements and other financial
and operating data and discussions relating to strategic, financial and
operational benefits anticipated from the Merger provided by Netscape and
America Online, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the prospects
of Netscape and America Online, respectively. We have relied upon the assessment
by the managements of Netscape and America Online of their ability to retain key
employees of Netscape and America Online. We have also relied upon, without
independent verification, the assessment by the managements of Netscape and
America Online of the strategic and other benefits expected to result from the
Merger. We have also relied upon, without independent verification, the
assessment by the managements of Netscape and America Online of Netscape's and
America Online's technologies and products, the timing and risks associated with
the integration of Netscape with America Online and the validity of, and risks
associated with, Netscape's and America Online's existing and future products
and technologies. We have not made any independent valuation or appraisal of the
assets or liabilities or technology of Netscape or America Online, nor have we
been furnished with any such appraisals. In addition, we have assumed that the
Merger will be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. Generally Accepted Accounting Principles and the Merger
will be treated as a tax-free reorganization and/or exchange pursuant to the
Internal Revenue Code of 1986 and will be consummated in accordance with the
terms set forth in the Merger Agreement. Our opinion is necessarily based on
financial, economic, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition, business
combination or other extraordinary transaction involving Netscape, although we
have in the course of our engagement provided advice to Netscape in connection
with certain potential business combinations with parties other than America
Online.
We have acted as financial advisor to the Board of Directors of Netscape in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory services for Netscape and America Online and have received
fees for the rendering of these services. In the ordinary course of our business
we may actively trade the securities of Netscape and America Online for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
D-2
<PAGE> 165
It is understood that this letter is for the information of the Board of
Directors of Netscape and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by Netscape with the Securities and Exchange Commission in
respect of the Merger. In addition, this opinion does not in any manner address
the prices at which the America Online Common Stock will actually trade at any
time and we express no recommendation or opinion as to how the holders of
Netscape Common Stock should vote at the shareholders' meeting held in
connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of Netscape Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
-----------------------------------------
Charles R. Cory
Managing Director
D-3
<PAGE> 166
1425-PS-99
<PAGE> 167
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
("Delaware Corporation Law") provides, in general, that a corporation shall have
the power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), because the person is or was a director
or officer of the corporation. Such indemnity may be against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action, suit or
proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation and if, with respect to any criminal action or proceeding, the
person did not have reasonable cause to believe the person's conduct was
unlawful.
Section 145(b) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor because the person is or was a director or officer of the corporation,
against any expenses (including attorneys' fees) actually and reasonably
incurred by the person in connection with the defense or settlement of such
action or suit if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation.
Section 145(g) of the Delaware Corporation Law provides, in general, that a
corporation shall have the power to purchase and maintain insurance on behalf of
any person who is or was a director or officer of the corporation against any
liability asserted against the person in any such capacity, or arising out of
the person's status as such, whether or not the corporation would have the power
to indemnify the person against such liability under the provisions of the law.
Article Ninth of the Registrant's Restated Certificate of Incorporation
(incorporated by reference herein) provides for indemnification of directors,
officers and other persons as follows:
To the fullest extent permitted by the Delaware General Corporation
Law as the same now exists or may hereafter be amended, the Corporation
shall indemnify, and advance expenses to, its directors and officers and
any person who is or was serving at the request of the Corporation as a
director or officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise. The Corporation, by action of its
board of directors, may provide indemnification or advance expenses to
employees and agents of the Corporation or other persons only on such terms
and conditions and to the extent determined by the board of directors in
its sole and absolute discretion.
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article Ninth shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any By-law, agreement, vote of stockholders
or disinterested directors or
II-1
<PAGE> 168
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
The Corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability
under this Article Ninth.
The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article Ninth shall, unless otherwise provided
when authorized or ratified, continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors
and administrators of such officer or director. The indemnification and
advancement of expenses that may have been provided to an employee or agent
of the Corporation by action of the board of directors, pursuant to the
last sentence of Paragraph 1 of this Article Ninth, shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be an employee or agent of the Corporation and shall inure to the
benefit of the heirs, executors and administrators of such a person, after
the time such person has ceased to be an employee or agent of the
Corporation, only on such terms and conditions and to the extent determined
by the board of directors in its sole discretion.
Article Five of the Registrant's Restated By-Laws (incorporated by
reference herein) provides that:
Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or
investigative, because he is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "Indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
before such amendment), against all expense, liability and loss (including
attorney's fees, judgments, fines, ERISA excise taxes or penalties and
amounts paid in settlement) reasonably incurred or suffered by such
Indemnitee in connection therewith; provided, however, that, except as
provided in the section "Right of Indemnitees to Bring Suit" of this
Article with respect to proceedings to enforce rights to indemnification,
the Corporation shall indemnify any such Indemnitee in connection with a
proceeding (or part thereof) initiated by such Indemnitee only if such
proceeding (or part thereof) was authorized by the board of directors of
the Corporation.
Right to Advancement of Expenses. The right to indemnification conferred
in the section "Right to Indemnification" of this Article shall include the
right to be paid by
II-2
<PAGE> 169
the Corporation the expenses (including attorney's fees) incurred in
defending any such proceeding in advance of its final disposition;
provided, however, that, if the Delaware General Corporation Law requires,
an advancement of expenses incurred by an Indemnitee in his capacity as a
director or officer (and not in any other capacity in which service was or
is rendered by such Indemnitee, including, without limitation, service to
an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such Indemnitee, to repay
all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that such
Indemnitee is not entitled to be indemnified for such expenses under this
section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in this section and the section "Right to
Indemnification" of this Article shall be contract rights and such rights
shall continue as to an Indemnitee who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators. Any repeal or
modification of any of the provisions of this Article shall not adversely
affect any right or protection of an Indemnitee existing at the time of
such repeal or modification.
Right of Indemnitees to Bring Suit. If a claim under the section "Right to
Indemnification" or "Right to Advancement of Expenses" of this Article is
not paid in full by the Corporation within sixty (60) days after a written
claim has been received by the Corporation, except in the case of a claim
for an advancement of expenses, in which case the applicable period shall
be twenty (20) days, the Indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by
the Corporation to recover an advancement of expenses pursuant to the terms
of an undertaking, the Indemnitee shall also be entitled to be paid the
expenses of prosecuting or defending such suit. In (1) any suit brought by
the Indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the Indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (2) in any suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the Indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the Indemnitee is proper in the circumstances because the Indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its board of directors, independent legal counsel, or its stockholders)
that the Indemnitee has not met such applicable standard of conduct, shall
create a presumption that the Indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the
Indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or brought by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving
that the Indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
Non-Exclusivity of Rights. The rights to indemnification and to the
advancement of expenses conferred in this Article shall not be exclusive of
any other right which any
II-3
<PAGE> 170
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation as amended from time to time, these By-Laws,
any agreement, any vote of stockholders or disinterested directors or
otherwise.
Insurance. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the board of
directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent
of the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
The directors and officers of the Registrant are covered by a policy of
liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of November 23, 1998,
by and among America Online, Inc., Apollo Acquisition Corp.
and Netscape Communications Corporation (included as Annex A
to the proxy statement-prospectus forming a part of this
Registration Statement and incorporated herein by
reference).
3.1 Restated Certificate of Incorporation of America Online,
Inc. (filed as Exhibit 3.1 to America Online, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 30, 1997
and incorporated herein by reference).
3.2 Amendment of Section A of Article 4 of the Restated
Certificate of Incorporation of America Online, Inc. (filed
as Exhibit 3.1 to America Online, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 and
incorporated herein by reference).
3.3 Certificate of Designation, Preferences and Rights of Series
A-1 Junior Participating Preferred Stock of America Online,
Inc. (filed as Exhibit 3.3 to America Online, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 30, 1998
and incorporated herein by reference).
3.4 Certificate of Elimination of Series A Junior Participation
Preferred Stock of America Online, Inc. (filed as Exhibit
3.4 to America Online, Inc.'s Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and incorporated herein
by reference).
3.5 Restated By-Laws of America Online, Inc. (filed as Exhibit
3.5 to America Online, Inc.'s Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and incorporated herein
by reference).
4.1 Article 4, Article 6 and Article 8 of the Restated
Certificate of Incorporation (see Exhibits 3.1 and 3.2 which
are incorporated herein by reference).
</TABLE>
II-4
<PAGE> 171
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
4.2 Indenture, dated as of November 17, 1997 between America
Online, Inc., as issuer, and State Street Bank and Trust
Company, as trustee (filed as Exhibit 4.1 to America Online,
Inc.'s Current Report on Form 8-K, dated as of December 2,
1997 and incorporated herein by reference).
4.3 Registration Rights Agreement, dated as of November 17, 1997
between America Online, Inc. and Goldman, Sachs & Co., BT
Alex. Brown Incorporated, Lehman Brothers Inc. and Cowen &
Company (filed as Exhibit 4.2 to America Online, Inc.'s
Current Report on Form 8-K, dated as of December 2, 1997 and
incorporated herein by reference).
4.4 Purchase Agreement dated November 12, 1997 between America
Online, Inc. and Goldman, Sachs & Co., BT Alex. Brown
Incorporated, Lehman Brothers Inc. and Cowen & Company
(filed as Exhibit 4.3 to America Online, Inc.'s Current
Report on Form 8-K, dated as of December 2, 1997 and
incorporated herein by reference).
4.5 Rights Agreement dated as of May 12, 1998, between America
Online, Inc. and BankBoston, N.A., as Rights Agent (filed as
Exhibit 4.2 to America Online, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding validity of securities being registered.
8.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation regarding certain tax aspects of the Merger.
8.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding certain tax aspects of the Merger.
+10.1 Strategic Development and Marketing Agreement dated as of
November 23, 1998 by and between America Online, Inc. and
Sun Microsystems, Inc. (filed as Exhibit 10.1 to America
Online, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998 and incorporated herein by
reference).
+10.2 Sun Microsystems, Inc. Service Provider Agreement dated as
of November 23, 1998 by and between America Online, Inc. and
Sun Microsystems, Inc. (filed as Exhibit 10.2 to America
Online, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998 and incorporated herein by
reference).
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included as part of its opinions filed as Exhibit 5.1 and
Exhibit 8.2, respectively and incorporated herein by
reference).
23.2 Consent of Ernst & Young LLP (Palo Alto, California).
23.3 Consent of Ernst & Young LLP (Vienna, Virginia).
23.4 Consent of Wilson Sonsini Goodrich & Rosati Professional
Corporation (included as part of its opinion filed as
Exhibit 8.1 and incorporated herein by reference).
23.5 Consent of Morgan Stanley & Co., Incorporated (included as
part of its opinion filed as Exhibit 99.1 and incorporated
herein by reference).
24.1 Power of Attorney (included on the signature page of this
Form S-4 and incorporated herein by reference).
</TABLE>
II-5
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
99.1 Opinion of Morgan Stanley & Co., Incorporated (included as
Annex D to the proxy statement-prospectus forming a part of
this Registration Statement and incorporated herein by
reference).
99.2 Form of Proxy of Netscape Communications Corporation.
</TABLE>
- -------------------------
+ Confidential treatment requested as to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and
Exchange Commission.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(2) that before any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(3) that every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4 under the Securities Act of 1933, within one business day of
receipt of any such request, and to send the incorporated documents by
first class mail or other equally prompt means, including information
contained in documents filed after the effective date of the registration
statement through the date of responding to such request; and
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the
II-6
<PAGE> 173
provisions described in Item 20 above, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. If a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in a successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE> 174
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Loudoun, Commonwealth of
Virginia, on February 17, 1999.
AMERICA ONLINE, INC.
By: /s/ J. MICHAEL KELLY
----------------------------------------
Name: J. Michael Kelly
Title: Senior Vice President, Chief
Financial Officer, Treasurer and
Assistant Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Stephen M. Case, Kenneth Novack, J.
Michael Kelly, Sheila Clark and James MacGuidwin and each of them, his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement and to file the same with all exhibits thereto,
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. This power of
attorney may be executed in counterparts.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- --------------------- -----------------
<S> <C> <C>
/s/ STEPHEN M. CASE Chairman of the Board February 17, 1999
- --------------------------------------------------- and Chief Executive
Stephen M. Case Officer (principal
executive officer)
/s/ ROBERT W. PITTMAN President, Chief February 17, 1999
- --------------------------------------------------- Operating Officer and
Robert W. Pittman Director
/s/ J. MICHAEL KELLY Senior Vice February 17, 1999
- --------------------------------------------------- President, Chief
J. Michael Kelly Financial Officer,
Treasurer and
Assistant Secretary
(principal financial
officer)
</TABLE>
II-8
<PAGE> 175
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- --------------------- -----------------
<S> <C> <C>
/s/ JAMES MACGUIDWIN Vice President, February 17, 1999
- --------------------------------------------------- Controller, Chief
James MacGuidwin Accounting and Budget
Officer (principal
accounting officer)
/s/ DANIEL F. AKERSON Director February 17, 1999
- ---------------------------------------------------
Daniel F. Akerson
/s/ FRANK J. CAUFIELD Director February 17, 1999
- ---------------------------------------------------
Frank J. Caufield
/s/ ALEXANDER M. HAIG, JR. Director February 17, 1999
- ---------------------------------------------------
Alexander M. Haig, Jr.
/s/ WILLIAM N. MELTON Director February 17, 1999
- ---------------------------------------------------
William N. Melton
/s/ THOMAS MIDDELHOFF Director February 17, 1999
- ---------------------------------------------------
Thomas Middelhoff
/s/ COLIN L. POWELL Director February 17, 1999
- ---------------------------------------------------
Colin L. Powell
/s/ FRANKLIN D. RAINES Director February 17, 1999
- ---------------------------------------------------
Franklin D. Raines
</TABLE>
II-9
<PAGE> 176
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of November 23, 1998,
by and among America Online, Inc., Apollo Acquisition Corp.
and Netscape Communications Corporation (included as Annex A
to the proxy statement-prospectus forming a part of this
Registration Statement and incorporated herein by
reference).
3.1 Restated Certificate of Incorporation of America Online,
Inc. (filed as Exhibit 3.1 to America Online, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 30, 1997
and incorporated herein by reference).
3.2 Amendment of Section A of Article 4 of the Restated
Certificate of Incorporation of America Online, Inc. (filed
as Exhibit 3.1 to America Online, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 and
incorporated herein by reference).
3.3 Certificate of Designation, Preferences and Rights of Series
A-1 Junior Participating Preferred Stock of America Online,
Inc. (filed as Exhibit 3.3 to America Online, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 30, 1998
and incorporated herein by reference).
3.4 Certificate of Elimination of Series A Junior Participation
Preferred Stock of America Online, Inc. (filed as Exhibit
3.4 to America Online, Inc.'s Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and incorporated herein
by reference).
3.5 Restated By-Laws of America Online, Inc. (filed as Exhibit
3.5 to America Online, Inc.'s Annual Report on Form 10-K for
the fiscal year ended June 30, 1998 and incorporated herein
by reference).
4.1 Article 4, Article 6 and Article 8 of the Restated
Certificate of Incorporation (see Exhibits 3.1 and 3.2 which
are incorporated herein by reference).
4.2 Indenture, dated as of November 17, 1997 between America
Online, Inc., as issuer, and State Street Bank and Trust
Company, as trustee (filed as Exhibit 4.1 to America Online,
Inc.'s Current Report on Form 8-K, dated as of December 2,
1997 and incorporated herein by reference).
4.3 Registration Rights Agreement, dated as of November 17, 1997
between America Online, Inc. and Goldman, Sachs & Co., BT
Alex. Brown Incorporated, Lehman Brothers Inc. and Cowen &
Company (filed as Exhibit 4.2 to America Online, Inc.'s
Current Report on Form 8-K, dated as of December 2, 1997 and
incorporated herein by reference).
4.4 Purchase Agreement dated November 12, 1997 between America
Online, Inc. and Goldman, Sachs & Co., BT Alex. Brown
Incorporated, Lehman Brothers Inc. and Cowen & Company
(filed as Exhibit 4.3 to America Online, Inc.'s Current
Report on Form 8-K, dated as of December 2, 1997 and
incorporated herein by reference).
4.5 Rights Agreement dated as of May 12, 1998, between America
Online, Inc. and BankBoston, N.A., as Rights Agent (filed as
Exhibit 4.2 to America Online, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998 and
incorporated herein by reference).
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding validity of securities being registered.
</TABLE>
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
- -------
<C> <S>
8.1 Opinion of Wilson Sonsini Goodrich & Rosati Professional
Corporation regarding certain tax aspects of the Merger.
8.2 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
regarding certain tax aspects of the Merger.
+10.1 Strategic Development and Marketing Agreement dated as of
November 23, 1998 by and between America Online, Inc. and
Sun Microsystems, Inc. (filed as Exhibit 10.1 to America
Online, Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1998 and incorporated
herein by reference).
+10.2 Sun Microsystems, Inc. Service Provider Agreement dated as
of November 23, 1998 by and between America Online, Inc. and
Sun Microsystems, Inc. (filed as Exhibit 10.2 to America
Online, Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended December 31, 1998 and incorporated
herein by reference).
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included as part of its opinions filed as Exhibit 5.1 and
Exhibit 8.2, respectively and incorporated herein by
reference).
23.2 Consent of Ernst & Young LLP (Palo Alto, California).
23.3 Consent of Ernst & Young LLP (Vienna, Virginia).
23.4 Consent of Wilson Sonsini Goodrich & Rosati Professional
Corporation (included as part of its opinion filed as
Exhibit 8.1 and incorporated herein by reference).
23.5 Consent of Morgan Stanley & Co., Incorporated (included as
part of its opinion filed as Exhibit 99.1 and incorporated
herein by reference).
24.1 Power of Attorney (included on the signature page of this
Form S-4 and incorporated herein by reference).
99.1 Opinion of Morgan Stanley & Co., Incorporated (included as
Annex B to the proxy statement-prospectus forming a part of
this Registration Statement and incorporated herein by
reference).
99.2 Form of Proxy of Netscape Communications Corporation.
</TABLE>
- -------------------------
+ Confidential treatment requested as to certain portions of this exhibit.
Omitted portions have been filed separately with the Securities and Exchange
Commission.
<PAGE> 1
Exhibit 5.1
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
February 17, 1999
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166
Re: America Online, Inc. -
Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to America Online, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 (the "Registration Statement") being filed by the Company with the
Securities and Exchange Commission (the "Commission") on the date hereof for the
purpose of registering with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"), up to 48,677,826 shares (the "Shares") of
common stock of the Company, par value $0.01 per share (the "Common Stock"),
issuable pursuant to the Agreement and Plan of Merger, by and among the Company,
Apollo Acquisition Corp. ("Apollo") and Netscape Communications Corporation
("Netscape"), dated November 23, 1998 (the "Merger Agreement").
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement, (ii) the Merger Agreement, (iii) the Restated
Certificate of Incorporation and Restated Bylaws of the Company, as amended,
each as currently in effect, and (iv) certain resolutions adopted by the Board
of Directors of the Company relating to the issuance of the Shares and certain
related matters. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company and
such agreements, certificates of public officials, certificates of officers or
other representatives of the Company or others, and such other documents,
certificates and records as we have deemed necessary or appropriate as a basis
for the opinions set forth herein.
<PAGE> 2
America Online, Inc.
February 17, 1999
Page 2
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such documents. In making our examination
of documents executed or to be executed by parties other than the Company, we
have assumed that such parties had or will have the power, corporate or other,
to enter into and perform all obligations thereunder and have also assumed the
due authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding effect
thereof. As to any facts material to the opinions expressed herein which we have
not independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Members of our firm are admitted to the Bar of the State of Delaware
and do not purport to be an expert on, or express any opinion concerning, any
law other than the substantive law of the State of Delaware.
Based upon and subject to the foregoing, we are of the opinion that
the Shares have been duly authorized for issuance and, upon consummation of the
merger of Apollo with Netscape pursuant to the Merger Agreement, and the
issuance of the Shares and delivery of proper stock certificates therefor in the
manner contemplated in the Merger Agreement, the Shares will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this opinion under the caption
"Legal Opinion" in the Netscape Proxy Materials included therein. In giving this
consent, we do not thereby admit that we are included in the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
This opinion is furnished by us, as special counsel to the Company,
in accordance with the requirements of Item 601(b)(5) of Regulation S-K under
the Securities Act and, except as provided in the immediately preceding
paragraph, is not to be used, circulated or quoted for any other purpose or
otherwise referred to or relied upon by any other person without the express
written permission of the Company.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE> 1
Exhibit 8.1
[WSGR Letterhead]
February 16, 1999
Netscape Communications Corporation
501 East Middlefield Road
Mountain View, California 94043
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Form S-4
Registration Statement filed with the Securities and Exchange Commission (which
contains a prospectus and proxy statement) (the "Registration Statement") filed
pursuant to the Agreement and Plan of Merger (the "Reorganization Agreement"),
dated as of November 23, 1998, by and among America Online, Inc., a Delaware
corporation ("AOL"), Apollo Acquisition Corp., a Delaware corporation and a
newly-formed, wholly-owned direct subsidiary of AOL ("Merger Sub"), and Netscape
Communications Corporation, a Delaware corporation ("Netscape").
Except as otherwise provided, capitalized terms used but not defined
herein shall have the meanings set forth in the Reorganization Agreement. All
section references, unless otherwise indicated, are to the Internal Revenue Code
of 1986, as amended (the "Code").
We have acted as counsel to Netscape in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined, and are
relying upon (without any independent investigation or review thereof) the truth
and accuracy, at all relevant times, of the statements, covenants,
representations and warranties contained in the following documents (including
all exhibits and schedules attached thereto):
1. The Reorganization Agreement;
2. The Registration Statement;
3. Those certain tax representation letters delivered to us by
AOL, Merger Sub and Netscape containing certain
representations of AOL, Merger Sub and Netscape (the "Tax
Representation Letters"); and
4. Such other instruments and documents related to the formation,
organization and operation of AOL, Merger Sub and Netscape and
related to the consummation of the Merger and the other
transactions contemplated by the Reorganization Agreement as
we have deemed necessary or appropriate.
<PAGE> 2
Netscape Communications Corporation
February 16, 1999
Page 2
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof) that:
a. Original documents submitted to us (including signatures
thereto) are authentic, documents submitted to us as copies
conform to the original documents, and that all such documents
have been (or will be by the Effective Time) duly and validly
executed and delivered where due execution and delivery are a
prerequisite to the effectiveness thereof;
b. All representations, warranties and statements made or agreed
to by AOL, Merger Sub and Netscape, their managements,
employees, officers, directors and stockholders in connection
with the Merger, including, but not limited to, those set
forth in the Reorganization Agreement (including the exhibits
thereto) and the Tax Representation Letters are true and
accurate at all relevant times;
c. All covenants contained in the Reorganization Agreement
(including exhibits thereto) and the Tax Representation
Letters are performed without waiver or breach of any material
provision thereof;
d. The Merger will be reported by AOL and Netscape on their
respective federal income tax returns in a manner consistent
with the opinion set forth below; and
e. Any representation or statement made "to the best of
knowledge" or similarly qualified is correct without such
qualification.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that, if the Merger is consummated in accordance with the
Reorganization Agreement (and without any waiver, breach or amendment of any of
the provisions thereof) and the statements set forth in the Tax Representation
Letters are true and correct as of the Effective Time, then the discussion
entitled "Material United States Federal Income Tax Consequences of the Merger"
contained in the Registration Statement, insofar as it relates to statements of
law and legal conclusions, is correct in all material respects.
This opinion is being delivered solely in connection with the
Registration Statement. It is intended for the benefit of Netscape and may not
be relied upon or utilized for any other purpose or by any other person and may
not be made available to any other person without our prior written consent. We
hereby consent to the reference to our firm under the caption "Material
<PAGE> 3
Netscape Communications Corporation
February 16, 1999
Page 3
United States Federal Income Tax Consequences of the Merger" in the Registration
Statement and to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE> 1
Exhibit 8.2
[Letterhead of Skadden, Arps, Slate, Meagher & Flom LLP]
February 17, 1999
America Online, Inc.
22000 AOL Way
Dulles, Virginia 20166-9323
Dear Ladies and Gentlemen:
We have acted as special counsel to America Online, Inc., a Delaware
corporation ("AOL"), in connection with the contemplated merger (the "Merger")
of Apollo Acquisition Corp., a Delaware corporation and a newly-formed, direct,
wholly-owned subsidiary of AOL ("Merger Sub") with and into Netscape
Communications Corporation, a Delaware corporation ("Netscape"), pursuant to an
Agreement and Plan of Merger dated as of November 23, 1998 (the "Merger
Agreement") by and among AOL, Merger Sub and Netscape. The delivery of this
opinion, dated as of the Effective Time, is a condition to the Merger pursuant
to section 8.2(d) of the Merger Agreement. All capitalized terms used herein,
unless otherwise specified, have the meanings assigned to them in the Merger
Agreement.
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts, information, covenants and
representations contained in originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement and such other documents
as we have deemed necessary or appropriate as a basis for the opinion set forth
below. In addition, we have relied upon certain statements, representations and
agreements made by AOL, Netscape and Merger Sub, including representations set
forth in certificates from officers of AOL and Netscape in the form of Annexes E
and F to the Merger Agreement (the "Representation Letters"). Our opinion is
conditioned on, among other things, the initial and continuing accuracy of the
facts, information, covenants and representations set forth in the documents
referred to above and the statements, representations and agreements made by
AOL, Netscape, and others, including those set forth in the Representation
Letters.
<PAGE> 2
America Online, Inc.
February 17, 1999
Page 2
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents. We also have assumed that the
transactions related to the Merger or contemplated by the Merger Agreement will
be consummated in accordance with such agreements and that all covenants
contained in the Merger Agreement (including exhibits thereto) and the
Representation Letters will be performed without waiver or breach of any
material provision thereof. Moreover, we have assumed that any representation or
statement made "to the best of knowledge" or similarly qualified is correct
without such qualification. Furthermore, we have assumed that the Merger
qualifies as a statutory merger under the laws of the State of Delaware.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations promulgated thereunder, pertinent judicial authorities,
interpretive rulings of the Internal Revenue Service and such other authorities
as we have considered relevant. It should be noted that statutes, regulations,
judicial decisions and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A change in the
authorities upon which our opinion is based could affect our conclusions.
Based upon and subject to the foregoing, and subject to the
qualifications set forth herein, it is the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP that the discussion in the Proxy Statement-Prospectus under
the heading "Material United States Federal Income Tax Consequences of the
Merger" is true and correct in all material respects.
<PAGE> 3
America Online, Inc.
February 17, 1999
Page 3
Except as set forth above, we express no opinion to any party as to
the tax consequences, whether federal, state, local or foreign, of the Merger or
of any transactions related to the Merger or contemplated by the Merger
Agreement. We are furnishing this opinion to you solely in connection with
section 8.2(d) of the Merger Agreement and it is not to be used, circulated,
quoted or otherwise referred to for any purpose without our express written
permission. We consent to the use of our name under the heading "Material
United States Federal Income Tax Consequences of the Merger" in the
Proxy Statement-Prospectus. We hereby consent to the filing of this opinion with
the Securities and Exchange Commission (the "Commission") as Exhibit 8.2 to the
Proxy Statement-Prospectus. In giving this consent, we do not thereby
admit that we are within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Commission promulgated thereunder. This opinion is expressed as of the date
hereof, and we disclaim any undertaking to advise you of any subsequent changes
of the facts stated or assumed herein or any subsequent changes in applicable
law.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE> 1
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the Proxy
Statement-Prospectus of Netscape Communications Corporation and America Online,
Inc. that is made a part of the Registration Statement (Form S-4) of America
Online, Inc. for the registration of 48,677,826 shares of its common stock and
to the incorporation by reference therein of our report dated November 19, 1998
(except for Note 1 "Restatement of Financial Statements", as to which the date
is February 3, 1999) with respect to the consolidated financial statements and
schedule of Netscape Communications Corporation, as amended, included in the
Transiton Report (Form 10-K/A) of Netscape Communications Corporation for the
ten months ended October 31, 1998, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 17, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our report dated September 25, 1998 (except for the last
paragraph of Note 17, as to which the date is February 15, 1999), incorporated
by reference in the Proxy Statement of Netscape Communications Corporation that
is made a part of the Registration Statement (Form S-4 No. 33- ) and
Prospectus of America Online, Inc. for the registration of 48,677,826 shares of
its common stock.
/s/ Ernst & Young LLP
Vienna, Virginia
February 17, 1999
<PAGE> 1
Exhibit 99.2
DETACH HERE
PROXY
NETSCAPE COMMUNICATIONS CORPORATION
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 17, 1999
The undersigned, having received the Notice of Special Meeting and the
Proxy Statement-Prospectus, hereby appoints James L. Barksdale and Roberta R.
Katz, and each of them, attorneys and proxies for the undersigned (with full
power of substitution) to attend the above Special Meeting and all adjournments
thereof and to act for and to vote all shares of Netscape Communications
Corporation standing in the name of the undersigned at the Special Meeting to be
held on Wednesday, March 17, 1999 at 8:00 a.m. local time at the Westin Santa
Clara located at 5101 Great America Parkway, Santa Clara, California 95054.
When properly executed, this proxy will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
grant authority to vote "FOR" Proposal 1 on the reverse side, and in the
discretion of Mr. Barksdale or Ms. Katz on any other business matters or
proposals as may properly come before the Special Meeting.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF
DIRECTORS' RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE. YOU NEED NOT MARK ANY
BOXES.
-------------------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-------------------------
<PAGE> 2
DETACH HERE
[X] PLEASE MARK VOTES AS IN
THIS EXAMPLE
1. Proposal to approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of November 23, 1998, by and among America Online, Inc.
("AOL"), Apollo Acquisition Corp., a wholly-owned subsidiary of AOL ("Apollo"),
and Netscape Communications Corporation ("Netscape"), pursuant to which Apollo
will merge with and into Netscape (the "Merger") and Netscape will survive the
Merger as a wholly-owned subsidiary of AOL. In the Merger, holders of
outstanding shares of common stock, par value $.0001 per share, of Netscape
("Netscape Common Stock") will receive 0.9 of a share of common stock, par
value $.01 per share, of AOL for each share of Netscape Common Stock held by
them. Approval and adoption of the Merger Agreement will also constitute
approval of the Merger and the other transactions contemplated by the Merger
Agreement.
[ ] [ ] [ ]
FOR AGAINST ABSTAIN
MARK HERE FOR ADDRESS [ ] CHANGE AND NOTE AT LEFT
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
SIGNATURE: DATE
SIGNATURE: DATE
